The following paper was written for The Cobden Centre by Vishal Wilde.
Vishal Wilde is a finalist studying for a BSc (Hons) in Philosophy, Politics & Economics (Economics major) at the University of Warwick. He wishes to spend his life fighting for and defending freedom. He is a Freelance Journalist (writing, most recently, for the Market Mogul), he writes Poetry, Science-Fiction and Fantasy and conducts independent academic research in Economics, Political Science and Philosophy. He is a Research Consultant for Fantain Sports, Pvt Ltd. (a tech startup based in India). He has previously written research articles and blogged for the Adam Smith Institute.
All money, goods and services are considered to be instruments of expectations-management (both as tools and measuring devices). This compatible with rational choice theory, institutional economics, money’s previously established fundamental properties, the disparity in observed exchange rates and arbitrage theory’s predictions, both Friedman and Keynes’ understanding of the Great Depression and the political reasons for the Eurozone Sovereign Debt Crisis. All monies have monetary rules as expectations-management strategies; these are the underlying assets of monies. Implications for value and price theory are briefly presented. Central Banking distorts the market for expectations-management; this leads to agents’ sub-optimal expectations-management and financial imbalances.
- Instruments of expectations-management
Rational choice theory tells us that one labours a certain amount because it is preferred to other allocations of labour and leisure. Another view that is consistent with this is that we labour to manage the expected risk associated with non-labour. Similarly, we trade certain goods and services to manage our expectations with respect to the alternative of not trading them. We adhere to the precincts of civilisation in order to manage the expected risk associated with the possibility of not participating in civilisation. When going to the marketplace, we manage our expectations by carrying the appropriate money (amongst other things). For things to be tradable, both traders must see the potential for expectations-management in the traded assets. Inductively, one can view every (human) action as an expectations-management strategy with respect to its negative (at the very least).
- Monetary rules as expectations-management strategies
A crucially important definition of money, therefore, is that Money is an instrument of expectations-management. It is an instrument in two senses: as a tool of expectations-management and, also, as a measuring device of expectations-management capabilities (and, therefore, of subjective-use value). This fact being overlooked (though necessarily implicit in its usage) has dire consequences for monetary policy in particular and public policy in general. The three functions of it being a unit of account, store of value and medium of exchange are consistent with this.
- Examples and illustrations
All money that exists and has ever existed is or was subject to a monetary rule that determines monetary policy – both in the contemporary, narrow usage of the term and the broadest sense. All central banks operate monetary rules; for example, inflation-targeting regimes try to stabilise expectations with respect to price changes (relative to that money), whilst forward guidance is designed to stabilise expectations with respect to when and/or by how much interest rates will change.
All of the aforementioned and more (such as metallic content variance, redeemability, illiquidity possibilities, rule amendment, social status symbols and even death) are things we form expectations of and assign probabilities to. Each monetary rule enables expectations-management of certain variables relative to that particular money; thus, money is fundamentally an instrument of expectations-management that naturally developed for this purpose (amongst others) and this same, vital property is implicitly recognised in our usage of it even if we are not consciously aware of it.
Even in communities where corn or rice or some other crop is used as money, the composite rule at work here involves farm output, seasonality, nourishment, usage as a staple and so on. The communities may also use futures contracts linked to these assets as money.
In the case of crypto currencies (such as Bitcoin) algorithmically determined production and interest rate determination rules (with different algorithms obviously being valued differently) are variations of monetary rules.
Consequently, the Central Bank occupies the position of a monopolist provider of expectations-management in the form of money, our most fundamental means of expectations-management – this means that the vast majority of all agents (with few exceptions) in every economy where there is only one money supply (whether this be the US Dollar, Euros, Pound Sterling, Japanese Yen, Indian Rupees, Chinese yuan, Brazilian real, Russian ruble etc.) cannot optimally insure against the expected risks about which they form preferences accordingly (this is not just with respect to price-levels). This leads to excessively inimical cyclical fluctuations, structural imbalances and systemic failure. Keynesians would agree (true Keynesians, anyway) that it is “chiefly” the “dependence of the marginal efficiency of [a given stock of] capital on changes in expectation” that “renders the marginal efficiency of capital subject to the somewhat violent fluctuations which are the explanation of the Trade Cycle.”
