We should all be in the banknote business. It’s a licence to print money. The Bank of England made £1,618 million out of it last year, and paid every penny of this over to the Treasury, as required by Sir Robert Peel’s Bank Charter Act of 1844. Senior figures in the Bank have long believed that this inequitable Act is due for amendment. Friedrich Hayek, as was his wont, had a better idea. He thought that the Bank should give up its monopoly. A banknote is only a promise to pay, and (so he argued) anyone who wanted to issue promises should be allowed to do so. We would then be free to decide whose promises we trusted. Monopolies were always open to abuse, not least in the hands of the state and its agents. After all, the more money they printed, the more they would make. Competition was needed to keep the note-issuers up to the mark. Brushing these arguments aside, the governments and central banks of Europe set out to do away with competition. To have a dozen different currencies, each with its own rate of exchange, was obsolescent. Instead they would give their continent a single currency, whose monopoly would stretch from Hamburg to Palermo. It has proved, as they begin to see, an awkward fit and, for some economies, an obvious misfit. Hayek could have told them so. His ideas have a way of making themselves heard when received opinion has brushed them aside and has then fallen over its feet.
Planning and rationing were in their heyday when Hayek wrote The Road to Serfdom. His publishers soon used up their paper ration and the book was hard to find. Antony Fisher, who was then a fighter pilot, came across a potted version published by the Reader’s Digest. Ten years later, when he was a chicken farmer, it prompted him to found the Institute of Economic Affairs, grounded in Hayek’s belief in individual freedom of choice and of action — and now, to mark its own half century, the Institute has reprinted it (IEA, £10). Heretically, Hayek argued that the gentleman in Whitehall would not know best, because he could not know enough: ‘The constantly changing conditions of demand and supply can never be fully known or quickly disseminated by any one centre.’ Only the markets could register all that went on, expressing, as they did, infinite numbers of individual preferences — a free society in action. Without economic liberty, said Hayek, there could be no liberty, which itself is an absolute.
For decades, these subversive ideas were brushed aside by governments of either colour and by gentlemen in Whitehall. Edward Heath was an exception, picking up an IEA proposal and outlawing retail price maintenance — in effect, setting shopkeepers free to compete by cutting their prices if they wanted to. Some of them were happier in their cartels, and in later years their liberator’s hand strayed back to the controls, but in the end this alternative line of thought became orthodox, or lip-service, at least, was paid to it. Tony Blair hankered after a middle way, which to Hayek’s mind was a chimera. Gordon Brown, more subtly, spoke the language of the markets, but his words and the figures no longer agree, which is why he has sent for some new figures. All those years of spending more and more to less and less effect are catching up with him, and his golden rule turns out to be a slide-rule, but he still believes that the Scotsman in the Treasury knows best. In all fairness, he knew best when he kept us out of Europe’s new anti-competitive currency. Perhaps he may now plan to take that reasoning further. The spirit of Hayek could help him.
A prize in Paris
Observers of boondoggles — and no one observes them more assiduously than I do — can look forward to a six-horse race for the Organisation for Economic Co-operation and Development, which was established to administer the Marshall Plan and has somehow contrived to keep going. Aspirants from across the world will contend for the Paris ch