Hayek-doubters re Denationalisation of Money: Eat Your Heart Out!

A great article from Harvard Business Review:

Once upon a time, there was a country where bankers disappeared. The bankers, fed up with regulation, dissatisfaction, and downright hostility, decided to unleash the planet-destroying superweapon in their arsenal: they went on strike, not once, but three times.

This is no fairy tale, so we don’t have to imagine what happened next. And what did come next was something really, really interesting — and just a little bit awesome. Instead of Ragnarok ripping prosperity to shreds, the economy continued to grow. Though the money supply did contract sharply, neither trade, commerce, nor industry came to a grinding halt.

How? People created their own currencies, to substitute for the collapsing money supply. They kept using checks to pay one another, but then, people’s checks began trading within communities. Here’s how Antoin Murphy, one of the few scholars to have studied these strikes, which took place in the 1970s, describes it: “a highly personalized credit system without any definite time horizon for the eventual clearance of debits and credits substituted for the existing institutionalized banking system.”

The country in question was Ireland — today, in deep crisis because of profligate banks.

I recommend the whole article.

3 Comments

  • Current says:

    I think he overstates the case. During the banking strikes what people generally did was circulate cheques, cheques on the closed banks. That’s rather like what the discount banks of the 19th century did with bills.

    This sort of stuff is nonsense:
    “All the above are true, and they’re factors that raise the perceived benefits of mega-banking. But perhaps the costs have risen, too. John Cassidy has eloquently argued in the New Yorker that banks are largely ‘socially useless’ organizations, which create what I’ve termed thin value — they blow up every few years, when their “profits” are revealed to be as bogus as a three dollar bill, and people and societies are left holding the bag.”

    The GFC was the first major banking crisis in decades (even LTCM wasn’t really major). With folks like Umair Haque your business is great until he gets bored of it and he can’t write any more articles about it, then it becomes “socially useless”.

  • Robert Sadler says:

    Toby, are you familiar with Zopa? Its an online loan marketplace that matches lenders and borrowers without the need for a bank. I have recently found out about it but it may have been around for a while.

  • Robert Sadler says:

    Toby, Current, you both may be interested to know that Zopa also allows you to redeem your loans early along the lines I described in my response to Toby’s “Third Way” article.

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