On this paper: A Theory of Self-Enforcing Monetary Constitutions With Reference to the Suffolk System, 1825–1858
I don’t have time or the care to do a full review for the reader. The paper is mostly a re-hash of George Selgin’s work on free banking which I have already covered over multiple topics.
This paper alludes to proposing something new, however, it does not.
There is talk in it about self-reinforcing monetary equilibriums via free banking in regard to the supply of banknotes etc. But the premise again is some form of removal of government monopoly of the money supply (ie not reality). And there is no mechanism proposed to get to this “state”.
There is talk about “polycentricity” which is effectively the implication of some form of cheques and balances such that governments and politician cannot negatively influence the free banking stage and cause disequilibrium of the money supply.
This returns us to a previous writing of mine explaining Eric Voskuil’s misuse of “optimal” and “ideal” in regard to Selgin’s free banking thought experiment “Ruritania”.
Poker and Game Theoretically Optimal Strategies
The purpose of studying what is optimal and/or ideal is often misunderstood (much like the use of the assumption that markets and/or participants/agents are rational which is a perfectly useful assumption). Here we turn to an excerpt from poker professional explaining how we use GTO theory:
GTO play is in some sense “correct”. For example, in the game of rock-paper-scissors, the GTO strategy is to throw each choice randomly 1/ 3 of the time. Of course, it is hard for humans to be completely random, but insofar as you can, nobody will be able to beat you in RPS in the long term if you play this strategy. However, if you are ever playing a strategy that involves throwing any action with other than a 1/ 3 probability, your opponent can take advantage of you. In fact, he can do very well just by figuring out your most likely throw and using whatever counters it 100% of the time, at least until you notice and change your strategy.
This motivates the primary reason we will focus on GTO play. You have to have some idea of what it looks like before you can even start thinking about what your opponent is doing wrong and implementing a strategy to take advantage of it. You must know that the correct rock-throwing frequency is somewhere around 1/ 3, before you are able to come to the conclusion that an opponent who throws rock 40% is doing it “too much”. Once you know what your opponent is doing and how that deviates from correct play, it is pretty easy to see how to exploit it. The same thing is often the case, to a degree, in poker. Once you know what “correct” play is and can compare it to an opponent’s strategy, figuring out an appropriate response is usually not all that difficult. The difference between RPS and poker, however, is that poker is much more complicated. In fact, nobody really knows what this correct play is.~Tipton, Will. Expert Heads Up No Limit Hold’em, Volume1: Optimal and Exploitative Strategies
It is when we understand what is optimal that we can then extrapolate the difference between what is actual and observed and what is ideal etc-and create our strategy from it.
A Quick Note on Rand and Monopoly
Ayn Rand resonated with me quickly. I’m not sure if its because I understand her well or not very much at all. I haven’t read her books but I have listened to all the video interviews of her I could find to learn of her insights. She presents herself in a way that I think is foreign-she sort of acts her part rather than explaining her insights. And for this I think her words are often misunderstood. Here is an important and relevant quote I have found:
…Nobody in a free society, now we are talking about a free market, in which the government doesn’t interfere, nobody can become a monopolist. All monopolies are created by a special privilege for government.” ~Ayn Rand
The wrong way to read this is to point to a leading company, that is far more successful and powerful than any of its competitors, and wasn’t created by government intervention, and then suggest it to be a counterpoint to Rand.
She isn’t saying that.
She is saying: “Here is MY definition of monopoly. It is such that you can only dub something a monopoly if it was created from government privilege. If there is company that is a “monopoly” but not by such privilege then it happened fairly and therefore there is nothing distasteful about it-ie not a monopoly.”
There is a certain reason for this. If you define monopoly by a subjective based observation that a company is too powerful, then you only call for a government to come in and be the great equalizer. This gives a power to the government to control the markets and this power corrupts.
The definition she gives, as she gives it, protects us from this type of corruption. It protects capitalism and the ability for successful people to reap what they themselves sow.
The Nashian View Versus the National View
It is (seemingly) always that economic papers are written from the framework of inquiring into the optimal national monetary policy. And then there is often the implication that a government unnecessarily or unfairly taxes its citizenry through inflation.
I think for a university that gives out economic degrees this will be seen as quite an embarrassing stance in the future.
Thinking from a global conflict perspective (and rational self interested nations which is a reasonable assumption) and currency competition inflation (targeting) is a very important strategy and an indispensable tool.
It would be seen as a serious threat to many nations security if in such times of conflict or economic distress some external force hijacked the money supply such that a nation had no sovereign control over it.
This is the scope which these type of academics create-a framework that doesn’t encompass the global geopolitical reality such that inflation can be understood as warranted and valuable.
Very few works and arguments I have read consider this wider perspective.
There Is No Internationally Held Monopoly on Money Supply
So here is the simple perspective that allows us to properly attempt to solve and attend to the problem of moving to optimal national money supplies. That there is no international monopoly on money and that there cannot be because there is no international or global empire to impose it.
And so when we take works such as Selgin’s Ruritania or the embarrassing works cited at the top of this article we can understand that they are immediately applicable on a world view.
There is no monopoly to remove and thus we can understand that the world, the nations etc, already function on a free banking stage.
What is simply missing from there is the apolitically issued commodity money that Selgin bases Ruritania (which is the crux of the paper’s argument as it cites Selgin the whole way).
From a Lower Payoff Equilibrium to A Higher Payoff; From Zero-sum Conflict to Not Zero Sum
By the introduction of a universal transferable utility:
