Gold and Free Market Banking

0:00The title assigned to me suggested a conjunction between gold and free banking, and that naturally suggested to me two questions. First, is it necessary to have free banking in order to have a successful gold standard? And conversely, is it necessary to have a gold standard in order to have a successful free banking system? So what I do in this paper is try to explore I'm going to start with the answers to these questions and try to see whether there is in fact a natural affinity between the principles of the gold standard and the principles of a freely competitive monetary order, what I'm calling free banking. Metaphorically, we might say the question is whether we really ought to think of gold and free banking as the warp and woof of the fabric of a proper monetary order.

0:50Now, in the paper, I apologize to people who don't take gold seriously for writing a paper that's of no interest to them, but I trust I don't have to apologize to this audience for focusing the paper in this way. When you ask the question of whether it's necessary to have free banking in order to have a successful gold standard or a successful gold-based monetary order, naturally raises another question, namely, what do you mean by a successful monetary system? And this is a difficult question to answer. The one way in which a lot of economists seem to answer it is clearly inadequate. Namely, they simply presume that what makes a desirable monetary system is a monetary system that fulfills the following criterion, and then they bring out a list of what a monetary system ought to do for you.

1:43One economist, Jerry O'Driscoll, has described this as a laundry list that most macroeconomists carry around with them. And the sort of things that are on the laundry list are that the monetary system should provide for stable purchasing power of the monetary unit. And it should provide for high real output in the economy. And it should provide for high real growth, and so on and so forth. The desirability of these sort of goals is usually taken for granted. I don't mean to suggest that they aren't desirable things in and of themselves, but it's usually assumed that it's desirable to have the monetary system devoted to achieving them. What's worse, it's assumed, without a second thought, that the way to achieve these goals that we all agree are desirable is to have the state create institutions which can then be programmed to produce the sort of behavior we want.

2:40That is, these sort of economists approach the question of monetary institutions not with any respect for the idea that they may be market institutions. Instead, they view them purely in instrumental terms. That is, they're just devices that are properly the subject of monetary bureaucrats, things that government policy makers ought to be perfectly free to design and redesign however they see fit, and things that are to be judged solely by the statistical time series they generate. So this view is that a desirable monetary system is one that produces the outcomes that the analyst just presumes are desirable. To a lot of economists this seems like, if not a reasonable approach, not only a reasonable approach, but perhaps the only way to approach monetary questions.

3:34Their view is we have to have a monetary policy, and so the only thing to debate about is what the monetary policy ought to be aimed at pursuing. Well, there's a curious thing about this way of approaching money, namely that it's not the way economists approach any other good in the economy. An alternative approach, which in the paper I call, I don't know whether it's a good phrase or not, the micro sovereignty approach, approach, namely the idea that you approach things on a microeconomic basis and an individual sovereignty basis, doesn't ask for a system, I think it's important to recognize, it's simply a set of institutions for supplying a particular economic good which we call money.

4:23When we approach other economic goods, an example I use in the paper is playing cards. Nobody approaches the question, do we have a proper playing card system in the United States by drawing up a list of what a playing card system should look like, what sorts of playing cards ought to be produced, what ought to be the behavior of the relative price of playing cards from year to year, or what sort of uniformity ought to exist between different producers of playing cards. A proper economist, speaking as an economist, ought to ask whether the playing card system is providing the kind of cards people want, the kind of cards people are willing to pay for. And what he would look for if he thinks that there's something wrong with the system is some reason for what economists call market failure. Is there some kind of monopoly being granted to the producers of playing cards so that they're not responsive to the needs of the market?

5:23Or are there some kind of property rights violations going on that are sometimes called The Theory of Money and Credit is called externalities by economists, but the important point is that an economist analyzing this wouldn't try to second-guess consumer preferences and take them for granted and ask whether the system is delivering the kind of goods people want. Now, why is money treated differently? Well, probably because few economists are accustomed to thinking of money as a private good. It's another example of the tyranny of the status quo. The idea that government has to provide money really has come to be taken for granted, and especially so in the 20th century, in an era of government fiat monies throughout the world. Well, given the institution of fiat money, and there clearly has to be some definite policy for limiting its quantity, and given the inescapability of having a monetary policy under a fiat regime, The government clearly needs the opinion of experts regarding what goals ought to be pursued

6:23by monetary policy and what's the best way to control the quantity of money. The reason that's true is that unlike a private firm producing playing cards, the government monetary authority doesn't face any profit and loss signals to tell it when it's behaving well and when it's misbehaving. There isn't any bottom line that the Federal Reserve system has that holds it accountable. And of course that's a major part of the explanation for why the Fed's performance has been so poor by almost anyone's standards over the past decades. Or the idea of free banking that I address in the paper, if it means anything, it means that we oughtn't to take for granted the necessity of government providing money. Now, it may be a fact that if government produces money, you need monetary policy, but it's also true that if the government produced playing cards, you need a playing card policy.