Monetary rules can be considered in the broadest sense; even variations in who is allowed to create deposits (amongst other means to increase the money supply) by the Central Bank (and which Central Bank itself has ultimate control over that money supply) are variations in monetary rules.
With respect to the rule vs discretion debate in monetary policy, what we mean by discretion is essentially continuous amendments to the underlying monetary rule, in the broadest sense. However, both are problematic in a central banking regime and this will be explored later.
III. Commensurability of subjective and objective value(s)
- Consistency with previously established properties
Ludwig von Mises (1912) suggested that the most important property of money is that it is widely used as a medium of exchange and that all its other properties follow as a function of this. He states that a fundamental problem is reconciling subjective and objective-use values. Objectively, we all want to and do manage expectations (consciously and/or subconsciously) and there is a set of all possible uncertainties that we face, within which each one faces subsets (much of the time, they may be overlapping subsets for most agents) and we all assign subjective preference-orderings and weightings to the elements within these subsets. However, once the objective value (taken here as market value) of money has been established, the subjective and objective valuations will inevitably share a bidirectional relationship via multidirectional, reflexive feedback loop(s). 
Although all goods and services are instruments of expectations-management in the sense that they are tools of expectations-management, money also explicitly measures an asset’s potential for expectations-management (the amount of money one is willing to spend reflects one’s subjective valuation of it and the market-price reflects an aggregated, appropriately weighted measure). It is a unit of account for expectations-management capabilities, it is a store of value in so far as it has the potential for expectations-management and it is a medium of exchange which solves the double coincidence of wants (wants being expectations-management preferences).
- Money measures subjective use-value, which has its origins in expectations-management capabilities
The amount of money one is willing to pay reflects their subjective valuation of that asset’s potential for expectations-management. Since (at least in economic life), the subjective use value of money is formed based on its expectations-management capabilities, the market prices denominated in any money are the measure of the aggregated subjective valuations of those who demand the money, goods and services – the subjective valuations being dependent on the asset’s expectations-management capabilities and, of course, the objective valuation sharing varying, multidirectional, reflexive feedback loops with each subjective valuation. So, the underlying asset of all monies is their respective monetary rules since this enables expectations-management.
- Expectations-management capabilities determines prices
- Liquidity Preference
Liquidity preference is just that – the preference for liquidity. Liquidity is a risk factor and a means of managing the expected risk associated with the possibility of illiquidity in so far as it may be detrimental to the relevant spheres of economic life. Hence, liquidity preference is one of an agent’s’ expectations-management preferences and it should be noted that, though liquidity is a significant expected-risk factor, it is not the only such factor. Therefore, managing liquidity preference is part of the expectations-management capabilities that that money can afford and how closely it satisfies agents’ expectations-management preferences (which obviously changes in response to a changing, uncertain environment).
Exchange rates, interest rates, arbitrage and multiple money possibilities
Arbitrage theory suggests that exchange rates should converge. However, in reality, we observe that this prediction does not hold. This is because market prices are the appropriate aggregate of the subjective valuations of expectations-management capabilities and monetary rules are expectations-management strategies; hence, variance in (valuations of) expectations-management capabilities across monies means that monies can and often will be priced differently. This also means that, in a case of freely floating, multiple currencies, there can be a permanent multiplicity of exchange rates and interest-rates in a long-run equilibrium. 
- Policy Consequences
- Central Banking distorts expectations-management via monetary monopoly
If there are constant amendments to the monetary rule over time (supposedly to adapt to the context), this is a constant alteration of the underlying asset of money and this creates a climate of constant uncertainty concerning this natural, fundamental instrument of expectations-management.
This does not mean that we should have a fixed instead of a discretionary monetary rule since people have different expectations-management preferences; monetarists sought to stabilise inflation expectations and Keynes sought to stabilise trade cycle expectations by committing to spending whenever there was a bust to smooth out cyclical fluctuations, so to speak; however, both schools do not deal with the fundamental issue of the fact that one monetary rule (whatever it may be) cannot satisfy all agents’ expectations-management preferences since they are varying.
