This archived content originally appeared at Freebanking.org, the predecessor site to Alt-M.org, and does not carry the sponsorship of the Cato Institute.

Ideas, interests, and free banking

At the Coordination Problem blog, Pete Boettke remarks that economists are more comfortable with theories of politics that focus on the narrow self-interest of participants rather than on ideas. Ideas matter, though, and many policies cannot be explained purely in terms of self-interest. A group exists that benefits from a policy, but it makes arguments couched in broader terms that have wide appeal. Sometimes it need not even take an obvious success or failure to shift the policy despite the influence of entrenched interests; a change in the appeal of the ideas can make the difference.

A possible case in point, mentioned in another of Pete’s recent posts, is education. (This is going to be a bit of a digression, but I hope an instructive one.) For a long time it was simply assumed that education is a necessary government function, and that governments should own the schools as well as funding them. Even now the ideological presupposition in favor of government education runs deep. Think about the last several U.S. presidential elections. The contenders in the general elections were George W. Bush (Phillips Academy, Yale, Harvard Business School), Al Gore (St. Alban’s School, Harvard, Vanderbilt Law School), John Kerry (St. Paul’s School, Yale), Barack Obama (Punahou School, Columbia, Harvard Law School), John McCain (Episcopal High School, U.S. Naval Academy), and Mitt Romney (Cranbrook School, Brigham Young, Harvard Law and Business schools). Not only did they all attend private colleges (except for the U.S. Naval Academy, which although government-owned has admission procedures like those of the elite private colleges), all went to private high schools and all who went to graduate school went to private graduate schools. And yet, rather than say, “Private schools certainly worked for me; they can also work for many others,” they focused on government schools. The same is true of such people as Bill Gates in his philanthropic efforts; Ed Glaeser, the Harvard professor of urban economics professor who sometimes writes on education; the publisher of The Nation magazine, Katerina vanden Heuvel; and many others. They all went to private high schools and private colleges!

The idea that all or at least most education must be government education is being partly worn down by experience and reporting. The Netherlands and Sweden have voucher systems for primary and secondary education, as do some localities in the United States. More important, recent research has shown in detail that in quite a few poor countries, parents who are themselves poor eschew free government schools in favor of private schools, which they prefer for their greater effectiveness both in terms of cost and educational results. Although I see some change occurring because of these experiences, I doubt they will be enough to change the balance of opinion from favoring government schools to favoring private schools. The change that has to happen is in the realm of ideas–even emotions–rather than self-interest.

Okay, now to the application to free banking. Although there are strong interests present, I suspect that ideas are the main barrier. Supplying the monetary base, like education, is one of those things that people think must be done by the government, despite the historical fact that it has often not been done by the government and despite the very bad record of governments in maintaining the purchasing power of currencies they issue. Bitcoin and the like, if they become widely used enough, will be like the private schools of India, or for that matter, the United States: able to pry minds open a bit, not enough to change the balance of opinion in favor of free banking.

So, how can the balance of opinion be changed? My ideas, and work, have been in the realm of historical research and argument, aimed at the small audience that cares about such things. It is not enough. Other people using other methods will come forward, I hope, and find some part of what I and others have done to be valuable. Some of us who blog here have been on the case for a generation now and we still don’t have traction even among monetary economists to get them to recognize that the question of monopoly versus competition in money is a key issue, not to be dismissed in a couple of paragraphs before proceeding with the rest of the discussion. Something on the order of a change in the Gestalt of the public, or at least of economists, is needed, and the issue is how to do it.

Avatar