Topic: Monetary Policy
Megawhat?? Imagine a future where we could use anything for money.by Billy Joe
(libertarian)
Sunday, December 30, 2007
Presidential candidate Ron Paul, M.D. has said that if he is elected he would work to allow competing currencies and end the Federal Reserve's control of the money supply. As a supporter of Dr. Paul, I would like to give the reader a glimpse into a possible Paulian future.
Volumes have been written about the problems associated with the Federal Reserve (or Fed). Fractional reserve requirements, fiat money, arbitrary money supply policies, conflicting objectives, inflation, etc. I will not repeat these arguments here, but suffice it to say that few will shed crocodile tears if the Fed is crowded out of the market after eroding the savings of millions. Let's instead consider some of the free market alternatives.
Any commodity can be used for money, but the most common have been gold and silver. In a Paulian America, these would certainly be minted, but--as the size of the U.S. economy dwarfs the knows supplies and reserves of these metals--other currencies would also come into play. This is a good thing. By diversifying the money supply, a single currency collapse or devaluation would be less likely to bring much instability. Recessions and depressions would be more rare and possibly disappear completely.
In a free market, alternative currencies would vary in relative value against ech other constantly, just like national currencies do today. Eventually a few or possibly even one currency will emerge as a de facto standard, yet the possibility of competition alone would provide a powerful incentive against devaluation or deflation.
Energy commodities are an attractive possibility. Trading certificates redeemable for fixed qutities of light sweet crude or West Texas intermediate have the advantage of always retaining some value even if there is an oil glut, yet problems arise because oil is a depleting resourse and varies in quality, sulfur and energy content. Also we have the obvious problem of being a net oil consuming, not producing country.
My bet for the currency of choice is electricity. Like wealth itself, the future supply of electricity is limited only by our imagination and determination to produce it. It has a universally recognized value. Electricity certificates could take the form of demand notes or futures contracts. It is easily producable, transportable, convertable and consumable. We may indeed someday measure our fortunes in megawatts.
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