Wake Forest University held a conference this weekend entitled "The Federal Reserve was a Bad Idea". The keynote speaker was nobel laureate Thomas Sargent (and one of the real nobels, not like Obama’s or Krugman’s!). The conference was a balanced look at what good the fed has done, and what harms it has caused. It’s conclusion was that its harms (uncontrollable inflation, politicization of monetary policy, encouraging profligate tax/spend liberal government, government takeover of or checking accounts) outweighed its positives (you got me, but I think something to do with employing thousands of otherwise unemployable PhD economists).
Now, I’m no Ron Paul fan. I cheered when redstate banned his ever-annoying minions in 2007. And so it always gives me pause to possibly be on the same side of the issue as Ron Paul. But I don’t think I am here. Paul wants to gain oversight privileges for his committee over the fed, and ultimately use government power to dissolve it and return to a saner, sounder currency. But I think a more proper approach to fixing the fed is to follow free-market principles.
Suppose a bank such as BB&T were to offer notes backed by some asset, such as gold or silver. While these would not be legal tender in the sense that anyone would take them, I would certainly prefer to hold my money in these new notes, and I would be willing to explain to puzzled merchants why paying them in $20 Reagan dollars (or whoever they want to put on the front, Coolidge, Harding, whatever) would be doing them a favor, as they’d know they could exchange it for gold at any time. Within no time, business would be accepting or even preferring Reagan dollars to actual money. Soon, I an others like me would refuse to patronize any business that did not accept Reagan dollars, and the remaining holdouts would adapt or go out of business. Marketed correctly, I think such a currency could become as widely accepted as greebacks within one year. And banks will compete amongst each other for who can make their money the easiest to use. I think the result would be a handful of new currencies, all very stable, and the marginalization of the dollar.
Naturally, Dear Leader Obama would start demanding tribute (i.e. tax on non-organic foods) in Reagan dollars, and once that happened, one or more private currencies would be the de facto coin of the realm. The important difference from right now, is that with privately-administered money, the government really would have to spend what it takes in, rather than printing now-useless dollars. I’m actually surprised this hasn’t happened already. Perhaps some activist judge has found some constitutional prohibition to private money already?