An agenda for monetary action.

• Author: Grant, James
• Position: Essay

Not quite 40 years ago, the newly minted Nobel laureate Friedrich A. Hayek issued his famous appeal for freedom of choice in currency. He didn't object to governments issuing money; he only objected to governments monopolizing the right to issue money. He expressed the hope that "it will not be too long before complete freedom to deal in any money one likes will be regarded as the essential mark of a free country" (Hayek 1976: 22).

You'd think that the world would have made up its mind by now. Money is as old as the hills. Credit, the promise to pay money, is as old as trust. Still we earthlings still search for an answer.

The Need for Sound Money

The need for sound money is urgent and obvious. Yet we must pause to consider that there is nothing either obvious or urgent about the idea of sound money to the people who own so much of the other kind. The asset-holding portion of the community has hugely profited by zero-percent funding costs and the levitation of stock, bond, and real estate prices. The Dow is back to its highs. The U.S. Treasury is borrowing at yields that would lead a visitor from Mars to conjecture that the government is actually solvent. The dollar value of gold has been falling since 2011--meaning, reciprocally, that the world's faith in the pure paper dollar' has been rising since 2011. If there's a crisis in money, it's news to most moneyed people. The bald fact is that we, believers in markets, are out of step with markets.

Fundamental monetary reform is no easy sale in this time of not-so-terrible measured economic growth and sky-high asset prices. In die era of quantitative easing (QE), the dollar is still the Coca-Cola of world monetary brands. Not many would disdain to pick up a greenback if they saw one lying on the sidewalk. From the vantage point of monetary reform, the Republican takeover of Congress was not quite satisfying. Jeff Bell, running in New Jersey on a gold standard platform against Democrat Cory Booker, lost by a margin of 56 to 42 percent.

Still, it does amaze me that the system in place remains in place. You could write a book about its many demerits, and some of us have. One hundred years ago, we had the gold standard. Today, we have the PhD standard. One hundred years ago, the stockholders of a nationally chartered bank were responsible for the solvency of the institution in which they owned a fractional interest. Today, we have too big to fail.

Progress is the rule in American enterprise. Retrogression is the rule in American money and banking. With respect to the dollar and high finance, we seem to be going backwards.

Pressing for Alternative Monetary Arrangements

This is not the counsel of despair. As people consent to monetary arrangements, so may they withhold their consent and press for alternative arrangements. It's easy to forget that in mid-20th century America, no citizen could lawfully own gold. Principled men and women ended that New Deal fatwa as well as the kindred prohibition against entering into contracts specifying payment in gold. Writing in the snail-mail era, Hayek compared the government's monopoly over money with its monopoly over the post office. E-mail disrupted the post office. Maybe bitcoin or bitgold will disrupt the Fed.

Something should disrupt it. Every new financial crisis brings a bigger, more radical central-bank intervention. You wonder what they'll do the next time. At crisis-wracked intervals since 1993, they have pushed the federal funds rate steadily lower--to 3 percent, 2 percent, 1 percent and now zero percent. In Europe, the authorities have dropped short-dated yields to less than zero.

The great British journalist Walter Bagehot warned that ultra-low interest rates induce speculative bubbles. "John Bull can stand

anything but he can't stand 2 percent," was Bagehot's epigrammatic phrasing of that...