A return to free banking

Some things are just too important to leave to the private sector.

Like food, right? It’s one of the necessities of life. Which is why we rely on the government to provide it.

If the government and its supreme organisational skills were not in charge of supermarket supply chains, if civil servants didn’t co-ordinate farm production to make sure farmers produced the right things, and if bureaucrats didn’t decide what’s on whose dinner table, there would be mass starvation.

The same goes for housing, right? If the government didn’t build our houses, there wouldn’t be any. Or the private sector would build the wrong ones in the wrong places.

Without governments providing us with air traffic control, the planes would fall out of the sky.

Without the Home Office, we couldn’t work from home during this pandemic.

And without the epidemiologists in charge of our lockdown, we’d all be infecting each other and dying en masse like the Swedes.

We cannot rely on the self-interest of the butcher, the baker and the candlestick maker to produce what we need. We cannot rely on people to control themselves or keep themselves safe for their own good. We the people, by electing politicians who appoint themselves to committees that set up departments which hire bureaucrats to hire civil servants, must do it for… us… ourselves?

Yes, politicians can do a much better job. They are, after all, appointed by us all to appoint people. Which means they can do a better job than we can for ourselves.

If you’ve picked up on my sarcasm, I’d like to permit myself a far snarkier remark in the same vain. I consider your views on money to be just as absurd as my commentary above.

The idea that governments should issue and control the money supply, via central banks or not, is just as misguided as the idea the government should control the manufacture of toilets. And for the same reasons, leading to much the same messy outcomes.

But I already spend too much of my days talking about poo. My daughter recently pooed in our bed on our first wedding anniversary…

So, let’s use a different example. If the government controlled the supply and price of oranges, what would you expect to happen?

Hint: they recently controlled the supply of PPE during the pandemic.

Why governments inherently always muck things up to some extent is well established in economics. Basically, people can do a better job for themselves than politicians and bureaucrats can. Even when that’s hard to believe given the choices some of us make…

But, for some reason, almost nobody agrees this same principle extends to money. They believe only the government can provide us with the money supply.

Food, home building, and just about every other sector of the economy is better run by the private sector, most people believe. Even if each nation has its exception to this rule. Here in the UK that exception is health. In the US, it’s air traffic control. In Australia it’s alcohol. In North Korea it’s food. In each culture, we entrust certain things to the government only. And people in other countries laugh at us for believing only the government can provide that good properly.

Conversely, in each country there are examples of the private sector providing something that people elsewhere consider it impossible for the private sector to provide. In Georgia it’s police. In Tenerife it’s water. In Europe, it’s air traffic control. In outback Australia, it’s roads. In India, it’s entire cities and their infrastructure. In the US, it’s tertiary education.

Despite disproving each other, opinions are never changed.

There is only one thing they can all agree on. Nobody wants to apply the same thinking to money. The idea of the private sector running money is just one step too far for almost everyone.

The good news is that both the past and future prove me right. Money won’t be in the hands of the government much longer. Just as it wasn’t, in the past.

Historically, people didn’t trust the government with the money supply. Bankers had more credibility than politicians. They didn’t go to war as often. And they couldn’t print money like a politician would given the power to do so. Because, in the past, printing money is what led to bank runs.

If you think I’m nuts, get your hands on some Scottish bank notes – the most obvious evidence I’m right about our history of money. You’ll find the UK still has a lot of note-issuing banks. They’re a historical remnant of a time when banks issued their own currency instead of a national currency. The Scottish Free Banking Era it was called.

History doesn’t mention free banking much – free in the sense of freedom, by the way. That headline was just a devious hook to get you to read this article about one of my favourite topics…

Historical records of what’s normal isn’t common, so you won’t find much about free banking in school history lessons, let alone university. Failed national currencies issued by dominant governments is a much more topical history topic.

I’ll leave you to do your own research about the history of free banking and privately issued money. You won’t believe me anyway…

Instead, let’s turn to the future. Because the private sector is doing something I love. And it isn’t privatisation, it’s competition.

Most free-market politicians, if it’s possible for such a thing to exist, are advocates of privatisation. They want to privatise public transport or healthcare council services like rubbish collection.

But I’m against that. And not just because the process inevitably gets bungled into a bizarre combination of public and private which was never going to function remotely like a private company. The privatisation of UK rail companies, but not the track, is an example of this. Blaming capitalism for the failure of privatisation is like blaming a bastard for their lineage. You’ll only get confused looks from the puppy, and rightly so.

Instead of privatisation, I’m in favour of allowing competition. Allow Uber to compete with public transport. Allow employment insurance to compete with welfare. Allow SpaceX to compete with NASA. Allow private hospitals to compete with public. Allow private schools to compete with public too.

Usually, this isn’t allowed because it undermines the public sector. Which is of course the whole point – if it’s better it should undermine the public sector…

Or you still have to pay your taxes to fund the public services – you can’t opt out, which isn’t fair competition, is it? The fact that private still exists in some such scenarios shows just how much better it is.

Bringing all this back to money, it seems that cryptocurrencies are emerging as a viable alternative to government money. Every day, innovations are making them easier to use. Each day, government crackdowns make the incentives to use them stronger. And on a day coming soon, their value is set to begin a new bull market.

Find out why here.

Nick Hubble
Editor, Southbank Investment Research

Category: Genetics and Biotechnology

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