Money and libertarianism

Here are my views on money and libertarianism:

1.  It’s an open question as to whether a purely private MOA/MOE regime would outperform a government system. Macro theory suggests a government system might be able to do better, but that doesn’t mean it would do better.  Both public and private regimes are likely to improve over time.

2.  We don’t really know what a private money system would look like in the 21st century.  Indeed it might be nothing more that private banknotes convertible into foreign fiat currencies.  That outcome would be slightly embarrassing for dogmatic principled libertarians.  It might even be a system that leads to a high rate of inflation (I doubt it).  We just don’t know.

3.  The arguments for giving the government a monopoly on the creation of money include the network effects of a single MOA, the wastefulness of a commodity MOA, and the wastefulness of non-price competition in the currency market.  There are also strong arguments against all these claims.  It’s also possible to have a hybrid system, with a government fiat asset used for interbank clearings, and then the rest of the money supply left to the private sector.

4.  I don’t think it makes sense to talk of monetary policy “fixing” the problems created by nominal wage stickiness, although I understand why people disagree with me.  Every day I walk by my TV without kicking it.  If I swung my leg to the right it would smash the TV. So in a sense my normal walk can be viewed as a “walking policy” that makes my TV work better than a silly walk would.  In the same way a stable monetary policy makes the economy work better than one that leads to wild fluctuations in NGDP.

Is my normal “walking policy” something that makes my TV work better?  Yes, but only in a very odd sense.  Ditto for sound monetary policy.  Rather it makes more sense to think of it as a policy that refrains from distorting the labor market.  The real issue here is discussed in point 5.

5.  If a pragmatic libertarian economist opts for a government run fiat money system, it is a compromise with “pure libertarianism” in much the same way as support for the EPA or anti-trust laws would represent a compromise with a 100% laissez faire regime.  But once that compromise has occurred, it makes little sense to talk of one monetary regime as being more interventionist than another.  All targets (The base, M2, P, NGDP, gold prices, exchange rates, interest rates, etc) are equally interventionist.  Perhaps the libertarian/non-libertarian distinction makes sense when considering central bank discretion vs. a futures market targeting approach.

Here’s another way to make the point.  Friedman was right when he told Mundell that floating rates are better than fixed rates.  But wrong when he claimed the regime was more “free market.”  An M2 target is just as interventionist as a stable pound/dollar exchange rate target.  It’s just different.

6.  Calling for the Fed to change it’s current policy doesn’t make one an “activist.”  Many highly libertarian Austrians are unhappy with current Fed policy.  I don’t want my daughter piloting a 747, but if she is suddenly thrust into the captain’s seat I’ll give her the best advice I can.  So would Bob Murphy.  I favor rules, not activism.

7.  If one is a pragmatic libertarian, it is not inconsistent to argue the free market is generally best, but also advocate patents, eminent domain, anti-trust laws, low wage subsidies, the EPA and the Fed.  That still leaves plenty of scope for free markets.  No country even comes close to having a government that small.  That makes the term “libertarian” a useful description of the person’s policy views.  As an analogy, most people would consider it useful shorthand to describe someone who wants the government to run 90% of the economy as a “socialist,” even if there remain dozens of large private businesses.

8.  It’s a useful exercise to consider the optimal monetary policy, regardless of whether the system is public or private.  Nothing should be accepted on faith, so at a minimum advocates of a purely private system need a benchmark for comparison when they argue that the macro outcome of that system would be “good.”  For Hayek, stable NGDP was the benchmark.  Some private money advocates (such as George Selgin) believe free banking would produce this sort of good outcome.  I’m a bit more skeptical.

PS.  Problems are inevitable under any regime.  The existence of problems doesn’t imply (contra Krugman) that a regime has failed.  Germany’s successful labor market reforms solved their high unemployment problem, and introduced a new and lesser problem of lots of low wage jobs and greater inequality.  The only thing that prevents the German policy from being seen as a widespread failure is the much worse situation in nearby countries that did not reform their labor markets.

PPS.  Nick Rowe had some related comments a few days back.


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41 Responses to “Money and libertarianism”

  1. Gravatar of Edward Edward
    13. August 2013 at 09:25

    Excellent post Scott.

