In the monetary crisis of the late seventies when Hayek wrote the essay I linked to earlier about privatizing the money supply he thought that the then current generation of senior bankers would be too dyed in he wool of the prevailing system to become so innovative as to suggest and work up his radical suggestion. He pinned any hope he had on the younger generation of up and coming bankers, unencumbered by the past, who might have such imagination. Sadly, those young bankers then are the ones who have been in charge for the past decade or so, and they do appear to have had the slightest flash of inspiration or willingness to suggest radical alternatives.
And the current crisis shows why. It would impose far more discipline on commercial bankers if they had to be responsible for the success or failure of their own commercial currencies. If they did not have the fall-back of a state, able to tax its citizens for generations into the future, to save their businesses because what they are playing with in vast amounts are currencies that have to be supported by those states, they would have to be much more careful about taking on the enormous effectively unquantifiable risks they have done. Better still if they also had unlimited liability.
And from the state’s point of view it suits governments to have a currency that they themselves can manipulate when it suits them, no matter that such an ability distorts business and personal investment decisions of their citizens. As I have argued before, this crisis started with politicians trying to use monetary policy to achieve political aims – and not even terribly tangible political aims at that – we’re not talking about public spending on useful public goods, but the more vague “feel good factor” that would keep people voting for the party they thought was capable of “managing” the economy well.
In both cases the losers are ordinary people and businesses. The only real winners are the few that have clawed their way up the greasy pole of corporate and political power.
There is now, possibly, only a month left to influence the measures that will be put into place to rescue the financial system and try to prevent similar excessive booms and busts happening again (small ones, as the Austrians know, are useful and natural, like storms bringing down dead tree branches, as they flush out economic inefficiencies). The next month, before the G20 starts to really put pen to paper in London on 2nd April, is the time for the new adventurous young bankers and economists to stake out their ground, or be lost again for another generation till the next time this market typhoon comes round again.
Sadly, as I watched Stephen Hester’s interview last week on Channel Four News with Jon Snow, I can hold out little hope. Admittedly, he’s in a bank that is in a lot of trouble and probably not the best placed to demand innovations, but if he’s representative of a more general pedestrian conservative thinking in bank board-rooms there’s nobody really suggesting anything new. Perhaps the two relatively less damaged banks, HSBC and Santander, could lead the way. They don’t need legislation – at least not in the UK so far as I can see. They could start issuing corporate scrip, have the client network to distribute it globally and to bring together trading communities of their business customers to accept their scrip.
In the Great Depression communities, companies and mutual associations did just that and, as in Worgl in Austria and in countless American towns and cities, showed that we can continue to trade, to create wealth and maintain consumption without the national currencies that were in meltdown. We can do so again, and the world would be a better place for it.