Adam Smith Institute

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Good money

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good-money

Much harder than seeing the flaws of bad money is deciding exactly how to get good money.

If price level targeting is to remain, it must be much more conservative and consistent in nature, ensuring genuine price stability and an equilibrium between the supply and demand of money.

Perhaps a Friedman type monetary rule under which the money supply is increased at a constant rate regardless of changing conditions is the way forward.

A more Austrian line to follow would be a return to a standard, most likely gold. This has the advantage of limiting the scope for official bodies to inflate the money supply. Unfortunately, even if one were able to reinstate such a standard, and ensure it was maintained for some time, governments wouldn’t necessarily play by the rules.

Governments would be unwilling to follow constant rules and in times of economic woes might abandon restraint especially to avoid short term pain.

The most revolutionary approach and in theoretical terms attractive, is that there need not be "a single producer of the medium of exchange (Friedman & Schwartz) echoing Hayek‚s thoughts in the Denationalisation of Money. Good money can only be achieved if the issuer is truly forced to preserve its value. The problem is that there is no clear precedent for sound, privately run, inconvertible money. Perhaps, we will never get good money with a government monopoly, but these are uncharted and rocky waters.