The latest book I have got in the mail is Georgina M. Gómez’s “Argentina’s Parallel Currency” about Argentina’s experience with parallel currencies or what has also been termed Complementary Currency Systems (CCS).
I have only read 10-15 pages in the book and studied the index and references – so this is certainly no book review. As I expected this is not exactly the type of economic literature that I would normally read and it is certainly not in the broader neo-classical tradition of economics that I feel comfortable with. Rather it is an piece of institutional economics – and not in the tradition of Hayek. Anyway, I find the book very interesting nonetheless. And no, I am not open-minded, but I see opportunities in what I read. Opportunities that the research on CCS can teach us a lot about monetary theory and to a large extent can confirm some key Market Monetarist and Free Banking positions.
What strikes me when I read Dr. Gómez’s book is the near total lack of references to Free Banking theory and to monetary theory in general. For example there is no reference to Selgin, White, Horwitz and other Free Banking theorists. There is no references to Leland Yeager’s views on monetary disequilibrium either. That is too bad because I think theorists such as Selgin and Yeager would make it much easier for Gómez to explain and understand the emergence of CCS if she had utilized monetary disequilibrium theory and Free Banking theory.
For example Dr. Gómez notes the countercyclical nature of CCS. When the economy turns down people turn to CCS. In Argentina the participants in the country’s CCS exploded in 2001-2. Dr. Gómez note the correlation unemployment, property rates and growth, but fails (I think…) to mention the obvious connection to money-velocity.
To me it is pretty clear – if money demand outpaces money supply then there is an profit opportunity that entrepreneurs can explore by issuing “money substitutes”. This is exactly what CCS is. Therefore, we would expect that when money-velocity drops then the use of CCS will increase. This is exactly what happened in the US during the Great Depression and in Argentina in 2001-2.
The very clear countercyclical nature of CCS “users” to me is indirect confirmation that under a truly privatized monetary system of Free Banking the money supply would increase in response to an increase in the money demand. Hence, a Free Banking system would be truly “countercyclical”. Said, in another way nominal GDP would be stabilized – as under NGDP level targeting.
George Selgin has been very critical about CCS and I would certainly agree that the motives of many proponents of CCS seem rather dubious. For example many CCS proponents stress the “localist” nature of these systems. That smells of protectionism to George – and to me. However, the motives for CCS proponents are not important. What is important is that the experience with CCS in for example Argentina provides data for studying some key positions of Free Banking Theorists – such as the “countercyclical” nature of the money supply in a privatized monetary system.
Finally I should once again note that I have only read 10-15 pages of Dr. Gómez book and this is certainly not a review of her book and the points raised about is no critique of the book, but rather a call for monetary theorists to have a closer look at the Argentine experience.
Take a look at Ambrose Evan-Pritchard latest piece on US monetary policy. Ambrose is clearly the leading proponent of Market Monetarism among European journalists.
Ramesh Ponnuru tells the story of “The Republicans’ Most Hypocritical Economic Argument”, which is basically the story about why the Sumner critique also applies to defense.
PS I have not forgotten that I promised to do more on African monetary reform – I have 2-3 pieces in the pipeline. I still welcome suggestions on what to focus on in terms of my Protect African Monetary Reform.