Forum Post: CHANGE: the political control of the money

Governments has steadily worsened the situation

The more intelligently the governments try to act, the more harm they seem to do – because once they are known to aim at particular goals (rather than merely maintaining a self-correcting spontaneous order) the less they can avoid serving sectional interests. And the demands of all organized group interests are almost invariably harmful.

What is so dangerous and ought to be done away with is not governments’ right to issue money but the exclusive right to do so and their power to force people to use it and to accept it at a particular price. 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.

Second, our policymakers, especially when given discretionary powers, are not necessarily benevolent, and cannot automatically be expected to use them to pursue “social good,” however defined. In essence, we should be looking for a set of institutions that would be robust to our ignorance and potentially self-seeking intentions of those who are in charge of the money supply.

Central Banks (FED) create distortions

Currently existing institutions that supply money to the economy are not satisfactory. Central banks, in their attempts to stimulate the economy, are likely to create distortions in the structure of production, leading to periods of investment booms and subsequent busts.

Governments have always tended to monetize their debts, once these have reached certain levels. The acclaimed independence of central banks does not seem to be a binding constraint on this activity, especially not in bad economic times.

Benefits of competition in issuing money

The fundamental root of this problem is institutional: central banks are government-run monopolies and are not subject to the same competitive discipline as other business entities. There are no sound reasons why the supply of money ought to be monopolized and left in the government’s hands.

Therefore, a system of competitive, privately issued currencies, would deliver a superior currency and also better outcomes in terms of macroeconomic stability.

Competitive forces would thus force banks issuing money to behave in a more responsible way than central bankers can be expected to behave.

Benefits of free currency system

Make it merely legal and people will be very quick indeed to refuse to use the national currency once it depreciates noticeably, and they will make their dealings in a currency they trust.

Employers, in particular, would find it in their interest to offer, in collective agreements, not wages anticipating a foreseen rise of prices but wages in a currency they trusted and could make the basis of rational calculation.

This would deprive government of the power to counteract excessive wage increases, and the unemployment they would cause, by depreciating their currency.

It would also prevent employers from conceding such wages in the expectation that the national monetary authority would bail them out if they promised more than they could pay

The currently existing institutional structure through which central bankers can exercise discretion over the money supply and interest rates is deeply flawed and responsible for a variety of economic ills.

http://en.wikipedia.org/wiki/Friedrich_Hayek