    But why did you cross out “dogmatic?” Thats what they are. 🙂

  2. Gravatar of Nick Rowe Nick Rowe
    13. August 2013 at 09:47

    Very clear and sensible.

    Even when the main money is based on government money, like in Canada and the US, we sometimes see local monetary systems spring up that are fairly independent. Stuff like LETS. Those might give us some sort of idea about what a purely private monetary system would look like nowadays. Or maybe not, if they don’t scale up.

  3. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. August 2013 at 09:51

    Excellent post, but I take issue with this:

    “The only thing that prevents the German policy from being seen as a widespread failure is the much worse situation in nearby countries that did not reform their labor markets.”

    The Fraser Institute’s index of labor market regulation rates Germany’s labor markets less free than all of the SICPIG countries even after the Hartz reforms.

    http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/economic-freedom-of-the-world-2010.pdf

  4. Gravatar of TravisV TravisV
    13. August 2013 at 09:57

    Prof. Sumner,

    Good post but small quibble:

    Why did you say “the EPA” when you could have said “carbon taxes”?

  5. Gravatar of George Selgin George Selgin
    13. August 2013 at 10:39

    Hayek was a stable MV guy back in the 30s; when he wrote on competing currencies in the 70s, he had switched to treating stable P as being (approximately) ideal. Hayek’s vision of competing base currencies also is very different from the arrangements free banking theorists like myself have in mind, which involve competitive supply of low-powered monies, including redeemable banknotes. One difference is that under free banking there is (or need be) only a single MOA. Scotland had the pound sterling; Canada the gold dollar. So there’s no loss of network benefits in these arrangements–or no more than there is in ours from allowing competition in the supply of debitable deposit balances.

    It’s true that we don’t know precisely what competition in currency would lead to–any more than we know precisely where any sort of deregulation will lead or, for that matter, where our current system is headed: which proponent of the status quo writing before the crisis could have told us how different things would be today? So you need to resort to theory and careful use of economic history to make wise and carefully hedged conjectures. Larry White and I (“dogmatically,” I suppose, in Edward’s view) have done so in our essay “Mengerian perspectives on the Future of Money” in a Latzer and Schmitz, eds., Carl Menger and the Evolution of Payments Systems.

  6. Gravatar of Milton Freeman Milton Freeman
    13. August 2013 at 11:00

    TravisV,

    Probably because the EPA administers environmental regulations. The typical libertarian ideologue argues that pollution and other complex environmental damage will somehow be solved solely through adherence to private property rights. Realistically this will not solve most threats to our environmental. Scott being a pragmatic libertarian is showing he acknowledges the need to environmental standards. 100% Free Market or Government can’t solve all problems.

  7. Gravatar of George Selgin George Selgin
    13. August 2013 at 11:06

    “Friedman was right when he told Mundell that floating rates are better than fixed rates. But wrong when he claimed the regime was more “free market.” An M2 target is just as interventionist as a stable pound/dollar exchange rate target. It’s just different.”

    A case can be made, indeed, that certain so-called “fixed rate” arrangements are not interventionist at all. Consider a banks promise to maintain a “fixed” exchange rate between its deposits and base currency, or the “fixed” rate between paper monies and gold (or silver) in former commodity standard systems. What are often misleadingly terms “fixed rates,” as in these examples, are in fact mere agreements, originally confined to private agents, to honor fixed nominal debt contracts, nothing more.

  8. Gravatar of Edward Edward
    13. August 2013 at 11:18

    George Selgin,
    Fixed rates, whether exchange or contracts or, otherwise, are something of a disaster. Theyre the reason why we have price stickiness and recession

  9. Gravatar of chris mahoney chris mahoney
    13. August 2013 at 11:21

    I believe that the US experimented with a private monetary regime during the “free banking” period before 1862. Anyone could charter a bank, accept deposits, make loans, and issue “bank notes” which were a promise to pay in specie upon presentation. The only government involvement was the specification of the Spanish silver dollar as the national currency. (The Spanish Real was the global monetary lingua franca in the period 1500-1800, because Spain had all the silver. Silver dollars from any mint were acceptable upon assay. The states tried to prevent banks from over-issuing bank notes, but it was a national industry, hence the term “wildcat banking”. As we remember, this was a period of frequent panics and bank defaults.

  10. Gravatar of Edward Edward
    13. August 2013 at 11:27

    Chris Mahoney,

    We still had “private debt” legal tender laws though

  11. Gravatar of George Selgin George Selgin
    13. August 2013 at 11:46

    Chris Mahoney’s summary of pre-1862 U.S. banking is a good statement of a popular myth–nothing more. For starters the U.S. dollar was not the Spanish dollar but a distinct unit partly inspired by it. As for the rest–well, there’s no point trying to review here all the forms of regulation to which antebellum banks were subjected. Books have been written about this. Severe restrictions on branch banking head the long list. Outright prohibition of banks was the norm for some time in the far western states and territories.

  12. Gravatar of Bob Murphy Bob Murphy
    13. August 2013 at 12:05

    I know there are a lot of scumbag libertarians, Scott, but I promise I have no interest in talking to your daughter.

  13. Gravatar of George Selgin George Selgin
    13. August 2013 at 12:11

    “Silver dollars from any mint were acceptable upon assay.” There were no mints other than that in Philadelphia supplying such dollars. Private minting took place in Appalachia during the 1830s and in California in the wake of the gold discoveries there, but these produced gold, bot silver, coins.

    And as all banks before 1862, including the so-called “wildcats” were set up under state statutes or with state-issued charters, the remark about the “national” nature of the industry foiling state authorities’ attempts to restrain their issues is utter nonsense. (Indeed, as Rolnick and Weber have shown in several articles, the worst banks of all were those that were compelled by such authorities to purchase their junk bonds as mandatory security for their notes).

    My impression after writing on the topic for some years is that some such farrago of invented “facts” is often behind otherwise intelligent economists’ dismissal of arguments for having less government involvement in the monetary system. I like to write on the topic precisely because there is so much mythology in need of exploding. Still it pains me to realize how so many of the same hoary myths persist despite all the ink spilled by myself and many others besides trying to dispel them.

  14. Gravatar of ssumner ssumner
    13. August 2013 at 12:14

    Edward, I crossed it out, I didn’t delete it. 🙂

    To me the words have the same meaning, like spinster and bachelorette. It’s just that one sounds like a pejorative, but actually isn’t necessarily.

    Thanks Nick.

    Mark, Sounds like the Fraser Institute needs to have its head examined. That’s just nuts.

    Travis, Yes, but I suppose there are other environmental issues too.

    George, I should have made it clearer that there is no “network effects” problem with commodity money. So I agree about Scotland and Canada.

    I also agree about the careful use of history and theory. And I’d never call you dogmatic.

    Regarding fixed rates, I agree, I was assuming both Friedman and Mundell bought into a government monopoly regime, which already implies a certain level of intervention.

    Chris, I’m no expert on the history of banking, but I believe the US has never had anything close to unregulated banking. Canada came closer 100 years ago, and its system performed better.

  15. Gravatar of Justin Irving Justin Irving
    13. August 2013 at 12:50

    I think we could get a lot of the benefits of private and public money by simply having more public monies. Seems odd to me that the entire U.S. is a single currency area.

  16. Gravatar of Edward Edward
    13. August 2013 at 13:55

    The problem with fractional reserve banking in free banking systems is the same problem faced by fixed exchange rate regimes, that the value of banknotes of gold or silver is “fixed to redeem on demand” rather than at “the market price”

    For example suppose JP Morgan has $1 billion in physical silver in its vaults but $40 billion in electronic and paper banknotes. All those notes have to say is “redeemable at the market price” rather than on demand, and depositors will not have to panic and see their life savings annihilated.

    Yes those notes will be less valuable on the market. WHO CARES?!! At least the bak will continue to function

  17. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. August 2013 at 14:14

    Scott wrote:
    “Mark, Sounds like the Fraser Institute needs to have its head examined. That’s just nuts.”

    Well I guess that means that the Heritage Foundation is also nuts.

    http://www.heritage.org/index/explore

    They rank Germany a little higher on “labor freedom”, narrowly ahead of Greece and Portugal, but well behind Ireland, Cyprus, Spain and Italy.

  18. Gravatar of ssumner ssumner
    13. August 2013 at 14:31

    Mark, That also seems crazy. Spain certainly has far less labor freedom than Germany. How much has labor freedom changed in Germany since 2000? (in their rankings).

  19. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    13. August 2013 at 15:27

    The left in Portugal and Spain regularly points out that Germany’s labour market laws were a failure. For Christ’s sake, they don’t even have a minimum wage here! (I’m typing from Germany).

    *

    Portugal and Spain have two-tiered labour markets. The lower tier is actually quite free-market (they’re basically at will contracts with no minimum wage).

  20. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. August 2013 at 15:29

    Heritage Foundation’s labor freedom index only dates from 2005. In that year Germany ranked behind all of the SICPIG nations except Portugal.

    It says the following about Germany:

    “Labor relations are sound but heavily regulated, and employers and workers have worked cooperatively to adjust wages and work hours in response to the changing economic environment.”

  21. Gravatar of ssumner ssumner
    13. August 2013 at 15:50

    Luis, Yes, no minimum wage in Germany. There are jobs paying $4 and $5 an hour. You don’t even have that in America. In Spain it’s almost impossible to fire someone. In Italy you can’t get a job teaching in a university without family connections. The southern European labor market is a complete mess.

    Funny how people in a country with 27% unemployment think a country with 5% is a failure.

    Mark, That’s odd. Heritage has been doing the index for decades.

  22. Gravatar of Mark A. Sadowski Mark A. Sadowski
    13. August 2013 at 16:29

    The Heritage Foundation Index of Economic Freedom dates from 1995, but it has changed over time. The labor freedom index was only added in 2005.

    On the other hand the Fraser Institute’s labor market regulations index dates from 1980 and has six components. Germany’s overall score (on a ten point scale) rose from 2.85 in 2000 to 3.94 in 2005. Its highest score is in “hiring regulations and the minimum wage” (6.70). Its lowest score is in “hiring and firing regulations (2.48).

  23. Gravatar of Greg Ransom Greg Ransom
    13. August 2013 at 17:00

    Scott writes,

    “Rather it makes more sense to think of it as a policy that refrains from distorting the labor market.”

    This is libertarian monetary economics as is there were no rival production goods and production pathways in a capitalist economy, ie a theory of capitalism as if there was not capital.

  24. Gravatar of Greg Ransom Greg Ransom
    13. August 2013 at 17:02

    We worry about refraining from distorting the labor market, but we pretend there are no money, asset, credit, money substitute and production goods markets?

    What sort if insane economy contains labor and money and nothing else?

    Scott writes,

    “Rather it makes more sense to think of it as a policy that refrains from distorting the labor market.”

  25. Gravatar of Greg Ransom Greg Ransom
    13. August 2013 at 17:12

    It’s more crucial to think of it as a policy that refrains from distorting the production goods market and the shadow money market and the asset market and the credit market and the interrelations between these markets.

    Scott writes,

    “Rather it makes more sense to think of it as a policy that refrains from distorting the labor market.”

  26. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    13. August 2013 at 17:24

    In Spain, it is almost impossible to fire someone if they have a labour contract. Many people are simply not given one and then it is more like at-will. This is the two-tier system.

    I actually know the Portuguese system much better. The standard is to not sign an employment contract, but a service provision contract. The person is expected to behave like an employee, but the contract may be terminated at any time (these contracts used to also have the advantage that they were taxed at lower rates; not anymore). Sign someone up as an intern and reimburse them a fixed for “commuting expenses” and you get around min wage law (it’s not a wage, you see, it’s a reimbursement).

    This may seem like a joke, but it is the situation of a large fraction of people under 35 (maybe as high as 50%, but I don’t want to over-generalize from my social circle).

    (Btw, I think the German Hartz IV was a smashing success, but I regularly read the southern left warning that this is all a plan by the evil Germans to impose their right-wing ideas and we might all end up in the labour dystopia that is Germany.)