Also, since only certain expectations can be stabilised and managed effectively with central banking (if at all), this means that agents’ expectations w.r.t certain variables that are not stabilised will look for stability in other assets (since it cannot happen in money) and this will inevitably lead to the corresponding asset price bubbles, etc. since there is an imposed limit on the monetary rule that can be utilised by traders.
- The Great Depression
Friedman & Schwartz (1963) suggested that a sudden contraction in the money supply made the Great Depression far more severe than need be; sudden contraction meant that individuals had no time to manage their expectations and, seeing as, on a Keynesian view, the marginal efficiency of capital had been lowered due to the preceding stock market crash and this naturally precipitated in increased liquidity preference, it made matters worse by sharply decreasing the availability of liquidity when liquidity preference had actually sharply increased. Central banking, therefore, enabled the Great Depression by implementing the untimely, contractionary monetary policy which was diametrically opposed to the general state of a significant risk factor in agents’ expected-risk preference profiles; hence, it made what may have ordinarily been a recession far deeper than necessary. Of course, there must have been an overall change in the state of expectations-management preferences but it was suitable to explain the Great Depression in terms of liquidity preference since that may have been the most significant factor to change in agents’ expectations-management preference profiles.
- b) Eurozone Sovereign Debt Crisis
The perception that Germany has a greater say in the ECB than Southern countries may be reflected in the fact that the German government suffered less from the debt crises because their expectations-management preferences are better met (though it is still largely sub-optimal) by the ECB than Southern Europe’s governments.
A return to solely national monies would be disastrous
One can plausibly conjecture that agents in the Eurozone were once conditioned and accustomed to their own national, evolving monetary rules and since all countries must have varying expectations-management preferences across their populations, suddenly subjecting the populations to one expectations-management strategy will inevitably lead to dire consequences. Consequently, if countries were to return solely to national currencies, it would not solve the problem but only make it far worse since individual agents would now be in for the additional shock of adjusting to their respective, national monetary rules after having already gone through the shock of adjusting to the ECB’s monetary rule. Furthermore, it’s not monetary union that’s the problem but the way in which monetary union was implemented.
- The Great Recession and future possibility of a Derivatives crisis
Since 2008, the global OTC market’s gross market value has declined in value whilst the notional amount outstanding has continued steadily increasing. If it is the case that market price is a measure of the aggregated subjective valuations of the asset(s)’ expectations-management capabilities, the divergence in trends between the two valuations is a cause for concern because it implies that an ever-increasing amount of payments (due to the steadily increasing notional amount outstanding) is dependent upon an asset which is becoming increasingly worse at expectations-management; this makes sense when we consider that there is tremendous uncertainty regarding interest rate policies, there are the on-going and expected currency wars etc. as well as the fact that public discourse favours increased regulation of derivatives markets (which threatens to diminish their ability to be effective instruments of expectations-management). This means that, whilst previously, we had a collapse of house-prices; this time, there is the possibility for a crash in the derivatives market itself and fears of increased regulation encourages more market participants to believe that these instruments of expectations-management may be hindered.
What has caused the recovery to be so slow is that the change in expectations-management preferences (a significant part of which is the increased liquidity preference) that is yet to be satisfied and cannot be satisfied by money as it ordinarily might have been because of agents’ unstable expectations with respect to interest rates and neither can it be satisfied by derivatives because markets are uncertain about the future regulations of derivatives. However, in the same way that the Great Depression was caused, actually coming down hard on derivatives under the false contention that their proliferation caused the crisis will actually deepen the current crisis and, conceivably, the Great Recession will evolve into something far worse than the Great Depression; that is, what we have experienced so far will seem like a hiccup. Attempting to give some perspective, the total credit default swap (notional) outstandings was $62.2 trillion in 2007 before declining to $38.6tn (2s.f) and $30.4tn (2s.f) in 2008 and 2009, respectively. By June-end 2014, the (notional) amount outstanding for just OTC interest rate derivatives stood at around $560 trillion (2s.f). This is especially worrying when we consider that the exposure to these contracts is spread out amongst a wide variety of financial institutions and they are further linked to various industries. Governments simply do not have the money required for a bail out in the instance of a meltdown.
