Note the URL. There's more there for them as wants 'em. Cheers, Bob Hettinga --- begin forwarded text Date: Tue, 31 Oct 95 21:32:44 0500 From: Robert Hettinga <rah@shipwright.com> Organization: Shipwright MIME-Version: 1.0 To: rah@shipwright.com Subject: 031692.html X-URL: http://khht.com/huber/forbes/031692.html http://khht.com/huber/forbes/031692.html> ON MONEY
by Peter Huber
Forbes, March 16, 1992 at Pg. 144
Copyright 1992 by Peter Huber. Electronic copies of this document may be distributed freely, provided that this notice accompanies all copies.
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While Europe strains to give birth to a new currency, Boris Yeltsin toils to resurrect a dead one. With private markets triumphant everywhere else, however, the mystery is why governments still have to manufacture money at all.
It is still often taken for granted that the one thing private markets cannot make is money itself: Only government can do that. But new governments of young nations, especially nations with turbulent histories, can't make money, either. Nobody quite trusts them, and without trust the paper lovingly engraved at the government mint is valueless.
Until recently, people put up with a lot of government paper because even bad paper was more convenient than the alternative, which was barter. Every self-respecting capitalist knew that government paper was a perishable good, that it always decayed, slowly in Switzerland, fast in Brazil, and most just put up with it. But if capitalists can produce candies that melt in your mouth, not in your hand, why not currencies, too?
Money, as I wrote here two years ago (FORBES, May 14, 1990), is just another network, our oldest medium of systematic communication. And new communications technologies are fast surpassing the old. The paperless bank, unlike the paperless office, is at hand.
When it works, the old-fashioned paper we call money reliably records past effort and promises future return. It's all a matter of communication among stable communities of productive people. This is why individuals can issue currencies, too -- personal checks, IOUs, that sort of thing. Once it's established of an individual that her word is her bond, she can in fact issue private currency at will, at least among people who know her.
But the trouble with private currencies has always been their informational overhead. Personal checks bounce, the "I" behind the IOU absconds to Monaco, Macy's defaults on its bonds. Private paper is also volatile; pegging current value requires specialized information from Wall Street, or a bank in Oshkosh, or a trading pit in Chicago. In the past, it's often been cheaper to put up with the steady but modest thievery of a central bank, which peels off 3% (will it soon be 6%?) of your dollar every year through inflation, than to sort out whose private paper is worth what at any given moment.
Computers and fiber-optic communications are changing all that. Our new central bankers can be concerns like TRW and Dun & Bradstreet, which track who's solvent and who's a deadbeat and convey the information instantly, at the touch of a button, wherever it's needed. Our new mints and engravers can be companies like Visa and AT&T, which clear millions of transactions daily, both here and abroad.
What enterprises like these supply are the informational ingredients of money. They already are far better than Alan Greenspan at stabilizing value by assembling baskets of private paper as varied and diversified as the global economy. Information about who earned a credit yesterday or who can be trusted to pay back a debt tomorrow can be passed around as easily as a dollar bill. More easily, in fact.
Like religious liturgies conducted in some otherwise dead language, transactions may still be denoted in dollars or yen, but these vestiges of an earlier age will ultimately give way to a new financial vernacular. If everybody paid for everything (wages included) by credit card, for example, the accounts could just as well be denoted in pork bellies, IBM stock, quarterpounders with cheese, or (more likely) some very large basket of hundreds of different private goods and services, tangible and intangible.
The Lynch, for example, might be a share in a standard pool of commodity receipts maintained by Merril Lynch. Nobody would fully trust the Lynch, of course, even if backed by 100% reserves, but nobody would have to. Nobody trusts his food supply to any one farmer, either. You diversify, you assemble baskets of baskets, and you constantly search for quality goods and reliable supply. Same with money. When the network and the computers behind it are powerful enough, no central authority can or should supply the currency, and no one will pay annual tribute by way of inflation to the government mint. And with private money, private fortunes will no longer be held hostage to public ineptitude in the Kremlin or on Capitol Hill.
So back to Yeltsin and how we can help him. Despite the corrupting influences of the regulatory collectivist on our own shore, America's phone companies and banks are still the best in the world. Yeltsin needs them, far more than he needs the International Monetary Fund, Pizza Hut or Western investment in Russia's oil industry. Modern telefinancial enterprises can deliver the real oil of the economy: truly stable media of exchange.
The biggest contribution Yeltsin can make to Russia's fiscal policy is to make way for currency capitalists. No exchange controls, no bank insurance, no loan guarantees, no criminal prosecution for ordinary bankruptcy, nothing but basic, narrowly interpreted laws against outright fraud.
Will the new private banks sometimes fail? Of course they will. Will widows then be ruined? Certainly. So what else is new? In Russia today the only bank in town has failed miserably, and the one cold comfort for widows is that the ruin is universal. Give it a try, Boris. You have nothing to lose but your rubles.
--- end forwarded text ----------------- Robert Hettinga (rah@shipwright.com) Shipwright Development Corporation, 44 Farquhar Street, Boston, MA 02131 USA (617) 323-7923 "Reality is not optional." --Thomas Sowell
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