Privatization

Private Benjamins

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Writing in The Wall Street Journal, George Selgin suggests a solution for Argentina's small-change shortage:

Why the shortage? Argentina's central bank blames it on "speculators," meaning everyone from ordinary citizens, who stockpile coins, to Maco, the private cash-transport company (think of Brinks) that repackages change gathered from bus companies to resell at an 8% premium. But those explanations ring false. "Black marketeering" would not exist if coins were easy to get in the first place. After all, Argentines could just as easily hoard razor blades or matchbooks. Yet there's no shortage of those. What's so special about coins?

The answer is that coins are supplied by the government alone. "Put the federal government in charge of the Sahara desert," Milton Friedman said, "and in five years there'd be a sand shortage." If Argentina wants to end the coin shortage, it ought to give up its monopoly.

Crazy? Not if history is the guide. Over two centuries ago, Great Britain faced a coin shortage more severe than Argentina's—so severe that it threatened to stop British industrialization in its tracks. People struggled to get coins for everyday use. The average worker was lucky to make 10 shillings a week, while the smallest banknotes were for 10 times as much. So the coin shortage even prevented factories from paying wages.

privatecoin

Like Argentina's government today, the British government wasn't able to end the shortage. Yet the shortage did end—thanks to private-sector action. Fed up with the government's inaction, British firms started minting their own coins. Within a decade a score of private mints struck more coins than the Royal Mint had issued in half a century—and better ones: heavier, more beautiful, and a lot harder to fake. Yet they were also less expensive, since private coiners sold their products at cost plus a modest markup, like other competitive firms, instead of charging the coins' face value, as governments like to do. Finally, when those who had accepted the private coins for payment went back to the issuer to redeem them, issuers offered to exchange their coins for central bank notes at no cost.

Armed with this history, it takes no great flight of fancy to imagine Argentine firms today, including supermarket and retail chains like Carrefour and Wal-Mart, reputable banks like HSBC Bank Argentina, and transport companies like Metrovias, issuing their own centavos and one peso coins.

Selgin wrote more about the British experience with private coins in this article and this book.

(Note to sticklers: Yes, I know a Benjamin is somewhat larger than small change. For now!)

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  1. Isn’t this basically the same as the Liberty Dollar?

  2. Reason, you must be kidding us.

    Your solution to bad government, overly limited by Capitalist influences, is Corporatism?

    Mussolini would love this publication.

  3. (Note to sticklers: Yes, I know a Benjamin is somewhat larger than small change. For now!)

    Obama will cure inflation with the proper government solutions as opposed to that wild west cowboy he is replacing.

  4. I still have some 1000 Ruble notes from the late 90’s before the Russians lopped three zeros off the end of the numbers on all the currency.

  5. kinnath: They have you beat.

  6. Why not? AAFES (Army and Air Force Exchange Service) has already done this. Trucking coins around Iraq wasn’t exactly easy to do a few years ago, and it was expensive, so they made gay little coins out of basically posterboard with patriogasmic images. They didn’t make them in 1 cent denominations, so you never got your pennies back. The AAFES in the states were, and I think still are, taking them as valid change. Other than that, they’re worthless, unless you want to use them as a shot glass coaster.

  7. Ah, Moscow in ’96. I remember 1500 rublyei was considered a decent tip for the scowling babushka who handed out towels in the bathroom. The exchange rate was something like 5000R = $1.

  8. Is LurkerBold new or is he just working under a new name? I want to add him to my incif file properly.

  9. Yet they were also less expensive, since private coiners sold their products at cost plus a modest markup, like other competitive firms, instead of charging the coins’ face value, as governments like to do.

    Explain to me this, how does this make it less expensive. You don’t sell a 10 shilling coin for 3 shilling. It may cost you 2 shilling to manufacture and you mark it up 1 shilling, but if you sell it for 3 shilling, it can’t be worth 10 shilling..can it? So how does this make them cheaper to the end user?

  10. Other acceptable currency in Russia at the time: 1. American jeans, 2. American cigarettes, 3. American toilet paper. Most of the street vendors around the tourist places preferred American dollars to rubles as well.

  11. repackages change gathered from bus companies to resell at an 8% premium.

    WTF? Who would pay $1.08 for four quarters?

  12. LIT,

    I was confused by that too. However, from what I remember from The Baroque Cycle (which would have been 100 years before England’s problem), anyone could take gold or silver to the mint and have coins made, for a slight fee. Im guessing the indy fee was less than the mint fee.

    You probably had to pay for the material/paper money that backed it/etc separately.

  13. RC Dean,

    Stores that need to make change for their customers and cant get quarters anywhere else?

  14. An example from my youth of this – arcades switching from quarter machines to token machines. There was overhead to keeping quarters on hand, trips to the bank, etc, because the quarters would often leave.

    Less of the tokens walked out (some still did) and they could be acquired for cheaper than a quarter so the cost of resupplying them was lower, even though they still were sold and spent as if they were quarters.

    Your mall arcade and Chuck E Cheese are private mints.

