The E-Sylum:  Volume 10, Number 20, May 20, 2007, Article 11

THOUGHTS ON PRIVATE ISSUE MONEY

George Selgin writes: "I thought I might make a couple observations
in regard to Dick Johnson's very interesting remarks concerning
implications of private coins and banknotes.

"Although historical experience support's most of Dick's claims,
in two cases it appears to contradict them.

"First, while Dick writes that allowing coins to be issued by
private persons would cause the U.S. Mint to 'become the largest
custom minter in the world,' my own reading of experience (and of
British experience in particular) suggests that private mints might
well prove more efficient than their more bureaucratic rival, and
so might drive it out of business unless the government props it
up with subsidies.

"Dick also writes that 'The currency issued by a bank that defaulted
would have to be accepted by all other banks, otherwise the public
would not accept any bank's currency. Or the banks would have to
form their own insurance plan.'

"While it is true that past note-issuing banks generally agreed to
accept their rivals' notes, they typically did so only so long as
the issuers were in good standing.  Notes of banks in default were
occasionally accepted as a courtesy--and as a low-cost way to capture
a piece of the currency market that was up-for-grabs.  But for banks
to have had a standing policy of accepting notes of failed rivals
would have been suicidal, as it would have exposed them, and the
entire banking and currency system, to individual bank failures.
So note holders did bear some risk.  But this did not prevent
competitively-supplied banknotes from gaining the public's trust.
In some places, indeed (Canada and Scotland come most to mind),
banknotes were generally much preferred to pesky silver or gold
coins!"

Jørgen Sømod writes: "Yes and all this extra money would lead to
hyperinflation and your government would either have to ask for
more taxes or to introduce a total planned economy as in the
German Third Reich.

"In my opinion numismatists in general have misunderstood Gresham's
Law, which students and newcomers so often refer to. Gresham, who
lived in England, had not the problem with bad coins from neighbor
countries. Even if much better coins with a higher value were
introduced, it would always be worse than before, because the public
has to pay an agio to use the new coins. There is only one to pay.
And it is never the state."

[Agio is a word describing the premium or discount associated with
money exchange.  I'm living this day-to-day now as I watch the dollar/
pound exchange rate fluctuate. -Editor]

 To read the Wikipedia entry for Agio, see: Wikipedia

  Wayne Homren, Editor

	coinbooks.org Web

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