So how can we be sure that the increased liquidity preference has expressed itself in the OTC interest rate derivatives market and not via another channel? After all, stock prices have increased significantly and they are also liquid. The crucial difference relates to expectations-management properties; that is, the vent-up liquidity preference is better met in OTC Interest rate contracts derivatives than in stocks because, in addition to being relatively liquid (when compared to real estate), they also help manage the expected risk currently associated with uncertainty w.r.t interest rates and wider monetary policy. Hence, clamping down on them will be especially harmful and the uncertain regulatory climate is already causing problems.
Furthermore, in the Great Depression, when stocks crashed and liquidity preference soared (causing people to hoard cash), stocks were relatively liquid in 1929 (especially when compared to modern real estate). In fact, in the modern context, bank-runs may not have occurred due to insured deposits but the problem is that the magnitude of change in the liquidity preference is likely to be greater from the collapse of the marginal efficiency of capital in the Great Recession than it was in the Great Depression since houses are relatively illiquid compared to stocks. The greater magnitude of the liquidity preference increase may also account for why it has been such a slow recovery since the various avenues available to relieve the drastic change in expectations-management preferences (in terms of liquidity, interest rate uncertainty, quantitative easing forecasts, etc.) are simply insufficient in both variety and depth.
- Free(r) banking is the only effective stimulus in this trap
We are, more widely, therefore, stuck in an expectations-management trap since our most fundamental, natural means of expectations-management (money) has been constrained in most nation-states. Furthermore, it is not that there is too much liquidity – but actually that there is too little of the right sort of liquidity. There is only increased liquidity of particular monies; however, the increasingly unstable expectations with respect to the monetary rules that central banks employ (whether these be w.r.t interest-rates, forward guidance, QE etc.) increases the expected risk (partially reflected in the continuous growth of the OTC interest-rate derivatives) w.r.t certain key variables and, therefore, makes it an unappealing instrument by which people can fully satisfy the changes in their expectations-management preferences (which an increase in their liquidity preference is encompassed within) whilst taking other variables into account.
The case of the Eurozone
Suppose, instead, that one implemented a Money and Banking system where people are allowed to trade in multiple monies and pay taxes in multiple monies. For example, in the Eurozone, if one let the ECB continue lending in Euros, let national governments distribute their own national monies, let citizens of the Eurozone pay their taxes in any money (Euro, domestic or foreign) and let trade occur in any of the monies that traders choose, this may result in a more favourable arrangement. Another possibility is to enable the creation of co-operative monies (through public-public and public-private partnerships which would function like compound or derivative monies) and this is a key amendment to the original proposal that will be explained further.
Competing monetary rules satisfy diverse expectations-management preferences
Many competing monetary rules (and co-operative ones also) would enable a market with a varied range of exchange rates and interest rates since it was previously argued how varying monetary rules enables differing prices of monies (interest rate, exchange rate etc.). Each monetary authority could follow rigid rules, discretion, a mixture etc. – this, would be a more stable arrangement since, in order to capture their share of the market, each money producer would have to practice price-discrimination and appeal to the expectations-management preferences of certain prospective users.
Range of market interest rates and exchange rates
This range will appeal to savers, borrowers, importers, exporters, consumers, producers etc. Various interest rates means funds will be distributed across the interest rates according to agents’ savings, borrowing and investment preferences and each agent will distribute their own funds accordingly. This will inevitably lead to an increase in savings, loanable funds and investment.
Reducing agents’ and governments’ credit risk
The distribution of exporters (who can use relatively cheap monies and, thereby, sell more), importers (who may choose to employ relatively strong monies so that they do not import inflation), consumers, producers, savers, borrowers, creditors, debtors and so on optimising at their various elasticities means that there will be increases in (expected) investment, (expected) profits, (expected) output, (expected) employment etc.; this not only means that disposable incomes and tax revenue will increase but also that that tax revenue will be paid in different monies (in proportion to their usage by agents) and that there will be a proportionate decrease in agents’ credit risk due to increases in the aforementioned variables. Furthermore, if governments borrow in relatively cheaper monies, then those taxes that are paid in relatively strong monies (especially in countries that have trade deficits) will allow better financing of the debt (thereby reducing governments’ credit risk).
