Recently, Larry Reed, the President of the Foundation for Economic Education answered some questions for students from the Students for Liberty organization regarding the Great Depression. I will be posting a handful of those questions and answers as they are relatively short and a good introduction to the ideas of liberty.
“If there were competition in money, what monetary policies would your money of choice follow?”
“If there were competition in money, what monetary policies would your money of choice follow?”
Answer: Competition in money. This is indeed the ideal we should seek. Money is an invention of the marketplace of exchange in the first place, not the invention of kings, queens, parliaments and presidents. The essential task of monetary reform today should be to take money out of the realm of politics and place it squarely in the realm of market forces, supply and demand, consumer choice and sound, unsubsidized banking. This is not so radical as it may sound. I would recommend precisely the same solution if we were talking about any other commodity or service. For example, if governments had produced our shoes for us, I would argue that the market should be in charge, that politicians have neither the knowledge nor the proper incentives to produce shoes that people want at prices they can afford. Some might say that money is different and too important. I believe money is too important to trust to politicians! Their track record really ought to speak for itself.
So to those who still cling to the voodoo of government monopoly money, I urge you to get over it. Look at the record. Question your misplaced, mystical faith. Trust the market. Wake up. And if your teachers in high school told you government must be in charge of money and never acquainted you with any other side of the debate, please consider filing an educational malpractice lawsuit.
This question also raises others about how do we get to where we ought to be with regard to money, what does the transition look like, what do we do with the money that government has already created and foisted on us, and how and when do we rid ourselves of those harmful government institutions like the Federal Reserve System and endless other bureaucracies and regulations that play God with our money? All good questions which I and others have addressed in many other venues, but beyond the scope of the question I am answering here or the time I have to answer. As an Austrian economist, let me say that I shy away from all attempts at central planning so I am not going to say that this or that should be our money.
I am very friendly to gold because it has passed the market test of reliability as a superb media of exchange through the centuries, but I also believe that no commodity should be granted any special privileges (legal tender laws, for example) that would bias its choice as money in the marketplace. I think there are strong and good reasons to assume that in a free and competitive market, gold would once again emerge as a dominant media of exchange but I would favor that only if the market were truly free and competitive so as to not prevent the emergence of other forms of money that market participants may choose.