7:18But that doesn't prove the government ought to produce playing cards, and it certainly doesn't prove the government ought to produce money. The provision of all forms of money, from coins up to bank forms of money, can be left to the marketplace. And if you respect the idea of individual sovereignty, then to argue that either good, playing cards or money, ought to be produced by government rather than the market really requires you to make a case that there's something wrong with market provision. That market provision leaves some subset of individuals frustrated and unable to achieve the kind of money or playing cards that they want to have. If you want to make that case, it seems to me you have to rely on more than just sheer presumption as to what consumer preferences are.

8:06You can't just say consumers want a money that produces an absolutely flat price level from year to year and they're not getting it and therefore there's something wrong with the monetary system. If you're going to attribute those kind of preferences to consumers, it's incumbent upon you to come up with some evidence that those are the kind of preferences people have. The only way I can think of coming up with some kind of evidence is to look at the preferences actually demonstrated by people who have a choice between monetary standards. This problem of evaluating monetary systems according to economic statistics that may or may not be relevant to people who want to choose between different monies is relevant to the gold standard in particular because economists who are critical of the gold standard are often criticized by producing a price index of the behavior of the gold standard in the 19th century and say, look, this isn't the best behavior of the price index that we can imagine, therefore there's something wrong with the gold standard.

9:15But on a micro sovereignty approach, there's something wrong with the gold standard in that sense, only if there's some feasible alternative, feasible in the sense that people would be willing to adopt it, and people really care about this issue of, for example, performance of the price level enough that they would rather switch over to this different money. Now certainly, gold standard advocates don't need to be committed to viewing gold in these macro-instrumental terms, and I think they ought not, that is, viewing the gold standard as a clever device for producing low inflation or low interest rates or high growth in real output.

10:00I'm not saying that the gold standard isn't conducive to those sort of goals, but it shouldn't be regarded as a tool or as a device for producing those sort of things. Rather, the case to be made for the gold standard is that it provides the kind of money people want. And I noticed yesterday in Ron Paul's arguments, he had four points that he made on behalf of the gold standard, And I noted that none of them, or not one of them, was the case that the gold standard will produce less inflation, or will produce a stable purchasing power of money. I think this is important because some monetarists, in particular I cite Thorpe Kagan in the paper, have misinterpreted the gold standard case as simply being a case for a particular institutional arrangement that's supposed to produce a stable purchasing power of money.

10:54and I think that's really a misinterpretation. Some people who call themselves gold standard advocates have recently been calling for what they call a price rule whereby the fiat money authority is supposed to peg the price of gold through open market operations or in some other way to vary the quantity of fiat money in order to produce a stable price level that strikes me not as part of the traditional gold standard camp but rather a variant of early monetarism. Now, if this is our rationale for the gold standard, the idea that it is consistent with individual sovereignty, then free banking clearly is necessary to have the system behave in the way we want it to behave.

11:45Individual sovereignty in economic affairs simply amounts to the freedom of people to make their own bargains. for buyers and sellers to get together without the impositions of third parties telling them what they may or may not do. In other words, free trade. And what free banking entails is simply free trade in the market for bank issued monies or bank demand liabilities, namely bank notes and demand deposits. There aren't any barriers placed in the way of people dealing with whatever banks they want to deal with or for banks pursuing any policies that they that they want to pursue, constrained by the fact that they have to attract customers who want to deal with them. So free banking subjects banks to no other legislative rules or no other laws other than those imposed on every industry, which is namely a general legal prohibition against fraud or breach of contract.

12:41In particular, under free banking, people aren't limited to dealing with the notes only of a central bank. Monopolization of the note issue is a defining characteristic of central banking in the United States, it was achieved to a partial extent under the National Banking Act, but fully by the Federal Reserve system, and even when it was accomplished by the Bank of England through legal suppression in both cases of alternative issuers of currency. There's no evidence that there's a natural tendency toward monopoly in issuing banknotes, nor is there evidence that private producers can't produce banknotes in a satisfactory way so that we need to monopolize the issue of currency, which is something I think Mr. Partiz suggested yesterday. It seems to me clear that he doesn't have his facts straight on this.