Agents with a high credit risk would not have as much access to cheaper credit as they would when compared to a regime with persistently and wholly low interest rates. Similarly, since people would rather save at higher interest rates (and, therefore, in certain relatively strong monies), this means that a higher proportion of loanable funds will be available to borrow at higher interest rates and vice-versa. This ensures that credit bubbles will be restricted in future since people who compete for lower interest rate loans will have to exhibit lower credit risk to avoid higher interest rate loans. However, this does not mean that borrowing would only be done at lower interest rates because, due to money being an instrument of expectations-management, not all agents will value the expected (relatively) low interest rate as highly as others. Hence, some (such as importers, investors or people who are borrowing with the expectation that their loan will provide future expected profits that offset the loan payments), may pick a higher interest rate loan if it meant that a (relatively) high exchange-rate money would enable them to profitably invest more and they may be willing to pay a higher interest rate since the stabilised expectation of a higher exchange rate is more highly valued than that of a lower interest rate.
Reducing liquidity risk
Since there would be a greater amount of savings than is currently the case, due to the various interest rates, banks’ liquidity risk would decrease.
Many lenders of last resort
There is the potential for many lenders of last resort for each government, financial institution, firm etc. and, therefore, credit risk will decrease further.
Potential for implementing computational wallets in everyday economic life and the usage of purchasing power indices
Using multiple monies may mean that computationally determined purchasing power indices may become more useful to agents than nominal income; with many monies in circulation, there would be an increased incentive to go cashless and for businesses to develop algorithms that determine the most efficient way of exchanging the held monies for trading purposes (ForEx traders, amongst others, already use algorithmic methods to reduce transaction costs and, hence, the technology for this already exists and we would only be incentivising its further development and greater commercial implementation).
Reduction in expected future volatility of governments’ credit risk
Fluctuations in interest rates and exchange rates enables agents’ switching from one money to another according to their needs – thereby restricting asset-price bubbles and mitigating trade imbalances. Furthermore, if a government devalues its own money too much, more agents will switch to another (relatively) stronger money and, since they could pay their taxes in this money, the government could also finance its debt more effectively with the increased proportion of taxes paid in that money. Hence, there would be a reduction in the expected future volatility of credit risk.
Ultimately, enabling agents to optimise according to their individual expectations-management preferences means that there will be fewer crises in future.
- a) Co-operative, Co-existing and Competing Monies’ potential payoff
Any amendment to a monetary rule and even a monetary rule itself can be classed as a derivative product; since derivative products themselves are used to manage expectations, there is the possibility to conceptualise ‘Co-operative Money’. Co-operative money could be produced via public-public or public-private partnerships or, additionally, wholly private monies. In a banking system of co-operative, competing monies where taxes can be paid to governments in any money (whether it be public-public or public-private monies, though governments would not be obliged to take wholly private monies) there would be a plenitude of monies available for use. In the context of the Eurozone, we can envision (to name just a few) cases such as a Franc-drachma with a Taylor rule (a money jointly printed by the French and Greek central banks whose price is determined by certain predetermined weightages of both and whose interest rate is changed according to the Taylor rule), or a Gold Euro-Deutschemark (a German money mixed with the Euro that is also a promissory note for some gold) or, if there is the need for monies that have a fixed price (or even other properties) between two monies, there could be, for example, a money C whose price and interest rate is derived 10% from A and 90% from B, a money D whose value was derived 30% from A, 60% from C, 10% from B and so on and so forth. In this way, one can envision many permutations and combinations that would enable greater optimisation according to the various elasticities, regional preferences, industrial structures etc.
Scope for public-private partnerships
There could also be scope for public-private partnerships in that many private entities may have a greater understanding of what is required to meet expectations-management preferences in their locality, community, their industry or other industries or even simply for their firm; hence, they may be able to provide specific resources (e.g commodities, technical expertise etc.) and, thereby, make money via a public-private partnership that could, in addition to being optimal for certain trades, also be used to pay taxes.
