Do you think we should return to the free banking period without state intervention, or a simple gold standard will suffice? What are the advantages and the disadvantages of both methods?
we believe the gold standard would be better than our current system but we dont necessarily think that a gold standard is the best way. We believe in competing currencies, let the market decide what currency is best for us…
Free banking and gold are not mutually exclusive so the question is based on a false dichotomy.
- Free banking and gold are not mutually exclusive so the question is based on a false dichotomy.
I get what you’re saying but I think Eugene might have been referring to making gold a state-enforced legal tender.
In that case then free banking or competing currencies is clearly the better alternative. There is no need to enshrine gold as legal tender. Contrating parties should be free to determine the nature and conditions of remuneration between themselves.
The more heated debate is free banking versus full reserve banking, and whether the issuing of fractional notes should be considered fraud.
Okay, so all libertarians agree that there should be competing currencies? So there should be no government currency?
Again, this alternative is false because it is based on a false choice. A true gold standard has nothing to do with legal tender or government enforcement. Besides, the market has already selected gold as money. It was a long and tedious process that spanned centuries.
So now we’re going to reinvent the wheel here and start all over? It’s silly. And anyway, “currencies” would have to be based off something that is already accepted as money (Mises Regression theorem). And if that’s the case, what is this competing currencies all about? At the end, it would have to be nothing more then money substitutes provided by different suppliers of such certificates. This idea that you can have competing floating (fiat like) currencies issued by different banks or something is pure nonsense.
“Okay, so all libertarians agree that there should be competing currencies? So there should be no government currency?”
Well im sure that not all libertarians believe in competing currencies but all austrian economists that are influenced by mises or rothbard would say that competing currencies is the best option. and yes, there should be no government currency…
And isn’t that very inconvenient to have each bank issuing its own currency? Now, how does gold enter into this equation?
DD5, all you’re doing is changing the alternatives to get your answer. However, I agree with you that many responses are missing the point of the question. The main alternative to free banking is not a gold standard, but a gold standard with 100% reserve. Free banking implies leaving banks alone regarding reserves. Rothbard favored 100% reserve, although his means of enforcement, I think, was a bit impractical (he thought there would be a group of vigilantes zealously watching the banks and bankrupting any that tried). I think the problem was pretty clear - his economics led him to the 100% reserve answer, but his politics robbed him of effective enforcement mechanisms.
Myself, I’m a monetary equilibrium fan.
Why is it very inconvenient?
I’m not sure what you mean your second question here. On the market, you’re not going to rely on currencies not backed by some commodity, most likely, and in any such competition, you’ll tend to prefer gold-backed over other commodities (so we tend to think, anyway.)
5 currencies in a country is definitely less convenient than one currency.
If 5 currencies is too inconvenient, then the market will only support a smaller number of them, and only the most demanded will survive. The important thing is that there is still the POTENTIAL for additional currencies (i.e. no legal barriers against them). That way even a monopolist currency issuer will have to maintain the desirability of his currency or else risk new competition arising to meet this demand.
It’s not inconvenient.
If the five currencies in the country are cigarettes, chocolate bars, seashells, obsidian, and ox teeth, then you would stock up as much chocolate bars as you need when most people are willing to take a bar of chocolate from you for eating in return for a service, and accordingly everyone else will stock up on chocolate bars because you stock up on chocolate bars to feed that chocolate lover, and so on. And when the chocolate eater decides, “That’s it! I am done with chocolates for now!”, then you start stocking up more on cigarettes, because there is always a teenage girl who will shift your furniture for you if you give her a pack of smokes. And when people need either seashells, or obsidian, or ox teeth, then you keep all of them, and you can give any of them in return for anything, and how much you give depends on how much others demand ox teeth, seashells, or obsidian. What matters is how many people are willing to have a use for a particular commodity in a given point of time. In India, people stock up on gold before festival season, because everybody buys jewelry gifts for friends and family from rural to urban areas, and they can sell that gold anytime to a jeweler. And if anybody wants to buy gold much in advance of the season, they sell their stock of silver to the jeweler and use the money to buy some gold jewels from him. And so on.
There is absolutely no reason to think that one currency for the sake of standardisation necessarilly makes things better. Indeed, people’s needs are too diverse and too changing from time to time to allow for that. Bartering establishes which items provide a double coincidence of wants, and those items with double coincidence of wants help establish which other items we want to buy or sell with it. Sometimes, there may be one, two, or even three items which establish such a coincidence, and they can be traded for each other based on which is in more demand.
how do you know that 5 currencies are as efficient, or less efficient, than one currency? you dont… the only thing that knows for certain is the market… if the market thinks that 5 types of money is inefficient, then it will cut back, just like any other produced good. to say that 5 types of moneys would be inefficient is just like saying that there is such thing as market failure… and if you are an Austrian Economist, you HAVE to believe that there is no such thing as market failure.
and gold is not the only commodity that has high value… other things can back up currency just as well as gold can…