  27. Gravatar of George Selgin George Selgin
    13. August 2013 at 18:10

    Edward writes: “Fixed rates, whether exchange or contracts or, otherwise, are something of a disaster. Theyre the reason why we have price stickiness and recession.” Not so. certainly fixed rates aren’t to blame for price rigidities–at least, I cannot see why they should be blamed for them. And much as devaluation may supply relief from certain crises, the incidence of crises varied considerably across the international gold standard zone, with some very crisis prone systems working alongside others that were relatively unaffected by such.

  28. Gravatar of Negation of Ideology Negation of Ideology
    13. August 2013 at 20:08

    Scott –

    “The arguments for giving the government a monopoly on the creation of money … ”

    I’d phrase that this way –

    “The arguments for giving the U.S government a monopoly on the creation of the U.S. dollar… ”

    Then it becomes obvious. I don’t think you or anyone else is advocating banning creation of other money that is not fraudulent. The question then becomes what does the government use for spending and accept for payment. I’m not trying to be nitpicky I think it’s very important to say exactly what we mean. Apple has a monopoly on creation of Apple stock, and on creating Apple gift certificates. If people want to trade those, then fine.

    The question becomes should the government have to accept Apple gift certificates for taxes and buy services with it? The question answers itself. What about private banknotes? I don’t see why that’s any different. If people want to trade them, fine. But why should the government accept them? It could buy them at a discount to its own notes. But then it would have to have a system to make sure the banks are sound and decide what discount price to pay. Something like a central bank.

  29. Gravatar of Max Max
    14. August 2013 at 01:51

    In theory, you could have an activist monetary policy without a central bank, as long as the government can periodically redefine what a dollar is, in terms of some deliverable commodities.

  30. Gravatar of Lorenzo from Oz Lorenzo from Oz
    14. August 2013 at 04:06

    Ah, the sensible side of libertarianism on display. That’s a good thing, given I recently had a bit of a go at some blindnesses.

  31. Gravatar of ssumner ssumner
    14. August 2013 at 05:37

    Mark, If hiring regs appear in two categories, then I think the index needs some work.

    Luis, Thanks for the info.

    Negation, I stand corrected.

    Max, excellent point.

  32. Gravatar of nickik nickik
    14. August 2013 at 05:54

    @Luis Pedro Coelho

    Thank you for your intresting information.

    I wanted to say somthing about the Harz 4 success. I agree that in broad terms if was a success but it is still weak in some areas.

    They use people on Harz 4 for what really may be called ‘slave laber’. They are bascilly tell people to get special kind of jobs and the bascilly earn nothing (1 Euro Jobs), they only earn the right to keep getting there Harz 4 money.

    To creat demands for those job goverments ristricts farmes in germany from highering workers from poland, and requires them to hire Harz 4 workers. They however dont show up 50% of the time because the goverment can not really take away there Harz 4 money (the get punished somehow but the cant take there Harz 4 money).

    There is also the issue of the hole burocracy if somebody want for example a new bed. If they want that they have to write a request and somebody comes to there house to check out if they really need a new bed. Witch is total was of time and money.

    So I just wanted to point out some of the ‘low level’ failures of that system. There are more but Im not a expert on them. (Im Swiss living in Germany btw)

  33. Gravatar of jj jj
    14. August 2013 at 09:41

    “…it makes little sense to talk of one monetary regime as being more interventionist than another. All targets () are equally interventionist.”

    The regime and the target are not the same thing. A regime (Zimbabwe) can be highly interventionist using any target; and as you said, any target can be used in a non-interventionist way.

    I think some libertarians don’t recognize the distinction.

  34. Gravatar of Floccina Floccina
    14. August 2013 at 09:42

    Justin Irving has an idea there. Would it be possible to create competing Government agencies?

  35. Gravatar of Bob Bob
    14. August 2013 at 12:08

    Yeah, the Spanish labor market is clearly two tier, although I’d argue that the problem is one of social contract: I’d not trade my US at-will employment for a safe Spanish contract, because there’s far less chances of real advancement, and the work environments are extremely hostile: You might not be able to get fired easily at all, but your boss and coworkers will not get fired either. And remember, since good contracts are hard to get out to, getting a new, quality job is going to be extremely difficult.

