Daniel J. Mitchell
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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Stossel’s historical references are particularly important.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.

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Daniel J. Mitchell

Daniel J. Mitchell is a top expert on tax reform and supply-side tax policy at the Cato Institute.