PRESTOPUNDIT -- "It's a team sport, baby!"

John Blundell comes out in favor of a free market in money. Blundell rather likes Hayek's utterly subversive thinking on the issue:

Friedrich Hayek, argued in Denationalise Money that the politicians and their agents, the central banks, should forfeit their monopoly. His assertion is that honesty or reputation would be tested daily on the exchanges.

We can see in half the nations of the world the local state monopoly currencies are little more than cruel jokes. People prefer to trade US dollars or possibly gold coins. In some territories the US dollar has displaced the central bank.

Inflation in the UK - how I wish it was termed "dilution" - is bobbing along just beneath 3 per cent. Far better than Edward Heath's 20 per cent but at our modest rate prices still double every 23 years. So, here is a huge disagreement in the centre of what we might call liberal thinking. Should the state have the power to coerce us and if so should it be forced to obey monetary rules? Gordon Brown's innovation of giving the Bank of England autonomy and inflation targets is something of a mirage.

If he reduces or raises taxes sharply the Bank of England has no levers. Despite the fanfares the euro has been less than a triumph. The quiet success on the Continental monetary scene is the Swiss franc. Opt-outs are important. They are a truth test.

I like and admire Milton Friedman. I hold his scholarship in awe. Yet there is a great curiosity that the leading disciple of the capitalist ideal has built his main reputation in advocating a state monopoly - even if it is urged to be plain-dealing and open in its policies.

Hayek's subversive arguments appear to me to be rather stronger. Professor Lawrence White of New York University and Professor Michael Fry of Brown University have published acute pieces of research which retrieve Scotland's lost memory of how banks can succeed as issuers of notes and coins. I doubt if a single MSP has read these studies or could even articulate the arguments.

I used to imagine private money would emerge as a response to monetary chaos. Now policy makers have recovered their continence inflation has lost much of its bite. Yet can you imagine any of the respectable representatives of the capitalist cause proclaiming they could easily supply a more trustworthy currency than the state? The great intellectual defeat of the socialist ideal is nearly complete but they still hold a few fortresses where alternatives are crushed.

I'm not suggesting central banks be abolished, only that they have to surrender their power to compel. There is a scandal so familiar we no longer see it as a scandal - that the civil service and public sector employees enjoy "index-linked" pensions; that is to say they can opt out of the inflation imposed on the rest of us.

Now the appreciation that inflation is purely a monetary disease is almost universally agreed we might be bold and see companies creating their own monies.

Posted by Greg Ransom