13:34It seems to me the only way to ensure that people get the kind of bank liabilities they want, the kind of inside money as economists call it, is to allow open competition between different issuers of banknotes and demand deposits. And the liabilities that banks issue can vary on different quality dimensions, and so there is a real choice involved. One bank's notes may be easier to redeem than another's. The issuer may be more reputable in the opinion of some people. And the bank may take greater steps against the counterfeiting of its notes. The most important characteristic, of course, is the ability of a banknote to circulate. And that's what the competition among banknote issuers tends to promote.

14:19The competition is very similar to the competition we see today between issuers of Travelers' Checks or Checking Accounts or Credit Cards. So if we respect microeconomic criteria and the idea that economic institutions ought to provide the sort of goods people want, then that requires the government doesn't limit people's choices among banknote issuers. Okay. Now, the rationale of free banking To put it another way, is the freedom to discover which brands of banknotes and what types of banknotes and demand deposits best suit consumer preferences. It's based on avoiding what was yesterday called the synoptic delusion, or what Hayek would call constructivism, the idea that experts can determine what the best sort of money is for everybody else to use.

15:16The Central Bank is a system where we allow people to choose the kind of money they prefer. If you let the central bank monopolize the supply of currency, you eliminate people's ability to accept different kinds of money. Now the discussion of free banking usually focuses, as I've focused up to this point, on the liability side of the bank's balance sheet. of Money, namely particularly the freedom to issue banknotes. But there's also the asset side of the bank's balance sheet to consider. And there are basically two kinds of assets a bank on a gold standard holds. One is VC, right, its reserves that it uses to redeem its liabilities on demand. And the other is its interest earning assets, its Loans and Securities. Historically, both sorts of assets have also been subject to regulation.

16:10So the idea that banks ought to be free to hold whatever assets they like has also been controversial. The so-called free banking system in the United States between 1838 and 1863 in various states in the United States, included as part and parcel of the system very definite restrictions on the freedom of banks to hold the assets they wanted to hold. Namely, the rule was that you can open a bank and issue bank notes, provided that you buy some state government debt. Part of the scheme was a way of creating a market for state government debt. Incidentally, this helps to explain why there were such frequent failures among banks in certain states, namely that they weren't free to spread their portfolios, but they were required to own a large bulk of, a large part of their assets in the form of state government debt, and recent historical work has shown that the times when there were a lot of bank failures were the times when the price of state debt was falling,

17:11and so these banks were running into trouble. A second sort of restriction on asset-holding options by banks goes under the name of reserve requirements, the idea that banks can't hold whatever amount of specie reserve they see fit, but rather they have to hold some amount that's mandated by a regulator and based upon the quantity of its liabilities. These have been part of federal regulation for over a century. Both these sort of regulations on the asset side, again, restrict individual of Sovereignty. They restrict people's ability to choose among banks that offer different deals, that offer different packages of risk and return particularly. Now people don't want risk, as I read the historical record, people don't want risky banknotes. That is they want banknotes whose value in terms of specie is fixed, which suggests that most of the competition is going to be on providing reputable banknotes. And in the clearest example in history we have of competition, free competition, free banking, namely the banking system of

18:20Scotland, we see quite definitely banks competing in order to establish reputations in the eyes of the public. And the second thing banks are going to compete on is, as they do today, paying competitive rates of interest on their deposits. So banks have to weigh in considering whether to hold more interest earning assets or more or gold, whether they want to run a greater risk of being illiquid by holding less gold, or they want to be a little less competitive in paying interest by holding more gold and less interest earning assets. Now some gold standard advocates, and I believe Murray is in the room, Murray Rothbard, have argued for 100% reserve requirements against demand deposits and banknotes.

19:08Of course, this is not urged as some kind of paternalistic intervention into the banking system, but rather as a matter of jurisprudence on the grounds that holding less than 100% reserves is per se fraudulent. And I believe Ron Paul suggested that he held that view yesterday. In Rothbard's view, bank notes are the legal equivalent of warehouse receipts and ought to be treated as such. This view is not based on what legal practice actually is, or ever was, and in Murray's recent book on the mystery of banking, he in fact takes note of court decisions that decided that the contract written on a bank note was not in fact a bailment or not in fact a warehouse receipt, but something different.

