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During the Panic of 1907, when the New York Stock Exchange cratered 50% over a three-week period, the major power brokers in the financial sector convened to establish a game plan to prevent bank collapses. They did something alright. Six years later, the U.S. government created the Federal Reserve System, and thus the Federal Reserve Note, a currency that would eviscerate 90% of its value.
As former Representative Ron Paul (R-TX) routinely espoused in presidential debates or on the House floor, it is time to end the Fed. Opponents often decry the recommendation, pontificating on what exactly would be its replacement. Though the three-time presidential candidate didn’t want anything in its place, legendary economist Thomas Sowell may have had a better answer: “When someone removes a cancer, what do you replace it with?”
The U.S. central bank is the enemy of the American people. From Eugene Robert Black to Ben Bernanke, the Fed has set off an inflationary bomb, wiping out the purchasing power for the citizens. Not only has it debased the greenback, the Fed has bailed out banks, enabled Washington’s reckless spending, and exacerbated the booms and busts.
Should the Eccles Building be torn down, wouldn’t this mean the end to the U.S. dollar? Yeah, so what?
A free market currency would be far superior to fiat money managed by Keynesians and statists alike. Those who have become accustomed to central banking and planning may be flabbergasted by such a concept, but here is a question: do you see how very little you can buy with a George Washington or Abraham Lincoln banknote?
Friedman vs. Hayek – A New Currency Debate
Throughout the 1970s, two of the most prolific economists of the 20th century debated this issue.
Friedrich Hayek, a member of the Austrian school, contended that issuers of a currency would be required by market forces to provide consumers with a constant, valuable, and long-term viable form of money. In other words, if the currency were volatile and risky and unable to offer a stable exchange rate, then it would fail.
In 1975, Hayek addressed the Geneva Gold and Monetary Conference in Switzerland:
“But why should we not let people choose freely what money they want to use? By ‘people’ I mean the individuals who ought to have the right to decide whether they want to buy or sell for francs, pounds, dollars, D-marks, or ounces of gold. I have no objection to governments issuing money, but I believe their claim to a monopoly, or their power to limit the kinds of money in which contracts may be concluded within their territory, or to determine the rates at which monies can be exchanged, to be wholly harmful.”
Milton Friedman, a member of the Chicago school, averred that competing currencies would be too precarious and unpredictable. Despite his opposition to the Fed in his later years, he defended the notion that a central bank is the chief executive in charge of a stable currency with a strong purchasing power, citing the Swiss Franc.
In 1984, Friedman opined in a paper titled “Currency Competition: A Skeptical View”:
“Both German marks and Swiss francs have for many years maintained their purchasing power better, and with less fluctuations, than U.S. dollars. Many residents of the U.S. hold German marks and Swiss francs, or claims denominated in those currencies, as part of their portfolio of assets. But, with perhaps rare exceptions, only those who engage in trade with Germany or Switzerland, or travel to those countries, use the currencies as a medium of circulation.”
Interestingly enough, Friedman gradually reconsidered his position on the denationalization of money by the late 1980s and early 1990s.
But proponents of government-managed banknotes still believed that Friedman was originally correct, alluding to Somalia in 1991. At the time, the Somali government and central bank tumbled, allowing citizens to launch four new currencies – Somaliland Shilling, the Na’ Shilling, the Balweyn I, and the Balweyn II. A year later, the shilling became the official currency of the land, while the others collapsed from inflation, instability, and the fact that only certain segments of the population used them.
Somalia has been a wasteland for years, so the argument that the African country should be viewed as the paragon of monetary policy is asinine.
What Would Free Market Money Look Like?
In recent years, a diverse array of currencies has blossomed, though they remain convertible to the U.S. dollar or any other fiat instrument in international markets. Everything from local currencies to cryptocurrencies to gold, many people across the Land of the Free are experimenting.
Today, the ubiquitous trend is virtual currency. A brief perusal of the initial coin offering (ICO) market will list a plethora of new cryptocurrencies coming to market. Reportedly, $850 million has so far been raised this year in ICOs.
Libertarians are quick to petition Washington to follow the constitution and adopt gold and silver as legal tender. A handful of states recognize these precious metals as money, but the rest of the nation has its attention on other pertinent matters, like transgender bathrooms, public pension shortfalls, and leftists holding demonstrations on any day ending in “y.”
But is gold the answer? You are far more likely to use the yellow metal as money than tobacco or paper.
However, it is competing currencies that will make a free market currency system function properly. The marketplace will inevitably decide what type of money will prosper or crumble.
So, for instance, if the market has currencies supported by lead, rubber, oil, diamonds, or debt, then consumers will determine which of these will flourish. Ultimately, currencies that are backed by something that is tangible and maintains intrinsic value will be the victors.
Deflation is Important to the People
Do you detest deflation? Unlikely. Do politicians abhor inflation? Inflation is how they make their living; Faustian economics has seeped into the soul of our esteemed officials. Falstaff uttered their plight perfectly in Henry IV: “I can get no remedy against this consumption of the purse. Borrowing only lingers and lingers it out, but the disease is incurable.”
The greatest economic expansions in the U.S. transpired in the 19th century, particularly in the periods of 1820 to 1850 (the Free Banking Era) and 1865 to 1900 (the National Banking Age). These times were complemented by significant deflation – prices were slashed in half, wages rose, and money had value.
To someone like Paul Krugman, this would be a terrifying sight to witness. But why is deflation so vilified? Perhaps because it is a market force; inflation, which steals from the impecunious, the blue-collar worker, the retiree living on her savings, is spurred by central banks. As Friedman once said, “Inflation is taxation without legislation.”
Here is a question: in 100, 200, or 300 years, would you rather dig up a case of $100,000 or a chest filled with 10,000 ounces of gold?
Deflation is crucial for a free market currency to thrive. Otherwise, people won’t use it. As long as there is competition and choice – and zero government interference other than addressing fraud or theft – consumers can always depend on the buck in their wallet to buy a buck’s worth – and perhaps even more. With the rise of greenback alternatives, it is apparent that there is an appetite for something more than just pieces of green paper covered with dead presidents emanating from the printing press inside Jerome Powell’s office.
Let’s Make Money Great Again!
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