It looks as if the EU rescue of Greece in particular, but then the de facto bailout of Spain, Portugal, Ireland, Italy, and Hungary has mostly been too-little-too-late. Being a long-time “Euroskeptic”, I can’t help but feel just a little vindicated…but of course that feeling can’t take precedent over the fact the level of real human suffering that is looking fairly surely to ensue.
There has been quite a bit of high-quality commentary:
- Paul Krugman
- Scott Sumner
- Simon Johnson
- Nick Rowe (and here)
- Arnold Kling (and here)
- Leigh Caldwell (and here)
Update: I added Leigh Caldwell to the list. Note that Leigh takes the other side of the argument, claiming that the shackles of the Euro isn’t Greece’s problem (as productivity and inflation are well under the EU average), but rather its a finance problem — and that a German rescue of Greece would work — given shoring up of Greek finances, and lots of FDI. I have my doubts, but it is an interesting counterpoint nonetheless.
I want to single out a comment made by Kling:
Neal Stephenson’s Cryptonomicon has a plot that revolves around an attempt to create a private money backed by gold, not by governments. I would say that if an entrepreneur could create a credible private money, now would be a really opportune time to bring it to market.
To contemplate the impossibility of currency entrepreneurship is fairly useless, as it is merely wishful thinking. Every country in the Western world has fairly strict laws against this sort of behavior…and if they don’t directly pertain to the use of an alternative medium of exchange — they are still subject to tax, which makes the barrier to entry unsurmountably high (given you are required to pay taxes in legal tender).
More broadly — and no disrespect to George Selgin — currency competition is a stupid concept. As I have begun outlining in a recent post (sorry I haven’t gotten around to part two yet!), money is to an economy what carbon is to an ecosystem. Being such, money has very, very strong network properties (network effect). This means that as soon as a certain currency gains any sort of competitive advantage over every other product, it quickly begins to “steal” viability from every other product. These competitive advantages can arise naturally, or by fiat…but the results are the same…the more efficient product will quickly kill off every other product.
Think about it, there are subtleties to telephone competition, but there are no alternative telephones. Similarly, while there are weak information transfer protocols out there, TCP/IP pretty much dominates. The same thing happened with Windows when desktop computing was where the competition was. What would you do if there was a massive “Windows failure”? Switch to Linux? It hardly has the support infrastructure to handle such an influx of retail users.
In a system of currency competition, you still end up with one highly dominant currency…and the rest just kind of fall by the wayside until the collapse of the dominant currency, in which case everyone tries to pile into the “next best” currency — which is unable to handle the increase in demand. Thus, you have Keynes’ extreme liquidity preference, and you are left with all of the problems of having a single currency — ostensibly without the benefits of having a lender of last resort.
Thus, it is important to eschew the entire concept of “currency competition” as worthless. This is why I focus my energies on complementary currency systems. These systems are not designed to overtake the conventionally-traded medium of exchange . They are designed to operate differently (with different ‘rules’) in a way that complements the use of (in this case) legal tender. They facilitate transactions that may not take place otherwise, and increase the velocity of legal tender within the economy. In this way, alternative currency systems can leverage their comparative advantage, which not only makes everyone better off, but also creates a more robust, stable economy.
A great place for Greek businesses to start is by copying the Swiss WIR system. Or follow this example.
It Don't Mean Much, These Seats are Cheap. 
Your arguments about currency competition has merit w.r.t. proposals for competing base or fiat monies. It has none w.r.t. competitive supply of redeemable bank monies–which is what I (and Larry White) have written about at length. Such monies can be fully compatible with underlying base money, and so are able to make inroads into the “network” of users of such–as they have done in numerous historical instances. If you look at my EJ article on “Adaptive Learning and the Transition to Fiat Money,” you’ll see that the analysis there tales network externalities very seriously indeed.
How is your view reconciled with the fact that there are hundreds of national currencies that are, in a sense, always in competition with one another? Do you believe they exists solely because of legal structures, and that a dominant currency would replace them without these legal constructs?
I guess I’d have to consider the nuances here, but I really don’t see the difference between a competing or complementary currency. Most competing currency advocating I’ve seen purports that private currency would serve the store of value function of money more so than a national currency. The seems compatible with the complementary currency narrative you are telling. Likewise, I’m not convinced lender of last resort is a particularly necessary bank function.
I’d imagine deposit insurance would be sufficient enough to avoid bank runs. Then again, we never really had the opportunity to see private currency function with widespread deposit insurances, and I’m sort of assuming you want lender of last resort to function as a hedge against bank runs (you probably have reasons I’ve not considered).
BTW Nick, glad to see you are moving up in the blogging world (I’d be tickled if George Selgin saw fit to respond to my blog).