19:58I find it difficult to understand why somebody committed to individual sovereignty would want to prevent banks and their customers from making whatever sorts of contractual arrangements they find mutually beneficial. And it seems to me that court decisions to the effect that banknotes do not contractually bind their issuers to holding 100% reserves are perfectly reasonable if you look at the contract that's actually written on the face of the banknote. A typical banknote would say the bank of whatever promised to pay the bearer on demand one pound sterling. In the United States it would say one dollar. There's no promise made about reserve holding behavior. There's nothing to indicate that it establishes a warehouse receipt or a bailment contract.

20:48Now, if people want a warehouse receipt or a bailment contract, Of course, I don't think that there should be any obstacle in the way of arranging it. And of course, nothing in a free banking system prevents people from dealing with 100% reserved banks if they want to. And of course, banks today offer safety deposit boxes for people who want to retain unconditional title to the species they deposit. But I think it would be silly to suggest that historically banknotes and demand deposits only gained acceptance When people who helped them were misled by the bank, that is that they were misrepresented as being bailments and warehouse receipts. I think it's evident that people knew that banks held fractional reserves and voluntarily accepted the notes on that basis.

21:36And I agree with the remark that Professor Yeager made yesterday that there's no way to suppress fractional reserve banking without heavy government intervention. If you interpret a bank note contract the way I do, then prevention of breach of contract by a bank only requires that it actually redeem all notes that are presented for redemption. Fractional reserves don't constitute a breach of contract, per se. Well, I'm talking about fractional reserves. Let me add a footnote to Roger Garrison's paper. He talked about the resource cost of the gold standard as estimated by Milton Friedman, for example. I also looked at Friedman's estimate and discovered that his estimate of the resource cost, which came to something like two percent of yearly GNP, was based based on assuming that there was a 100% gold reserve held against all forms of money.

22:37Not only gold coin was 100% gold, and not only were demand deposits backed 100% by gold, but also time deposits, in his estimate, were backed 100% by gold. If you take the sort of reserve ratios that banks actually held in a free banking system The estimate of the resource cost falls by about a factor of 100. So the estimate I came up with of the resource costs, and we now know the limitations of that sort of estimate, which I freely admit, that anyway instead of being 2% of annual GNP, it's more like 2 one-hundredths of 1%. These resource cost savings are important in the sense that they suggest, again, a reason In addition to this micro sovereignty case, there is a macro case to be made for free banking, and I don't want to leave the impression that you can't defend free banking on the grounds that it's better for the economy in some aggregate sense.

23:42In fact, I think it is better that a gold standard is likely to perform better with a free banking system than if it's regulated by a central bank. and a lot of economists have the impression that a gold standard is a very dangerous thing and if it worked well in the 19th century it's only because the Bank of England and other central banks acted in an artful manner to manage it and provide it with some flexibility that it otherwise would not have had. My view is almost diametrically opposed to that, that is there's a large body of literature and economics not just the Austrian School but also the Monetarist School that identifies the major source of business cycle disturbances with money supply errors let us call them.

24:30The advantage of free banking is that by having a plurality of money issuers you minimize the chance that there will be a major money supply error. One reason is obvious, if you have a lot of issuers and each one is only a small part of the circulation that nobody controls a large enough share to make a major impact on the money supply. But what's equally important is something that Richard Ebeling just emphasized as part of Mises' conception of free banking, is that there are automatic checks on the overissue of notes by any particular bank in the form of the interbank clearing mechanism. The clearing house works on a decentralized basis to give issuers the information they need and the incentives they need to avoid money supply errors, correct promptly any deviation of the quantity of money they supply from the quantity people in the market want to hold. It's a negative feedback process that isn't present in central banking because the supply of banknotes is monopolized by a central bank. It doesn't

25:31have any rivals who will collect its notes and return them to it. So my point in sum The problem is that only with free banking is a gold standard fully self-regulating.

25:48The problem of a central bank in regulating a gold standard is akin to the problem of a central planner in regulating any other sort of industry. The way in which a central bank is in fact disciplined is only through the outflow of gold from the country as a whole. Flows of gold between banks don't take place as a result of an overissue by a central bank. Instead, it doesn't find out that it's overissued until gold begins to flow out of the country. This is a relatively slow and drawn out process and it's one that has major macroeconomic complications to go with it. That is, there's enough time, there's a long and variable lag, to use Milton Friedman's summary of the historical evidence, between money supply shocks issued by the central bank and their impact on prices and the performance of the economy.

