It is true that under the proposed arrangements monetary policy as we now know it could not exist. It is not to be denied that, with the existing sort of division of responsibility between the issues of the basic money and those of a parasitic circulation based on it, central banks must, to prevent matters from getting completely out of hand, try deliberately to forestall developments they can only influence but not directly control.

We are so used to the existence in each country of a distinct currency in which practically all internal transactions are conducted that we tend to regard it also as natural and necessary for the whole structure of internal prices to move together relatively to the price structure of other countries. This is by no means a necessary or in any sense natural or desirable state of affairs.

The two goals of public finance and of the regulation of a satisfactory currency are entirely different from, and largely in conflict with, each other. To place both tasks in the hands of the same agency has in consequence always led to confusion and in recent years has had disastrous consequences. It has not only made money the chief cause of economic fluctuations but has also greatly facilitated an uncontrollable growth of public expenditure.

For the vast majority of people the appearance of several concurrent currencies would merely offer them alternatives ; it would not make necessary any change in their habitual use of money. Experience would gradually teach them how to improve their position by switching to other kinds of money. Retail merchants would soon be offered by the banks the appropriate calculating equipment which would relieve them of any initial difficulties in management or accounting.

A hope one may cherish is that, as competition usually does, it will lead to the discovery of yet unknown possibilities in currency. This makes any attempt at prediction of the long-run effects of the proposed reform exceedingly hazardous, but we will attempt to summarise briefly what would appear to be the probable long-run developments if it were adopted.

The abolition of the government monopoly of money was conceived to prevent the bouts of acute inflation and deflation which have plagued the world for the past 60 years. It proves on examination to be also the much needed cure for a more deep-seated disease: the recurrent waves of depression and unemployment that have been represented as an inherent and deadly defect of capitalism.

1.   Examine the long-held view that there should be only one currency in a country and that it should be controlled by government. Illustrate your discussion with examples from remote and recent history.

2.   What are the origins of legal tender? Argue for and against it as the necessary basis of a monetary system.