Money and monetary systems

[This post follows What is the US economy? Introduction.]

An analogy of books to money.

As an exercise of imagination, let us suppose that the following were a true description of our publishing industry:

magritte-the-son-of-man-1964-100x117* Only the government may print books.
* The government decides how many books may be in circulation at any given time.
* The government determines the initial price at which books may be sold or loaned.
* And let us suppose further that in this publishing regime authors may say what they want in the books they write and consumers may choose what books to read.

Now here’s a question: Would we describe such a society as a “laissez-faire” intellectual society or a “free speech” regime? Or would we say that the government is an 800-pound gorilla in the middle of the discussion?

Books are to the intellectual realm what money is to the economic realm. Books are abstract representations of knowledge that (a) make easier the exchange and transmission of knowledge among many people and (b) are good for long-term storage. Money is an abstract representation of wealth that (a) makes easier the exchange and transmission of wealth among many people and (b) is good for long-term storage.

So let’s draw the analogy from books to money. Suppose the following were a true description of our financial industry:

moneyprintingpress-167x100* Only the government may print money.
* The government decides how much money will be in circulation.
* The government determines the price of money, i.e., the base interest rates.

No imagination is necessary here, since that is a true description of our financial industry. Of course, people may still use money for pretty much any producer or consumer purposes they choose.

But here’s the parallel question: Should we describe our economy as a “free market” or as “laissez-faire”? Or should we say that the government has rather King-Kong-like powers over money?

It strikes me that this is an under-valued thesis about the economy’s framework: A government owns the US monetary system. It has a compulsory monopoly. And around the world, virtually all of the money systems are government owned.

So: How useful is this analogy?

I’m not here interested in the pros and cons of private-versus-government money systems — only in the issue of how significant our government money system is to measuring the degree to which our economy is mixture of capitalism and socialism.

[Previous post in this series: What is the US economy? Introduction.]

3 thoughts on “Money and monetary systems

  • March 27, 2010 at 2:54 am

    Great example of analogy! I really like it! Recently I started posting interesting analogies I found on the web on Check it out!

  • Pingback:Stephen Hicks, Ph.D. » What is the US economy? Introduction

  • April 25, 2010 at 9:03 am

    Stephen – I like most of what you have posted here. But there are areas where laissez faire doesn’t work too well. That the government has a monopoly over military force, to take an example, is something of which most people approve. There are very good reasons why the government should not – must not – monopolize ideas and information, but do any of them apply, directly or by analogy, to the monetary system? This is a question, by the way, not a conclusion.

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