26:44So the central bank has enough leeway, even under a gold standard, to create business cycles, to make money supply errors so great that they drive an artificial boom which has to be followed by a bust when the central bank discovers the error and reverses it by contraction. So there is a regulating mechanism on a central bank. The trouble is that it's not sensitive enough and doesn't operate quickly enough. The check that does operate on a central bank operates only because there is some competition left in an attenuated form, mainly between different central banks in different countries. If you had a world central bank, even that check would be attenuated. In a paper like this prepared for the Mises Institute, it's only appropriate to note that this basic argument that free banking is the way to prevent the money supply errors of central banking under a gold standard is an argument that comes from Ludwig von Mises.

27:52Mises wrote, let me quote him just briefly, that under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular, one is tempted to say normal, feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions. So Mises saw quite clearly and emphasized that free banking is an essential barrier against the experience of business fluctuations driven by over expansionary central bank policy. Now today we have basically two monetary problems superimposed on each other, or we can divide our problems into two categories.

28:39One is cyclical instability. We have the central bank driving us through business cycles. Second, we have a long-term problem in the unpredictability of the purchasing power of the money. The overwhelming source of our cyclical disturbances has, of course, been the money supply shocks emanating from the Federal Reserve system and in other countries emanating from the other central banks. On the other hand, we have a major threat to the ability of our economy to coordinate long-term plans Based on the fact that the purchasing power of money has become impossible to predict with any accuracy more than a few quarters into the future. The reason being that the quantity of money isn't anchored to anything other than the discretion of a monetary bureaucracy.

29:24In this sort of environment, I don't think it's surprising that the gold standard, which as we know Keynes once derived it as a barbarous relic, has attracted new attention as a device for limiting the discretion of central banks. My point is that I think we ought to go beyond thinking of gold as a device for limiting central banks and think of it as providing the possibility for eliminating central banks. There isn't any question that committing a central bank to a fixed gold definition of the monetary unit would anchor the nominal quantity of money, that is, the central bank as long as it maintains its commitment which central banks have been pretty fickle about doing, especially when they have to finance a war. Anyway, as long as they do maintain that commitment, it is true that they can't expend the quantity of money to any extent they want.

30:16Eventually, discipline does exert itself. And thereby, if you had a gold standard with a central bank, you would have improvement in this long-term predictability of the purchasing power of money, as there was in the 19th century. But this doesn't go far enough because it doesn't dam up the source of cyclical disturbances, right? So for the purpose of eliminating the central bank's ability to cause a business cycles, the gold standard is inadequate without free banking. A central bank can manipulate in the short run the quantity of what economists call high powered money because the central bank's liabilities serve as reserves for Commercial Banks in a System.

31:04And therefore the central bank can subject the economy to what Mises called credit expansion with all its inevitable consequences. Okay, let's say that it's taken for granted that you accept the argument that central banks can create business cycles. Is it inevitable that they will? Well, I think it is. I think there are two reasons. First, central bankers like other central planners don't have the information that would be necessary for them to perform as skillfully as a market system does in matching supplies with demands. And so they're almost inevitably prone to make errors because they don't have the information that would be necessary to avoid errors in the money supply. Second, the incentive structure surrounding monetary authorities is important, Because the inflation and recession we're suffering under today, I think, can be understood as a by-product, perhaps an unintended by-product, but a by-product of policies that they do intentionally pursue.

32:07The public choice approach to government agencies suggests that if you entrust government policy makers with control over money, you ought to expect them to succumb to the temptations of easy money. that is to succumb to the concentrated interests that are brought to bear on them and to ignore the diffuse interests of the general public which are not in any way brought to bear on them or not at least in an effective way. A central bank on a gold standard to get back to the information problem has to rely on such things as price indices, interest rate Indices, exchange rate movements within the gold points and finally international gold flows to find out how its behavior is affecting the economy. The trouble is that this sort of feedback again is too slow or too ambiguous and it's only after the damage has been done that the central bank finds out that it's been pursuing a policy that can't be maintained.