  15. I think the arcade example answers both LIT and RCD.

    Instead of an arcade handing out 4 tokens for a dollar, imagine a factory paying workers with tokens. Unlike the arcade though, imagine stores willing to take the tokens as payment because they knew they could take them back to the source for “REAL” money.

  16. robc,
    The only problem seems to be that this would only be a step above barter, which in a modern economy simply can’t work.

  17. economist,

    in a modern economy simply can’t work.

    Are you saying that early 80s arcades werent a part of a modern economy?

    Or that Industrial Revolution England wasnt?

    Or that Ithaca, NY isnt? Okay, maybe it isnt.

  18. economist,

    What form of money isnt a “step above barter”. All money is just an intermediary that is more fungible so that direct barter isnt necessary. This is no different than gold/silver coins or fiat money.

  19. Mussolini would love this publication

    Close enough – Drink!

  20. robc-Sounds like a company store. Which didn’t work out so well for the workers.

    Argentina probably isn’t the last place in the world that’d be up for this sort of neo-liberal experimentation, but it’s got to be pretty close.

  21. Problem is, when the British had their coin shortage, coins had actual inherent value, being made of gold or silver or something similarly valuable. Modern coins are basically just another form of fiat money, made of cheap metal rather than cheap paper.

  22. Shem,

    Doesnt sound at all like a company store. To the workers perspective, the coins were usable virtually everywhere. Someone (like a bank maybe, or a large store) would eventually collect up enough to take them back to the company in exchange for the big government issued bills that were actually available.

    Otherwise they would continue to float around as the coins in usage. Doesnt paying someone in Ithaca Hours make you a company store?

  23. By “one step above barter” I mean that it’s only worth something to those who value the products made by the issuer. And it can’t provide an efficient monetary system for the entire economy.

  24. economist,

    I mean that it’s only worth something to those who value the products made by the issuer.

    So, exactly the same as gold, silver, or government issued money.

    Actually, you dont have to value the products of the issuer as long as the issuer is willing to exchange back for “real” money. Which, as I clearly stated above, is assumed in my example.

    it can’t provide an efficient monetary system for the entire economy.

    And yet, it did, in England. Well, it just filled in the gap that the mint wasnt covering, but thats the problem in Argentina too.

  25. Jennifer: The smaller official British coins of the late 18th century–especially copper halfpennies and later pennies but also its silver coins–were essentially tokens, worth considerably less than their face values, just like coins today. robc: Using private claims denominated in standard money units as money isn’t just a “step above” barter, unless the same is true regarding, say, the use of traveler’s checks as money. And history shows that private coins (like private banknotes) can circulate as widely as government money, if laws don’t prevent it from doing so.

  26. George,

    A step above barter wasnt my claim, it was economist.

    I was claiming no difference between private money and fiat money and gold coins.

  27. Or that Ithaca, NY isnt? Okay, maybe it isnt.

    It isn’t at all. When Cornell needs something painted, they pay one guy to paint, one guy to watch the other guy paint, and one guy to sit in the truck.

  28. Nigel,

    That seems very typical of a modern economy.

  29. Also, I have never seen an Ithaca Hour used or mentioned in Ithaca.

  30. Nigel,

    Also, I have never seen an Ithaca Hour used or mentioned in Ithaca.

    I was just wondering how pissed people would get in Ithaca if I charged them 10 hours for an hour of work.

  31. Everything I know about Ithaca:

    In the movie Road Trip, when Tom Green is giving the tour of the “University of Ithaca”, it was filmed on Georgia Tech’s campus. Which is not in Ithaca.

  32. robc- Maybe not in every case, but it’d be awfully easy to set up a system where it was. Just make your coins only redeemable for overpriced goods at your store. A small-timer wouldn’t be able to get away with it, but if your operation is of any real size, you’d be able to make quite a bit of cash without the people involved having any recourse beyond quitting.

  33. I was just wondering how pissed people would get in Ithaca if I charged them 10 hours for an hour of work.

    They’d be cool with it as long as you weren’t in search of profits. Profit is a bad word in Ithaca.

    God I hate Ithaca.

  34. Shem,

    While that is clearly possible, that was the exact opposite of what was happening in England. The companies werent making the coins, they were buying them from trusted private mints and using them to pay the workers because they could get government coins. If they werent usable generally, the workers wouldnt have accepted them in replace of government coins.

  35. *sigh*

    I’m going to start blaming all of my personal problems on “speculators”.

    It’s the catch-phrase of the new millennium!

  36. Yes, I know a Benjamin is somewhat larger than small change. For now!

    There, the Mint is to blame as well. They took the venerable founding father and womanizer off the half dollar and replaced him with Camelot founder and womanizer JFK in 1964. Coincidence?

  37. When I was sationed in Japan, The bases didn’t use pennies. It cost more to ship them then what they where worth.

  38. robc,
    Sorry I misinterpreted your point.

  39. The key to token circulation is redeemability.

    That’s why many of them had engraved “payable to the bearer on demand in Liverpool, Birmingham and London”

  40. in fact, funny thing, US dollars use to have that phrase written on them as well….

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