Wednesday, January 23, 2008

Currency Invention

When I was younger I came up with an idea that we could create a paper currency linked to population. So, a child is born, and we ramp up the printers, print out 100,000 whatevers and give it, in some way to that child. We could maximize the number of children born by giving it directly to the parents, or we could hold it in trust until the child came of age. The central idea was that the money supply would either grow or shrink based on how many people were in the world. Only people use money, and it's people who are productive anyway, so ignoring the huge problem of actually counting everybody, it seemed a good idea.

I know there are huge problems with this idea, but I think it is actually better than the fiat money system we have now in the U.S. Why? No one would be trying to fiddle with the money supply and we would know that with each increase in the money supply there would at least be the potential for more production (eventually). The child will grow up and do something. If he or his parents are careful they can save it, if not, the money will end up in the larger economy, available for other uses- one of which may be to pay wages.

Anyway, I think sometimes people hear about currency issues and get a very black and white veiw. People used gold for thousands of years, and I think that's the easiest way to get back to a coherent currency. But I don't think that's the only possibility. I think currency, like any other thing, will work best when there is competition. What if your grocer was free to take other currency? Or give you a better deal if you paid in gold? For practical reasons, he would also accept whatever else most of his customers used as money, and over time we'd have a chance to see what worked best for all of us.

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