I’v recent come across the site http://www.listia.com/ which advertises itself as an auction site for ‘free’ stuff. But when you look at how it actually works thats not really true at all. Listia doesnt offer free goods, but goods bought and sold in a special currency.
Basically the way the site works is actually similar to e-bay, with indvidual members of the site putting goods up for auction and bidding on goods other members are selling. However rather than prices being expressed in Federal Reserve dollars, they are expressed in ‘points.’ Listia issues a certain ammount of ‘points’ to each member who signs up, and people spend their points bidding on goods, you can earn more points by selling your own goods on listia.
I think this provides a potental model of how a privately issued electronic fiat currency might work in a free market. Private firms could ‘issue’ their own electronic currencies which could be used online or with debit cards as a medium of exchange. Indviduals would use the money because they trust the firms not to debase the money to too great an extent. And the firms would be hesitant to because of fear that people would refrain from using their currency and go to competetors or precious metal monies.
I’m not sure if it would be ideal, but it might work in a free market. What does everybody else think?
I’ve always had a gripe with the concept that people would revert to gold in the abscence of government. Somalia is an anarchic territory and yet the people there still use the old fiat currency.
Personally I am of the opinion that people would not be so quick to give up fiat currency in a free market. The system you mentioned is one of many examples: think consumer reward points at supermarkets and box tops. There’s a lot of unofficial currency! Why can’t a bank issue it’s own currency backed only by it’s own reputation? I really believe people would buy into that. Currencies would compete according to their inflation rate. I might offer you this service of fiat currency but I am defivintively going to inflate the darn thing .5% every year to cover my operation costs.
I think the main problem is not fiat currency per se but rather legal tender laws. Why can’t we choose our own paper money?
I’m not sure why we need anything to ‘back’ the money supply. As long as people are willing to use it as a medium of exchange it will work as one. If competition is allowed companies that debase their own currency too quickly will go out of business as people switch to other forms of money(maybe even precious metals, I’m not saying they wont work).
I’m actually of the opinion that a modern, complex economy will have multiple competing forms of money, I was just examining the possibilities.
SirThinkALot, I don’t know exactly why we need to back money either. I’m not an economist but it’s my understanding that gold and heavy metals act as a buffer on the value of a currency to hedge inflation. I’ve read some people say that the international system before 1973 worked because we were on a gold standard and when Nixon got off of it completely than it started becoming hectic and things started to collapse a bit. So maybe having currency backed by something is important and not only in the minds of these gold bugs.