Re: AltInst: One World, One Money

From: Damien R. Sullivan <>
Date: Tue Sep 29 1998 - 16:55:07 PDT

On Sep 29, 2:53pm, Hal Finney wrote:

> George Selgin, in "The Theory of Free Banking", even suggests going to
> multiple currencies per country. He argues that allowing banks to freely
> issue their own currency will provide this discipline at a smaller scale.

Jane Jacobs suggested one currency per metropolitan region; that was connected
to her idea of such regions as the real macro-unit of economic activity, vs.
artificial nations; depressed Detroit and booming Silicon Valley shouldn't
have the same currency.

> His theories even show that the money supply will automatically adjust to
> money demand under such a system, without the dangers and instabilities

But would either system of more diverse currencies be more vulnerable to
'speculation', since the pool of any currency would probably be much smaller?
Assuming that speculation is actually something to worry about.

Conversely, didn't the West _have_ a single currency during the two centuries
of the gold standard? Many nominal currencies, but backed by an amount
of gold held mostly constant by the competitive pressure the markets would
inflict on a devaluer. Did that system break down because the countries
needed different currencies, or because all the governments really wanted to

>From an econ textbook: US prices between about 1820 and the end of WWI
doubled. US prices between 1820 and about 1990 went up nineteen-fold.

Of course, annual inflation before the Fed could be quite high, or highly
negative, a boom-bust cycle which makes our gyrations seem tame. Which was
the point, taming those cycles, apparently at the cost of perpetual mild (we
hope) inflation.

But as far as I know, the weakness in the gold standard was creation of
money through bank credit. The money supply would rise on bad loans and
collapse in bank runs, oscillating about a gold anchor. So I wonder if the
proper fix would have been just deposit insurance and reserve requirements,
not the wholesale switch to fiat currency we have now.

-xx- Damien R. Sullivan X-)
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Received on Wed Sep 30 00:04:55 1998

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