    As far as pragmatic libertarianism goes, I’d be worried about patents. There’s plenty of work out there now covering the negative side of patents. While they might be a necessity to create some markets in, say, agriculture, they are an extremely destructive force in far larger industries. I think one could make the case that the current system is worse than nothing.

  36. Gravatar of ssumner ssumner
    14. August 2013 at 16:51

    nickik, I’ll take those problems if it produces full employment. Of course it would not work as well in the US.

    jj, That’s right.

    Floccina, Maybe, but I don’t see a need for multiple currencies in the US.

    Bob, I agree about patents. Although they do play a useful role in biotech.

  37. Gravatar of Geoff Geoff
    14. August 2013 at 19:43

    Edward:

    “But why did you cross out “dogmatic?” Thats what they are.”

    Those who believe violence is a solution to complex social problems are dogmatists. I consider you a dogmatist, and I consider Dr. Sumner a dogmatist.

    You people who claim those who want to abolish the Fed are “dogmatists” are yourselves dogmatists.

    Dogma:
    1. A doctrine or a corpus of doctrines relating to matters such as morality and faith, set forth in an authoritative manner by a church.
    2. An authoritative principle, belief, or statement of ideas or opinion, especially one considered to be absolutely true. 3. A principle or belief or a group of them

    These apply to you to a “t”, the only difference is a cosmetic one, namely, that instead of having the church determine your thoughts, it’s the state instead.

  38. Gravatar of Geoff Geoff
    14. August 2013 at 20:32

    It’s an open question as to whether a purely private MOA/MOE regime would outperform a government system. Macro theory suggests a government system might be able to do better, but that doesn’t mean it would do better. Both public and private regimes are likely to improve over time.

    Violent activity never “outperforms” peaceful activity, if by “performance” we mean individuals seeking their own personal goals without infringing on other individuals seeking their personal goals.

    This is not “an open question.” To call it an “open question” is a rhetorical tactic designed to make it appear that one’s own false opinion on the matter is just as legitimate as the right answer. Pundits and politicians do this all the time. Intellectuals, real intellectuals, know that some questions have long been definitively answered. It’s how science ends up progressing instead of being reinvented in a circle of stagnation.

    2. We don’t really know what a private money system would look like in the 21st century. Indeed it might be nothing more that private banknotes convertible into foreign fiat currencies. That outcome would be slightly embarrassing for dogmatic principled libertarians. It might even be a system that leads to a high rate of inflation (I doubt it). We just don’t know.

    Right, and if the government monopolized car production, shoe production, and food production, thus preventing us from knowing what private production in these goods would look like, then this should make us all deeply afraid of what privatization would look like, so much so that we just better off keeping communism intact, so that we can live in squalor with certainty.

    One could just as easily state in a private society that “If money became monopolized by the state, then it just might generate Great Depressions and Great Recessions. That would be “embarrassing” for dogmatic principled market monetarists.”

    3. The arguments for giving the government a monopoly on the creation of money include the network effects of a single MOA, the wastefulness of a commodity MOA, and the wastefulness of non-price competition in the currency market. There are also strong arguments against all these claims.

    Interestingly, none are actually mentioned here. I wonder why? We see arguments in favor of monopoly money and mentions of the existence of market counter-arguments, instead of arguments in favor of private money and mentions of the existence of monopoly counter-arguments.

    It’s also possible to have a hybrid system, with a government fiat asset used for interbank clearings, and then the rest of the money supply left to the private sector.

    Anything but laissez-faire!

    4. I don’t think it makes sense to talk of monetary policy “fixing” the problems created by nominal wage stickiness, although I understand why people disagree with me. Every day I walk by my TV without kicking it. If I swung my leg to the right it would smash the TV. So in a sense my normal walk can be viewed as a “walking policy” that makes my TV work better than a silly walk would. In the same way a stable monetary policy makes the economy work better than one that leads to wild fluctuations in NGDP.

