Tuesday, August 14, 2012

Eliminate the Currency Monopoly

As I previously noted, Ron Paul recently held a hearing on competition in currencies.  He has written a commentary regarding this hearing and his views on the subject:

I recently held a hearing in my congressional subcommittee on the subject of competing currencies.  This is an issue of enormous importance, but unfortunately few Americans understand how the Federal Reserve and Treasury Department impose a strict monopoly on money in America.

Like all government created monopolies, the federal monopoly on money results in substandard product in the form of our ever-depreciating dollars.

Ron Paul focuses on the monopoly, noting that all government created monopolies (a redundancy) result in substandard product (in addition to oversized revenues and unearned profits for the beneficiaries of this protected position).

Allowing individuals and business to use alternate currencies, especially currencies backed by gold and silver, would expose the whole rotten system because the marketplace would prefer such alternate currencies unless and until the Fed suddenly imposed radical discipline on its dollar inflation.

There is no reason why Americans should not be able to transact, save, and invest using the currency of their choosing.  They should be free to use gold, silver, or other currencies with no legal restrictions or punitive taxation standing in the way. 

In addition to competition in currency, this would unleash competition in banking and credit.  True demand deposit banking could once again emerge.  Various forms of credit could be developed, or reappear, such as bills of exchange (real bills).  Local currencies supporting local industry and shops would emerge.

Note two points made by Dr. Paul: first, that gold and silver would likely emerge once again as backing for currency.  He does not suggest it must be mandated, but only expects it to occur in a market left free.  This is the correct approach, and given history, the likely outcome.  Second, he considers the good money will drive out bad – if the exchange rate is left free in a market place.  This is precisely the definition of Gresham’s Law.  More accurately, different currencies will find their appropriate price relationships with each other.

Why do we accept that centralized, monopoly control over our money is compatible with a supposedly free-market economy?

This is the critical question.  As Dr. North points out, in every college level economic textbook is a chapter on monopolies and cartels, and separately another chapter on central banks.  The two chapters are not close to each other in sequence, nor does the chapter on cartels make any reference to the obvious monopoly of central banking.

The textbooks are thus designed to minimize the chance that the students will put two plus two together.  In any case, those lacking in critical thinking ability will not be able to do so, and those with some ability in critical thinking will realize that any dream of a career path in economics will be derailed if they ever hint at questioning the monopoly of central banking.

Altogether a refreshing commentary by Dr. Paul.  Hopefully, once he retires from Washington, he will have more time to devote to such communication.

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