|
|
|
|
Toward Free-Market Money
By Robert Gelfond
Introduction
Despite the overwhelming evidence that markets perform best when left alone by the government, it is still virtually taken for granted that one consumer product should be completely controlled by every government in the world. One product, so ubiquitous, that it's used by almost everyone in the world on a daily basis: money.
Money is vitally important; the lifeblood of our financial system, but it is a product nonetheless. Consumers use this product not just as a medium ofexchange but also as a liquid store ofvalue and as a basis for accounting. Money producers, i.e., central banks, profit through seignorage, the ability to earn interest on their assets while issuing notes, e.g., dollar bills that pay no interest. The Fed creates money from thin air when it buys an interest-bearing Treasury security and credits the seller with dollars. These dollars are not backed by anything in the sense that the Fed is not obligated to buy or convert dollars into anything.
Now there would be nothing wrong with this ifthe Fed were just some private institution trying to earn a living in an unregulated market. But ofcourse, the Fed is a government-protected monopoly. Even prior to the Fed's creation in 1913 there was always some level ofgovernment regulation ofmoney. Before the Civil War, private banks used to issue dollar notes that were convertible into gold. Scholars debate whether the banking crises and panics during this period were a product ofgovernment regulation ofthese currencies and banks. What is clear is that there was never a completely free market in currency issuance. Well, the time has come.
Full Text (PDF, 10 pages, 54 KB)