If We Can’t End the Fed, Can We at Least Subject It to Competition?

Ron Paul has made “End the Fed” a popular slogan, but some people worry that this is a radical untested idea. In part, this is because it is human nature to fear the unknown.

But there are plenty of examples of policy reforms that used to be considered radical but are now commonplace.

• Statists used to argue that the flat tax was unworkable, but there are now about 30 nations with a version of this simple and fair tax system.
• Leftists used to argue that personal retirement accounts were impractical, but dozens of nations now have this common-sense reform, ranging for Australia to Sweden.
• Self-styled progressives used to say that air traffic control system needs to be a government monopoly, but our Canadian neighbors privatized their system and now have more safety and efficiency.
• Defenders of the status quo used to claim that school choice was a radical idea, but it’s hard to defend that position since nations such as  Sweden, Chile, and the Netherlands have adopted competitive systems.

This list could go on, but the pattern is always the same. People assume something has to be done by government because “that’s the way it’s always been.” Then reform begins to happen and the myth is busted.

But is money somehow different? Not according to some experts.

Here’s some of what John Stossel wrote in a recent column.

Why must our government make currency competition illegal? …Competition is generally good. Why not competition in currencies? Most people I interviewed scoffed at the idea. They said private currency should be illegal. But impressive thinkers disagree. In 1975, a year after he won the Nobel Prize in economics, F.A. Hayek published “Choice in Currency,”which has inspired a generation of “free banking” economists. Hayek taught us that competition not only respects individual liberty, it produces essential knowledge we cannot obtain any other way. Any central bank is limited in its access to such knowledge, and subject to political pressure, no matter how independent it’s supposed to be. “This monopoly of government, like the postal monopoly, has its origin not in any benefit it secures for the people but solely in the desire to enhance the coercive powers of government,” Hayek wrote. “I doubt whether it has ever done any good except to the rulers and their favorites. All history contradicts the belief that governments have given us a safer money than we would have had without their claiming an exclusive right to issue it.” Former Federal Reserve economist David Barker discussed this idea recently with me. “There are a lot of ways that private money might be better,” Barker said. “It might have embedded chips that would make it easier to count.” The chips would also prevent counterfeiting. There used to be private currencies. A businessman who sold iron and tin made coins that advertised his business. The Georgia Railroad Co. also produced its own currency. This became illegal in 1864 — Abraham Lincoln was a fan of central banking.

Stossel’s historical references are particularly important. As I explain in this video, many nations – including the United States – used to have competing currencies.

And if you want a thorough analysis of the Fed’s performance, I urge you to watch this George Selgin speech. Then ask yourself whether we would have been in better shape with private currencies.