Competition in Currency: Ron Paul’s “Nutty” Idea
Here is an article Peter Brimelow published in Forbes magazine in 1988 about competition in currency and free market innovations in the monetary payments system. And, yes of course, he mentions me in the article.
- Joe Cobb
My own work with Ron Paul as his staff aide on the Banking Committee of the House of Representatives, 1983-85, led to the introduction of legislation that became Public Law 99-185 on December 17, 1985 (99 Stat. 1177), the “Gold Bullion Coin Act of 1985.”
Our original plan was to introduce an American legal tender gold coinage denominated only in units of weight (troy ounce or gram of gold). This idea was promoted by Ron Paul when he served on the U.S. Gold Commission. The Gold Commission was established by Congress in 1978, and members were appointed by Treasury Secretary Donald T. Regan in 1981. My own private group at that time was named the “U.S. Choice in Currency Commission.” We lobbied the members of the Gold Commission in favor of F.A. Hayek’s idea of competition in currencies, with gold bullion-weight coins as our centerpiece.
Ron Paul was converted from the classical gold standard ideas of Murray Rothbard - who wanted to fix the price of gold in terms of U.S. dollars, as it had been from 1792 until 1971. For an argument how Rothbard’s idea is bad, see Milton Friedman, “Real and Pseudo Gold Standards,” Journal of Law and Economics, vol.4 (1961).
For more discussion of how “parallel currencies” work, successfully, see the work of Prof. Roland Vaubel, University of Mannheim, Germany.
http://snipurl.com/Vaubel
Ron Paul adopted my proposal - and Milton Friedman’s - to have gold monetary units denominated by bullion weight, which is a natural measurement in the market, instead of being denominated in artificial “units of account” such as the dollar, mark, franc, pound sterling, yen, et al. Although we got the law passed to create the bullion coins (tangible things to concretely represent the Units-of-Bookkeeping, which are the main thing in any monetary system today), we did not achieve our main goal - to create a parallel currency in the United States.
This gold-weight-denominated alternative currency would have been a private, competitive alternative to the Federal Reserve monopoly over “dollars.”
Unfortunately, unlike the classic prototype of this kind of coinage and accounting system, the South African Krugerrand (which is not denominated in the paper “rand” currency units of that government), the Congress passed Public Law 99-185 with fictional “face value” amounts. They claimed this was necessary to make the bullion coinage legal tender. Of course, the South Africans had no problem making the Krugerrand legal tender without a fictional face value in paper rands; but we lost that debate.
It is good to see Peter Brimelow reviving publication of this old article [link here] from Forbes magazine. It is an idea whose time will be coming later in the 21st century.
Joe Cobb
Glendale, Arizona