    Except for the fact that, you know, not kicking your TV is a laissez-faire TV policy, whereas monopoly money is not. The analogy doesn’t work. There is no monopoly money policy analogous to “hands off.”

    Is my normal “walking policy” something that makes my TV work better? Yes, but only in a very odd sense. Ditto for sound monetary policy. Rather it makes more sense to think of it as a policy that refrains from distorting the labor market. The real issue here is discussed in point 5.

    Except inflation, NGDPLT included, does distort the labor market. It distorts it for the same fundamental reason as fiscal interventions distort it: It moves individual outcomes away from subjective preferences, to the preferences of those in the state by coercion.

    This isn’t rocket science. We know why monopolies are suboptimal in cars, potatoes, computers, and everything else. Don’t you think it’s a sign your worldview is wrong by asserting that money should be monopolized? It isn’t a consistent position.

    5. If a pragmatic libertarian economist opts for a government run fiat money system

    And what exactly does “opting” entail here? Mere words are not how monopolies come into existence. More is required.

    What you REALLY mean, even if you don’t agree with this, is that you “opt” to remove the “options” of others through coercion. It’s that simple. Other individuals want to use X, and you want a group of people to initiate coercion against them so that their money is eliminated.

    You call this “pragmatism”, but that’s just Orwellian gobbledygook for “I want group A to initiate coercion against group B.”

    A person who “supported” a government monopoly in food could claim to be a “pragmatist” using the same “reasoning” (I use that term loosely).

    it is a compromise with “pure libertarianism” in much the same way as support for the EPA or anti-trust laws would represent a compromise with a 100% laissez faire regime.

    That’s right, I want group B to be coerced, you know, just like there is coercion elsewhere in the world. It’s not novel. I’m not crazy, right?

    But once that compromise has occurred, it makes little sense to talk of one monetary regime as being more interventionist than another.

    Please let the coercion be introduced, then I can talk about being pragmatic about it. It just has to start by people who are not cowards like me. You see, I can talk the talk, but I can’t walk the walk. I need others to do the dirty violent work for me. I need them to have machine guns to point at innocent people. I need them to throw those who dare disagree with me into a prison. I won’t do it. I’m much too clean and pure.

    All targets (The base, M2, P, NGDP, gold prices, exchange rates, interest rates, etc) are equally interventionist.

    I thought we were talking about private money? Funny, it goes right back into monopoly money.

    Perhaps the libertarian/non-libertarian distinction makes sense when considering central bank discretion vs. a futures market targeting approach.

    Perhaps not, because both violate the non-aggression principle. Libertarianism prohibits initiations of violence.

    What you call “pragmatic libertarianism” is not libertarianism. It is another form of socialism. Add to that your desires for other state violence against the individual, from progressive this, to safety net that, and it’s not libertarianism at all. After all, Stalin let his subjects choose when to blink.

    Here’s another way to make the point. Friedman was right when he told Mundell that floating rates are better than fixed rates. But wrong when he claimed the regime was more “free market.” An M2 target is just as interventionist as a stable pound/dollar exchange rate target. It’s just different.

    Analysis of free market money? Hello? Anyone?

    6. Calling for the Fed to change it’s current policy doesn’t make one an “activist.” Many highly libertarian Austrians are unhappy with current Fed policy. I don’t want my daughter piloting a 747, but if she is suddenly thrust into the captain’s seat I’ll give her the best advice I can. So would Bob Murphy. I favor rules, not activism.

    Rules on a foundation of activism, namely, active state coercion against innocent people who would otherwise engage in different, more optimal, more free behavior. That is activism. It’s a permanent activism, which you call “rules.”

    7. If one is a pragmatic libertarian, it is not inconsistent to argue the free market is generally best, but also advocate patents, eminent domain, anti-trust laws, low wage subsidies, the EPA and the Fed.

    If one is a violent pacifist, it is not inconsistent to want peace everywhere, except for the areas one wants coercion.

    It’s funny how all you have is “advocacy”. You are an “advocate” because you aren’t a practising socialist in the ways described above. You won’t shoot at people who dare act against the Fed by refusing to pay, accept or otherwise deal with US dollars. But you want others to shoot at those people, if they resist threats of being kidnapped by the state with defensive force of their own.

