Here’s a letter to the Wall Street Journal.
Editor:
Greg Ip’s argument that cryptocurrencies, being privately issued, will fail as money relies heavily on his historical claim that privately issued bank notes in the 19th-century United States failed as money (“Stablecoins Are Private Money. That’s Why They’re a Risk to the Economy.” May 25). Mr. Ip’s history is incomplete.
It’s true that problems plagued privately issued bank notes in 19th-century America. But research by Hugh Rockoff, George Selgin, Lawrence H. White and others reveals that these troubles were caused not by the bank-notes’ privateness but, instead, by government restrictions. Most notably, but not only, legislation restricted branch banking and required privately issued bank notes to be collateralized by state-government and railroad securities that sometimes proved to be junk.*
In contrast, where banking was less encumbered by government restrictions – places such as Scotland in the 18th and 19th centuries, and Canada in the 19th century – privately issued bank notes served very well as money.
Nor is history kind to Mr. Ip’s suggestion that government money serves well as a store of value. In the 124 years from 1790 through 1913 (the year the Federal Reserve was created), the dollar lost approximately eight percent of its value, yet in the 114 years since the Fed’s creation (1913-2026), the dollar lost a whopping 97 percent of its value.**
If cryptocurrencies fail to serve as good money, the reason won’t be that private issuers of money are destined to perform more poorly than government issuers.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030* George A. Selgin and Lawrence H. White, “How Would the Invisible Hand Handle Money?” Journal of Economic Literature, December 1994, Vol. 32, pages 1718-1749.
** George Selgin, William D. Lastrapes, and Lawrence H. White, “Has the Fed Been a Failure?” Cato Policy Report, November/December 2012, and “Consumer Price Index, 1800- ” Federal Reserve Bank of Minneapolis.
