The Money Debate

Wednesday, August 4, 2010
In the battle of ideologies, the libertarian always faces certain disadvantages. The foundation is, as the name implies, liberty. Yet there is no strict use towards which “liberty” can be put. It is a somewhat amorphous idea, and context changes its meaning. That is not to say that an individual libertarian is inconsistent, or at least no more so than individual members of other ideologies, but rather that the approach of libertarians must necessarily be different. Conservatives and liberals often “get the better of” libertarians, not because the former are necessarily right, but because their top down approach lends itself to strong, clear strategies that can be immediately implemented. Libertarians, however, have a bottom-up approach to policy (or lack thereof). This approach often leads to what sounds like a wishful, unrealistic stance. “The market will sort it out.” This is not to say that the argument is wrong (I’m a firm believer in the idea that the market will sort it out). It is just often not convincing. Let us turn to the example of money. The libertarian argument against central banking and political manipulation of money is difficult to make convincingly for a number of reasons. The first is that the issue of money and how it works is complex. It is a very technical area of study that takes years of study to grasp, and even then monetary effects on the economy are widely debated. Add to that the fact that if you don’t have a passion for it, the study of money is exceedingly boring. (I have lost count of the number of times that I have started a conversation only to see the other person’s eyes begin to glaze over as he looks for an escape.) The second, which follows from the first, is public complacency. Since the study of money is complex and to many uninteresting, people do not care who controls its supply. The Fed has been the monetary authority for the entirety of peoples’ lives now, and the world has thus far not ended. As long as money can be earned and spent reasonably the same each year, no one cares too much who holds the power over the system. (Well, beyond the few complaints about how low the return on CDs is, and how “it was Greenspan’s fault” that I heard when growing up.) The third, which brings us back to the beginning of this post, is the libertarian solution to central banking problems. The arguments usually run to free banking and/or a gold standard. However, there is no real consensus among libertarians as to what these systems should or would look like. Nor do libertarians have consistent, strategic plans as to how to get there. Shelton, White, O’Driscoll and Selgin (to name a few) have posited ideas on how free banking historically worked, how gold standards historically worked, and some ideas on how a new free banking system might work and tentative plans on possible ways to return to a gold standard. I don’t want to take away from the excellent work of these, or other, scholars, but there is still much work to do. So how do we change the current monetary system? For starters, it is important that those listed above continue their already impressive work in finding theoretical backing for the idea that a different monetary system IS possible and to continue to point out the flaws in the current regime. It is also important for others to simplify the theoretical language for the public audience. Those who do not have a degree in economics and have never studied monetary theory will have a difficult time grasping mathematical models and intense theorizing, not because these people are not intelligent but because they have not spent years studying the subject. Not only must the language be simplified, but the entire issue must be put into perspective. The only way to bring people out of their complacency is to show that it does matter who controls the monetary system. We must be clear and direct in conveying the importance. Anyone who has seen Richard Ebeling speak on the subject has seen a great example to follow. Finally, it is important to work out strategies for getting to a new monetary system (or at least for making the current better should a new system currently be unattainable). There needs to be more work done on the transition phase, say from central banking to free banking. Suppose libertarians won the debate and both the public and government officials agreed that free banking were the way to go: how would we go from what we have currently to something new? What are possible (and eventually actual) steps needed to make the change? It is necessary to focus not just on the problem and the theoretical ways in which other systems would work better. We must also focus on the details in between. Perhaps these details will help the argument be more convincing. Tom Duncan Sound Money Fellow Atlas Economic Research Foundation