Hi all,
One of the ideas that gets thrown around by Austrians a lot is that of private currencies. Monetary policy is typically not my cup of tea, but I was wanting to take a look into this. Could anyone point me toward some good articles discussing the economics behind this proposal (academic sources preferred).
Just started reading The Theory of Free Banking: Money Supply under Competitive Note Issue by George Selgin. You can get it for free here (courtesy of Jonathan Catalan): http://files.libertyfund.org/files/2307/Selgin_1544_EBk_v5.1.pdf
George Selgin has visted here before. You can look for a user, username “selgin” if you want to spark up a public conversation. Not sure he will respond, but it’s possible.
There are of course Hayek’s classics on the subject (if the Institute of Economic Affairs is a publisher that you consider “academic” enough):
Has anyone read Milton Friedman and Anna Schwartz’s reconsideration of whether government has any role in the money supply?
http://ideas.repec.org/a/eee/moneco/v17y1986i1p37-62.html
He seems skeptical of markets providing outside money, but open to the idea of private inside money.
Does anyone know of any critiques of this paper? How was it recieved by the free banking community?
Selgin brings Friedman up a bit in the work previously cited above. I’d also look at Hayek’s Choice in Currency (which doesn’t talk much about private coinage, but kind of sets it up) and Denationalization of Money. Also, I’ve looked at Selgin’s Bank Deregulation and Monetary Order and Lawrence White’s Competition and Currency, which are collections of different academic papers.
@abskebabs
Your links do not work. The IEA website has been really bad with linking, & searching since it changed its look a few days ago. Try these.
thanks everyone for the recommendations. thus far, I’ve been reading a lot selgin, white, and hayek.
from what i can tell selgin/white tend to focus their research on free banking systems like what were pursued in the united states and scotland during the 18th-19th centuries where banks issues notes redeemable in some common base currency. By contrast, hayek proposals for monetary reform in the Denationalization of Money seem to go much further. specifically, he does not presuppose a common base currency at all and assumes that competing, private fiat-type currencies will emerge.
in “how would the invisible hand handle money”, selgin and white (citing taub 1985) seem to offer a pretty good argument for why a hayekian private fiat-type currency system wouldn’t work.
does this reflect the concensus in the literature? or are there any defenders of hayek that might respond to their criticisms? a few google searches reveal nothing.
thanks in advance for all your help.
Dear Student,
Larry White and I criticize Hayek’s proposals in our 1994 Journal of Economic Literature paper, “How Would the Invisible Hand Handle Money?” Have a look as well at the chapter on private fiat currencies in Larry’s Theory of Monetary Institutions.
Best,
George Selgin
Here is also a relevant speech by Selgin given at the Austrian Scholars Conference 2009 titled “The Private Supply of Money:”
Thanks all for the help everyone.
Prof Selgin, your writings have been particuarly helpful as I study this topic. I especially liked your article in the Economic Journal, “Free Banking and Monetary Control”. I don’t think enough popular proponents of free banking stress the fact that the incentives created by this system lead to an automatic adjustment in the money supply in response to changes in money demand. As you note in this article (and elsewhere) this essential feature would mitigate and possibly eliminate demand-driven recessions.
Thanks for that. I tried switching around the letters in the link but it never work. It does now!