As mentioned
in the last post here, Mervyn King is not just a stuffy central banker: he comes
up with radical ideas in economics. Here’s one he produced some time ago (in
green). (H/t Mike Norman).
“There is no
reason products and services could not be swapped directly by consumers and
producers through a system of direct exchange – essentially a massive barter
economy. All it requires is some commonly used unit of account and adequate
computing power to make sure all transactions could be settled immediately.
People would pay each other electronically, without the payment being routed
through anything that we would currently recognize as a bank. Central banks in
their present form would no longer exist – nor would money.”
Interesting
idea, but I think it’s flawed. Certainly “computing power” could get rid of a
substantial proportion of transactions done with money. But there is a problem,
as follows.
What about
relatively large transactions (e.g. buying a house or car) where the purchaser
wants to save up in order to be able to make the purchase? If the purchase
makes shoes for a living for example, they could store up thousands of shoes
and then purchase the house or car with the stockpile of shoes. But that’s
hardly practical.
Money is a
far more convenient form of saving for the above sort of transaction. As to
whether the money is plonked in a bank, that’s a separate issue: the money
COULD BE hoarded under a matress.
To be more
exact, computing power could get rid of a well known problem with barter: the
so called “coincidence of wants” problem. That’s the fact that if you make
shoes for living and want ice cream, the ice cream seller will not necessarily
want shoes – or shoes of the type that you produce. But computing power does
not get rid of the above “saving” problem.
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