Why the world has no need for central banks

Business Platform by John Blundell in The Business

I ENJOY invoking the wisdom of Soren Kierkegaard’s dictum that when an idea is unanimously accepted it follows it must be an error.

I think it near to being a universally accepted assumption that a defining role of all governments, even perhaps a duty, is to have a monopoly of money issuing within its jurisdiction. It was true of silver or gold coins.

The prince, king or emperor had to be the sole-issuer.

It was the essence of sovereignty to some. To others it was a potent taxing power.

I put my head above this well armoured parapet of agreement. We do not need government monopoly of money. We do not need Central Banks.

Abolition of this stale monopoly would open up new horizons for business and cure forever the deep-seated disease of the recurring waves of depression and unemployment that are deemed to be the fault of “capitalism” but which are really caused by Central Bank bungling.

At its most simple a state monopoly of money excuses all governments of the need to keep its expenditures within revenues. The spectacular increase in state control of the economy would be far less easy without these crucial controls derived from a money monopoly.

The attribution of money-issuing as a task fit only for politicians is an odd one. Is there a group of people more open to temptation and evasion of integrity?

Chancellor Gordon Brown was applauded for his innovation of sub-contracting the currency and the rate of inflation to the Bank of England. Such has been the dreadful record of political money powers that we regard the current rate of inflation, bobbing along above 2% and rising as fairly creditable. It is shameful. At 2% the value of the pound is halved in 35 years and at 3% it is a mere 23 years. The correct rate is zero - year in and year out. Inflation is merely the dilution of the currency by those with a monopoly of its creation.

Do not be diverted by the mythical causes of inflation such as greedy trade unions, oil sheiks, speculators or retailers. They merely see a country’s money losing value – so their prices rise. The commonplace view that “middle men” cause price rises is as scientific as thinking rain is caused by wet pavements.

In the European Union (EU) we may have seen the high watermark of the monopoly-money ideal. Those nations that signed up for the euro have submitted to a supra-national central bank.

Not a voice was heard from official sources that a total free market in monies might be more fruitful and more interesting. This was the hoovering up of monetary diversity into a Commission-derived monopoly The notion that lays unspoken in so much public debate is that the state is the repository of a wisdom and benevolence not to be found in the vulgar rough and trouble of the market.

I contest the notion civil servants, in this case central bankers, are disinterested guardians of the public good. They are the eternal exponents of monetary nationalism as well as inflation.

I do not claim my notion is original. The first person to write on this theme was Professor Benjamin Klein. Other liberals, in the old sense, have doubted the sense in gifting such a role to the political class.

Perhaps the most arresting essay on this topic was Hayek’s seminal “The Denationalisation of Money”. Hayek argued that it is only numismatists that have no illusions about central banks. The great inflations of the past such as Diocletian or Henry VIII were all attributed eventually to rascals (perhaps we should say crooks?) adding base metal to the coins, clipping their coins or, when it came to paper money, simply printing much more than they said they would. The issuing of extra money empowers the state.

Professor Hayek argues that money does not need to be created by a single authority but, like laws and language and morals, it would emerge an