    Without coercion, you can’t have any of those things listed above transpire. There would be no eminent domain, no Fed, no state activity. You would be left with having to deal with the world and others using your mind, which you are obviously terrified of.

    That still leaves plenty of scope for free markets. No country even comes close to having a government that small.

    I just want to hurt millions of people a little. That’s nothing compared to the USSR!

    That makes the term “libertarian” a useful description of the person’s policy views.

    No, it makes you a thief. A looter of terms because you can’t cope with having to accept the fact that you are a socialist through and through. You want your style of socialism.

    I hope neither you nor your readers believe in the naive notion that socialists agree with each other. Ha! Socialist losers are almost always the first people the winning socialists seek blood from in social conflicts.

    As an analogy, most people would consider it useful shorthand to describe someone who wants the government to run 90% of the economy as a “socialist,” even if there remain dozens of large private businesses.

    A person would be a socialist if they wanted a state, or any other coercion, to control the economic lives of a society of people in any way shape or form. If the world were purely laissez-faire, then an individual who wanted to abolish free market money by introducing a state, that person would be a socialist.

    It’s not useful to come up with a million different adjectives before or after the word libertarian.

    8. It’s a useful exercise to consider the optimal monetary policy, regardless of whether the system is public or private.

    False. There is no “the” optimum in a laissez-faire society.

    Is there an “optimal” supply of computers that “should” be produced and sold in a laissez-faire society? Is there an “optimal” supply of pounds of swiss cheese, or copper, or sugar? No. The laissez-faire outcome IS the benchmark.

    Nothing should be accepted on faith, so at a minimum advocates of a purely private system need a benchmark for comparison when they argue that the macro outcome of that system would be “good.”

    No faith needed. The benchmark IS the outcome of a pure laissez-faire system, WHATEVER it happens to look like. There is no “ideal” here. There is no mental image of what is supposed to happen, after which we judge the laissez-faire outcome, to the “ideal” outcome.

    Your problem is that you not only “advocate” for socialist coercion, you cannot help but think like a socialist. You don’t view others as individuals. You view them as but means used to achieve ideal social ends! The libertarian on the other hand views others as ends in themselves, as unique, distinct, conscious entities.

    For Hayek, stable NGDP was the benchmark.

    Actually competing currencies was his benchmark later in his life. That’s why he held that should national central banks exist, they should behave as close as possible to competing currencies.

    Some private money advocates (such as George Selgin) believe free banking would produce this sort of good outcome. I’m a bit more skeptical.

    You have to be. If you weren’t skeptical, you wouldn’t be able to convince yourself that your thirst for violence is justified.

  39. Gravatar of Bill Woolsey Bill Woolsey
    15. August 2013 at 03:26

    Edward:

    Early banks included an option clause for banknotes. Presumably, the same could be applied to deposits.

    What that means is that usually the monetary liabilities were redeemable on demand, but the bank could, at its option, stop redeeming on demand in exchange for paying bonus interest. For banknotes, that was interest, since they mostly didn’t bear interest.

    These contracts allowed banks to operate with even lower reserves. Hard money interventionists banned them so that banks would hold more commodity money reserves.

    In practice, the typical banking system (and certainly this was the norm in the U.S.) suspended base money redemptions whenever necessary. They just did it without having a contract that allowed it to happen and provided for compensation for the depositor.

    The hard money complaint, that the law should be enforced and all of the banks that suspended permanently closed and liquidated, so that there would be no moral hazard and all the banks would hold ample gold (or silver) reserves next time, seemed to fall on deaf ears.

  40. Gravatar of Browsing Catharsis – 08.18.13 | Increasing Marginal Utility Browsing Catharsis – 08.18.13 | Increasing Marginal Utility
    18. August 2013 at 04:01

    […] -Scott Sumner, “Money and Libertarianism.” […]

  41. Gravatar of Jolly Roger Jolly Roger
    8. September 2018 at 19:04

    “We don’t really know what a private money system would look like in the 21st century”

    Hahahahaha!

    Private money exists here and now.

    Didn’t you know that banks create deposits and thus most money out there through credit?

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