Using computer algorithms and a general increase in liquidity across the economy
Of course, one could argue that there would be too many monies and this would be too complex. However, this would encourage the move toward a cashless society and the proliferation of algorithms that would find the most efficient conversion routes (if more than one money has to be exchanged) to find the best deals for buyers, sellers, creditors, debtors etc. or the best compromise between them.
In the same way that algorithmic trading has made financial markets far more liquid, using algorithms for the purposes of finding the best foreign exchange conversion routes for buyers, pricing strategies for sellers etc. will also lead to increased liquidity in foreign exchange markets and, if there are co-operative monies that are linked to other commodities (e.g silicon, paper, wood, coal, oil, gold, silver, brass, copper, diamonds etc.), these commodities’ markets will also become increasingly liquid (hence, there will be an overall increase in liquidity throughout the economy).
In this way, all monetary unions would be voluntary and according to specific needs and wants in an overarching framework wherein the Eurozone is preserved via enhancing taxpayer autonomy; this would work to further enhance trade and one monetary union would not be privileged over another because everyone would be able to pay their taxes or debts in any of the co-operative monies.
To use the derivatives market as an analogous indicator, since these co-operative monies and competing monetary rules can be characterised as derivatives and because they would be meeting agents’ expectations-management preferences like the derivatives market does; at least a fair chunk of that total notional value ($691.5 trillion for OTC derivatives) and/or total gross market value ($17.4 trillion for OTC derivatives) would be translated into the economy that is stimulated by the new monies from a free(r) money and banking system.
This also means that the derivatives market is nowhere near as developed as it could be because there are only 13 monies in the BIS survey and other important markets haven’t let their derivatives markets flourish. With the potential for far more monies, the introduction of co-operative monies and the usage of algorithmic mechanism design in foreign exchange by all agents to optimise expectations-management strategies will enable far greater growth in the underlying monies’ markets, the markets where trade is denominated in those monies and also in their derivatives market; this will, furthermore, have a bidirectional, positive, reflexive feedback loop.
Technical practicalities and context-specific considerations
Wilde’s (2014) original proposal is implementable in less developed countries or in countries where policymakers and peoples are sceptical and it meets the need for a pragmatic, non-shocking intermediary step toward free(r) banking. However, it does not make full use of the state of technology, algorithmic trading and mechanism design to fully exploit the benefits for agents.
- Preliminary, concluding remarks
What is ultimately required then, is modern free banking with its competing monetary rules; in the case of the Eurozone, what is needed is robust and unprecedented Money, Banking and Taxation reform that preserves the union, keeps the peace and enables the European people to reap the benefits of modern free banking whilst still ensuring taxpayers’ autonomy with respect to public finances.
Possibility for competing, co-operative, co-existing monies in other states
Besides the Eurozone, there is the possibility to apply the prescription for Money, Banking and Taxation reform that follows from this theory to all nation-states and not just the ailing Eurozone by having a federal money operating alongside various state monies, public-private monies and (hopefully) also wholly private monies. For example, in the UK there could be, in addition to GBP, a Yorkshire pound, a Scottish pound, a Welsh pound, an Irish pound, a Cornish pound, a Mancunian pound, a Sheffield pound, a Bristolian pound etc. In the USA, there could, in addition to the US Dollar, the Texas Dollar, the Californian Dollar, the New Jersey Dollar, the Ohio Dollar, the Michigan Dollar, the New York Dollar etc. In India, there could be, in addition to the Indian rupee, the Tamil rupee, the Marathi rupee, the Bengali rupee, the Kashmiri rupee, the Bihar rupee, the Orissa rupee etc. In fact, this can be implemented in pretty much any country. It will also readily strike people that the potential payoff from such a proposal would be even greater if there were co-operative monies between monetary unions that were otherwise separated (e.g allow Americans to pay their taxes in British monies, European monies, Indian monies etc. and to trade in them, form co-operative monies with them and so on and so forth).
