Skip to content
Institute of Economic Affairs

Institute of Economic Affairs

Institute of Economic Affairs

Thursday March 4, 2021
  • twitter
  • facebook
  • rss
  • Institute of Economic Affairs
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us
  • twitter
  • facebook
  • rss
  • Blog
  • Film
  • Coronavirus
  • Research
    • Publications
    • Economic Affairs
    • EA Magazine
    • Brexit Unit
    • Int. Trade & Competition Unit
    • SMPC
    • Paragon Initiative
  • Media
    • Media Coverage
    • Press Releases
    • Media Enquiries
    • About IEA Comms
  • Students
    • Internships
    • Events and Conferences
    • Essay Competition
    • Student Resources
    • IEA Budget Challenge
    • Economics101
  • Events
    • Forthcoming Events
    • Past Events
  • Donate
    • Donate Now
    • Donate Monthly
    • Donate to IEA Projects
    • Other Ways to Donate
    • Legacy Gift
    • Donate from USA
    • Contact Us
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us

How about private money?

Kevin Dowd
28 September 2012
Institute of Economic Affairs > Blog > Uncategorized
I am very grateful to the IEA for making Private Money available as a free download on the web. On looking back over it – it was written and published in 1988 – I am struck by how little has changed but also by how much.

Its core messages – the superiority of free banking and the prima facie case for free banking as a special case of the general argument for free trade; the moral hazards and other problems associated with central banking and state meddling in the financial system; the dangers of politicised money; and the need to replace monetary policy with a sound monetary standard – are as true now as they ever were. Indeed, I would go so far as to say that the argument for free banking is self-evident to anyone who takes the trouble to think about it.

Shortly after the book came out, I recall being at the Cato annual monetary conference in DC in February 1989. I remember the date well, as I had got married a couple of days earlier: funny how one remembers these things. One speaker claimed that the free bankers had won the argument and no-one (including the various senior Federal Reserve officials present) demurred. I recall thinking ‘We’ve won: that was easy’ and wondered what interesting problems to turn to next. How naïve I was!

The reality was that this Hobart Paper and the subject it addressed failed to have much impact. For the most part, the UK academic and (less surprisingly) central banking establishments simply refused to discuss the issue. Even my students – whom one might have expected to be more willing to think radically, fired up perhaps by the resurgence in interest in free market ideas – were by and large uninterested. (Needless to say, this might be testimony to my teaching skills, taking cohort after cohort through the inconsistencies of the Diamond-Dybvig model whilst failing to get them engaged in the higher level issues, but that is another story.) And it was ‘politically unrealistic’.

Fast forward almost a quarter century and how much has changed! The underlying problem, state intervention, has got much worse. We have seen an enormous growth in hideous and parasitic systems of financial regulation: think of the Financial Services Authority, Basel and so on. These have achieved nothing at all, other than to confirm the truths of public choice theory – of self-serving bureaucrats captured by powerful interest groups. We have seen an enormous expansion in central banking itself: the boring, solid, conservative central bankers of old (how one misses them!) have been replaced by an ultra-activist new breed of central bankers who are willing to bet everything on a roll of the dice: zero interest rates, QE, unprecedented stimulus-and-never-mind-all-that-debt, bail-out-everything-that-breathes – not to mention macroprudential regulation, even more regulatory bodies and associated nonsense. We know that we shouldn’t really be doing all this but let’s keep trying anyway as we are out of our depth and out of ideas.

Well guys, how about private money?

But I suppose one shouldn’t expect – Canadian readers please insert the definite article here – turkeys to vote for Christmas.

Fortunately, it is not all bad news. It is heartening to see how the ideas of private money have taken hold amongst younger people today, especially in Eastern Europe. These days I am more likely to encounter the reaction ‘This is all obvious’ than the usual old reaction of ‘You’re mad’. It is also gratifying to see how the younger generation of free bankers is now making inroads into academia. One thing that Keynes was right about is that in the longer term it is ideas and not vested interests that count; the fact that these ideas are at last taking hold is therefore extremely encouraging – and I hope decisive in the longer term.

But what about being ‘politically realistic’? Well, to state the obvious: what is politically realistic depends on the climate of opinion amongst the intelligentsia, and the whole point is to change that thinking. Many previous Hobart Papers were dismissed on the exact same grounds – those advocating privatisation, the abolition of exchange controls, private healthcare and so on – all of which were regarded as ultra radical in their time and have long since entered the political mainstream. So there is no law of nature to indicate that free banking could not also become mainstream. Or, I should say, mainstream again: there were times and places when free banking was simply taken for granted – but you need to read the book.

One thing we can be sure about: had we had free banking we certainly wouldn’t have been in the dreadful mess we are in today.

The question is not whether free banking is politically realistic – whatever that might mean. The question is whether there is any realistic alternative.

Professor Kevin Dowd is the author of Private Money: The Path to Monetary Stability.

Professor Kevin Dowd
Kevin Dowd is Professor of Finance and Economics at Durham University.

SIGN UP FOR IEA EMAILS

Share this Story

previousWhat if Paul Krugman’s aliens had already landed?Kristian Niemietz27 September 2012
nextDeregulating the labour market: it's not that easyLen Shackleton1 October 2012
latestTax and Fiscal Policy20 taxes the government could scrap to boost the economySam Collins2 March 2021
previous
Uncategorized

What if Paul Krugman’s aliens had already landed?

27 September 2012
next
Uncategorized

Deregulating the labour market: it's not that easy

1 October 2012
latest
Tax and Fiscal Policy

20 taxes the government could scrap to boost the economy

28 September 2012
Institute of Economic Affairs
BE PART OF THE IEA TODAY
  • Donate
  • Like
  • Follow
  • Watch

NEWSLETTER SIGN UP

Privacy Policy
© Institute of Economic Affairs
REGISTERED IN ENGLAND 755502, CHARITY NO. CC/235 351, LIMITED BY GUARANTEE
×
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies. However you may visit Cookie Settings to provide a controlled consent.
Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Advertisement

Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.

Performance

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

Analytics

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.

Functional

Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.

Uncategorized

Undefined cookies are those that are being analyzed and have not been classified into a category as yet.

Save & Accept
Powered by CookieYes