Milton Friedman and the Case against Currency Monopoly

Abstract

A longstanding tradition in economics, dating back at least to Adam Smith, looks askance at statutory monopolies, condemning almost all of them as unnecessary barriers to economic progress. Thanks largely to this tradition most of the monopolies present in Smith’s day are no longer tolerated. The few exceptions are found mainly in less developed countries, where they remain a cause of impoverishment. Needless to say, economists have also generally opposed the monopolization by fiat of undertakings that were already at least somewhat competitive in Smith’s day. But there is one set of notable exceptions to the last claim: government monopolies of paper money. During the late 18th and the 19th century such money consisted almost entirely of redeemable notes issued by commercial banks; and while complete legal freedom of entry into the paper currency business was rare, so were outright monopolies. In some countries, moreover, the paper-money industry “playing field ” was more or less level, with numerous banks sharing similar privileges. During the late 19th and early 20th centuries, however, competitive note issue gave way almost everywhere to monopoly as governments awarded exclusive note-issue privileges to favored banks. Although significant numbers of economists opposed this development

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