Additional policy recommendations for BRICS and Iran
In recent years, the BRICS nations (Brazil, Russia, India, China and South Africa) have received a lot of attention due to their comparatively stellar performance. However, there is an even greater risk here because Asia’s OTC derivatives markets only make up a disproportionately small fraction of the global derivatives market (similarly, with Brazil, Russia and South Africa, there has been a reluctance to let derivatives take off). This means that the risks associated with monetary policy, trade, micro and macroeconomic indicators etc. have been even more poorly managed in these nations than they were in the US, UK and Eurozone before their respective crises. China and India have grown particularly rapidly and they, therefore, are at particular risk. A short-term solution for the BRICS countries in the run-up to implementing free(r) banking systems (so as to delay the possibility of any oncoming crisis whilst we make way for a free(r) banking system) is to deregulate their respective financial markets (especially the derivatives markets).
Considering the current oil crisis, both Russia and Iran could, to help stabilise expected risk in the short-term, deregulate their financial markets (amongst other things) – especially their OTC derivatives markets.
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 And for the good, service or money received to be at least as good as satisfying their expectations-management preferences as the good, service or money offered – though this is simply a re-application of what we already know about preferences from pre-existing rational choice theory.
 On this view, Economics is concerned with the study of the causes, means and consequences of expectations-management since all goods, services and money are instruments of expectations-management.
 Monetarists like Friedman (1953, 1968) were right to suggest that price stability is important for the economy but did not qualify this with the fact that it is important only in so far as agents would prefer to (partially) stabilise this and that not all agents want to. After all, not all agents equally value or prioritise price-stability – some may prefer knowledge of when and by how much interest-rates will change, whether the currency will be redeemable or whether it will be widely accepted (since there is always uncertainty as to whether it will be – especially in conflicted regions) and other such variables. Of course, there are many risk factors to manage and it would be unnecessarily tiresome to enumerate them all in each case.
 An article entitled “Clarity Gap: The Federal Reserve’s new forward guidance is hazy” (published on 22nd March, 2014 in The Economist – from the Print edition: Finance and Economics) is an example of how important the goal of agents’ expectations-stability is in monetary policy.
 The example of using derivatives themselves as money is vital for understanding the possibility of co-operative monies, which is explored later.
 In addition to his more famous fiscal policy suggestions, Keynes wrote “It is, I think, arguable that a more advantageous average state of expectation might result from a banking policy which always nipped in the bud an incipient boom”; thus, in his speculative proposal he acknowledges the potential for monetary policy to manage the expected risk of boom-and-bust. Furthermore, in The General Theory, in the chapter ‘Notes on the Trade Cycle’ Keynes explicitly argues that the marginal efficiency of capital determines liquidity preference; liquidity preference is an expectations-management strategy that manages the expected risk associated with the alternative of holding illiquid assets (the consequences of this will be explored later).
 This could take the form of changing to forward guidance, setting different formulae for interest rate-determination, outright monetary transactions, reverting to or abandoning a metallic standard, varying the backing of the currency, converting it to or from fiat money, authorising certain banks to create deposits etc.
 Conversely, one could argue that a fixed rule in monetary policy involves discretion and, hence, fixed rule(s) monetary policy is essentially commitment to a particular, initially determined discretionary expectations-management strategy; ultimately, there is merely a distinction of reason between fixed rule(s) and discretionary central banking policy.
 Rothbard (1963), however, believed that money is just another commodity held by individuals that, over time, was afforded a special status since it was mostly demanded as a medium of exchange.
 See Book 1, chapter 2: on the measurement of value, in The Theory of Money and Credit.
 See the Introduction of Soros (1987) for a simple exposition.
 This is also consistent with an important Institutionalist view (see Shubik, 2000). Shubik states “Fiat money is a creation of both the state and society. Its value is supported by expectations which are by the dynamics of trust in government, the socio-economic structure and by outside events such as wars, plagues or political unrest. The micro management of a dynamic economy is not far removed in difficulty from the micro-management of the weather. However, money and financial institutions and instruments of a modern economy provide the means to influence expectations and bound behavior.”
 It should be noted, however, that in simple barter, the assets themselves can be measuring instruments but due to their illiquidity and, therefore, the greater mismatch in subsets (i.e peoples’ subsets for money with respect to expectations-management overlap far more than for other assets – e.g in liquidity), they cannot be money, as we know it.
