Denationalisation of Money: The Argument Refined

If the use of several concurrent currencies is to be seriously considered for immediate application in a limited area, it is evidently desirable to investigate the consequences of a general application of the principle on which this proposal is based. If we are to contemplate abolishing the exclusive use within each national territory of a single national currency issued by the government, and to admit on equal footing the currencies issued by other governments, the question at once arises whether it would not be equally desirable to do away altogether with the monopoly of government supplying money and to allow private enterprise to supply the public with other media of exchange it may prefer.

The questions this reform raises are at present much more theoretical than the practical proposal because the more far-reaching suggestion is clearly not only much too strange and alien to the general public to be considered for present application. The problems it raises are evidently also still much too little understood even by the experts for anyone to make a confident prediction about the precise consequences of such a scheme. Yet it is clearly possible that there is no necessity or even advantage in the now unquestioned and universally accepted government prerogative of producing money. It may indeed prove to be harmful and its abolition a great gain, opening the way for very beneficial developments. Discussion therefore cannot begin early enough. Though its realisation may be wholly impracticable so long as the public is mentally unprepared for it and uncritically accepts the dogma of the necessary government prerogative, this should no longer be allowed to act as a bar to the intellectual exploration of the fascinating theoretical problems the scheme raises.

Competition in currency not discussed by economists

It is an extraordinary truth that competing currencies have until quite recently never been seriously examined.1 There is no answer in the available literature to the question why a government monopoly of the provision of money is universally regarded as indispensable, or whether the belief is simply derived from the unexplained postulate that there must be within any given territory one single kind of money in circulation—which, so long as only gold and silver were seriously considered as possible kinds of money, might have appeared a definite convenience. Nor can we find an answer to the question of what would happen if that monopoly were abolished and the provision of money were thrown open to the competition of private concerns supplying different currencies. Most people seem to imagine that any proposal for private agencies to be allowed to issue money means that they should be allowed to issue the same money as anybody else (in token money this would, of course, simply amount to forgery) rather than different kinds of money clearly distinguishable by different denominations among which the public could choose freely.

Initial advantages of government monopoly in money

Perhaps when the money economy was only slowly spreading into the remoter regions, and one of the main problems was to teach large numbers the art of calculating in money (and that was not so very long ago), a single easily recognisable kind of money may have been of considerable assistance. And it may be argued that the exclusive use of such a single uniform sort of money greatly assisted comparison of prices and therefore the growth of competition and the market. Also, when the genuineness of metallic money could be ascertained only by a difficult process of assaying, for which the ordinary person had neither the skill nor the equipment, a strong case could be made for guaranteeing the fineness of the coins by the stamp of some generally recognised authority which, outside the great commercial centres, could be only the government. But today these initial advantages, which might have served as an excuse for governments to appropriate the exclusive right of issuing metallic money, certainly do not outweigh the disadvantages of this system. It has the defects of all monopolies: one must use their product even if it is unsatisfactory, and, above all, it prevents the discovery of better methods of satisfying a need for which a monopolist has no incentive.

If the public understood what price in periodic inflation and instability it pays for the convenience of having to deal with only one kind of money in ordinary transactions, and not occasionally to have to contemplate the advantage of using other money than the familiar kind, it would probably find it very excessive. For this convenience is much less important than the opportunity to use a reliable money that will not periodically upset the smooth flow of the economy—an opportunity of which the public has been deprived by the government monopoly. But the people have never been given the opportunity to discover this advantage. Governments have at all times had a strong interest in persuading the public that the right to issue money belongs exclusively to them. And so long as, for all practical purposes, this meant the issue of gold, silver and copper coins, it did not matter so much as it does today, when we know that there are all kinds of other possible sorts of money, not least paper, which government is even less competent to handle and even more prone to abuse than metallic money.

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2 But, though I had independently arrived at the realisation of the advantages possessed by independent competing currencies, I must now concede intellectual priority to Professor Benjamin Klein, who, in a paper written in 1970 and published in 1975 [35], until recently unknown to me, had clearly explained the chief advantage of competition among currencies.

• 1But, though I had independently arrived at the realisation of the advantages possessed by independent competing currencies, I must now concede intellectual priority to Professor Benjamin Klein, who, in a paper written in 1970 and published in 1975 [35], until recently unknown to me, had clearly explained the chief advantage of competition among currencies.
• 2It is an extraordinary truth that competing currencies have until quite recently never been seriously examined. There is no answer in the available literature to the question why a government monopoly of the provision of money is universally regarded as indispensable, or whether the belief is simply derived from the unexplained postulate that there must be within any given territory one single kind of money in circulation—which, so long as only gold and silver were seriously considered as possible kinds of money, might have appeared a definite convenience. Nor can we find an answer to the question of what would happen if that monopoly were abolished and the provision of money were thrown open to the competition of private concerns supplying different currencies. Most people seem to imagine that any proposal for private agencies to be allowed to issue money means that they should be allowed to issue the same money as anybody else (in token money this would, of course, simply amount to forgery) rather than different kinds of money clearly distinguishable by different denominations among which the public could choose freely.