 Anyone who agrees with this will also readily see that, consequently, Malkiel’s (2012) random walk hypothesis is incorrect because asset prices are, therefore, predictable (with qualification, however, since they are still very, very difficult to predict).
 Current arbitrage theory does not account for this.
 Interest rates are often considered a particular price of money and, since money measures subjective use value, this means that interest rates also reflect monies’ expectations-management capabilities for agents (if it is freely floating, that is, but if it is centrally imposed then this particular aspect of the overall expectations-management strategy has been fixed by the central bank).
 Consequently, this also means that there is no such thing as an optimal currency area but, rather, that there are areas in which it is optimal to use a certain subset of all available currencies (this optimal, multi-currency area will, of course, change over time according to changes in various expected risk factors, values etc.).
 Bank runs are, furthermore, symptomatic of sharp increases in actualised liquidity preference (exacerbated by a self-reinforcing reflexive feedback loop which is contemporarily referred to as ‘herd mentality’) that cannot be satisfied by the bank.
 Also, the Eurozone has only just recently adopted the Euro (1999-2002), whereas the US and the UK have had the dollar and pound for centuries (albeit, the respective monetary rules were constantly being amended).
 Which is what was previously argued that monetary rules are.
 No wonder then that a crisis occurred less than a decade after the Euro’s introduction!
 Since 2012, Equity-linked contracts, Commodity contracts, Credit Default Swaps and Unallocated all have market values and notional amounts outstanding that follow the same trend. However, Interest rate contracts’ trends diverge (positive for notional outstanding, negative for gross market value).
 This builds upon an initial proposal by Wilde (2014).
 Incidentally, in such an arrangement, it would be desirable to have a flat tax rate across (and according to) the different proportions of monies held by agents to prevent tax fraud.
 Like they do when the Central Bank depresses interest rates.
 This conclusion concurs with Selgin’s (1994) analysis that “points to government regulation itself as the most likely cause of banking crises”.
 See Miller & Zhang (2014) for an illustration of how Draghi’s announcements can be characterised as a ‘put’ in monetary rule terms; hence, a monetary rule itself can be considered a derivative and it is easy to see how we can continue to make derivative monies, in this way.
 Governments would not necessarily be obliged to accept wholly private monies; however, wholly private monies and public-private monies will help ensure that specific preferences for monetary rules are met.
 By June-end 2014, according to the Bank of International Settlements’ semiannual survey of the global OTC derivatives markets.
 Will there be increased income inequality? The status quo is perpetuated by the fact that investment bankers have access to superior expected-risk management techniques and, therefore, they reap higher income by doing so since the burden of other agents’ risk-management is also shifted onto them. Multiple monies, co-operative monies, voluntary monetary unions alongside enhanced taxpayer and trader autonomy will enable greater wealth-creation for those who do not trade in derivatives.
 It is, therefore, difficult for an accurate econometric forecasting of the potential payoff (though it would be massive, to say the least) due both to the reasons that Lucas (1976) expounds and the wider problem of endogeneity which neither statistical nor econometric theory has not adequately dealt with in order to accurately measure the full impact and nature of reflexivity in each instance.
 Where the term ‘currency’ is used very loosely and essentially synonymously with the broader term, money.
 Incidentally, presuming one agrees with the fundamental premises and subsequent arguments concerning what has been said about such a free(r) banking system, there are no limits to economic growth. Only self-imposed limits (whether this be through unwillingness to develop more efficient algorithms, products, state regulation and taxation etc.) are possible because as long as there are avenues of expectations-management, there will be economic growth and since we live in a world of perpetual uncertainty, it is impossible for expectations-management possibilities to be exhausted unless we become omniscient because when expectations w.r.t certain variables are managed, more elements may be revealed. For example, once we have adequately managed expectations w.r.t A and B, a new risk may emerge and become manageable (e.g risk of ruining paperwork can be dealt with via digital storage, digital storage runs the risk of being wiped and is susceptible to hacking, cloud-computing serves as a back-up but now there is the additional complexity of ensuring information security there etc.).
 See Wilde’s (2014) post on the Adam Smith Institute Blog, entitled “Competing monetary rules: modern free banking possibilities” to read this idea in its infancy.