33:11In the few minutes left, let me then turn to the question, is gold necessary for free banking? Let's look at it the other way. It's conceivable that you can have a free banking system, that is a system where government is not involved in the provision of money, with an outside money, a basic money, other than gold. Silver is an obvious alternative candidate. If you suppose that bank liabilities are redeemable for silver rather than gold, it doesn't change any of the analytical properties of a free banking system. And once you open the field to silver, well, you can open it to a lot of other candidates. And there are several sorts of non-fiat currencies that in the past have had their advocates, and I suppose still do today.

34:00A third candidate, besides gold and silver, is what used to be called simmetallic currency. If you like, you can call it the Vermeel standard, Vermeel being gold plated silver. The idea is that you define the monetary unit as so many ounces of gold plus so many ounces of silver. I believe Alfred Marshall was an advocate of that. A fourth sort of currency you can think of is currency redeemable for some basket of commodities, some non-metallic or non-monetary commodity or basket of commodities. A fifth would be currency whose redemption rate is indexed to some basket in order to provide stable purchasing power.

34:45You can also think a sixth alternative is inconvertible currency that's privately issued. This is something that Hayek's denationalization of money booklet suggests. Then there are two further possibilities for eliminating government control over the quantity of outside currency. One is to freeze the stock of fiat money, that is, don't retire Federal Reserve notes, but simply freeze the stock of them and dismantle the Fed and don't let anybody touch the quantity of Federal Reserve notes. of Notes, and second is to have a payment system that doesn't use money at all. It doesn't have any outside money. Well, what's a person who's committed to the individual sovereignty and microeconomic approach supposed to do when faced with this wide array of choices of monetary standards? It seems to me the only way to cut through this welter of proposals is to let the potential suppliers of these kind of competing currencies compete. In other In other words, lift any prohibitions, taxes, regulations, or accounting rules that serve as barriers to competition among outside monies.

36:00It seems to me that none of these historical evidence suggests, none of these alternatives would lead people to voluntarily abandon the gold standard if there were a gold standard initially. But I don't think that question ought to be foreclosed. We ought to leave that question open. Let the market decide. Now in a sense, by establishing gold as the initial standard, we're giving a very significant head start. This is a point that Professor Yeager made yesterday. For the reason, which was explained by Carl Menger, the founder of the Austrian School, that everybody in the economy tends to converge on a single monetary standard, it's very difficult for any new monetary standard to get established it's very difficult to convince any individual trader that he should start using a money that nobody else uses yet something that's neither a claim to money nor itself a money the reason people accept fiat currency as much as they may ideologically dislike it is that it is in fact the most marketable

37:06item in the economy that is, the thing that it's easiest to buy things from other people with, we accept it because we know the next person will accept it we don't accept other things because we're not sure the next person will accept it so if you're thinking about the transition from the system we have now to a new system there isn't any a priori reason to favor gold or silver over other things in an a priori sense of what's the best monetary system, that is, if you completely disregard history, the question is completely open. However, there may be a historical argument for making gold or silver the initial choice, and that is that it's gold and silver that emerged historically, at least in the advanced nations of the West, out of the invisible hand convergence process, driven by individual preferences by which a money emerged out of barter.

38:08It was gold and silver that were chosen by market participants as money before governments got into the act of restricting monetary options. So they are, in a sense, the money of the market. There are historical cases where gold and silver voluntarily displaced other monetary standards by a more or less gradual diffusion because they represented superior monies in the eyes of people using money. In areas that were using other monies that came into contact with gold and silver areas, traders abandoned the other monies and adopted gold and silver. One example that is kind of amusing is that in Sweden, there historically evolved a copper standard because I guess there weren't supplies of gold and silver in Sweden.

38:55Anyway, copper became the monetary commodity. Well, the purchasing power of copper per ounce of copper is fairly low, so to make a big payment in copper requires a fairly large slab of copper, and there are museums, I'm told I haven't seen these personally, there are museums in Sweden where there are displays of huge slabs of copper that were used to make payments, and there were young boys whose entire job was to carry big slabs of copper around in order to help people make payments. Well, it's fairly obvious that that's a rather cumbersome way to run your and the monetary system, and if faced with a choice between that and gold and silver, people might voluntarily abandon copper. Well, to summarize, it's not logically necessary that we have gold and silver in order to have a free banking system, but it seems to me that if you wish to respect consumer preferences, and you believe that the historical record demonstrates that that gold and silver were the outcome of consumer preferences.

39:57Then it seems to me that even though what we ultimately want to do is throw the competition open to all private comers, a species standard seems to me to be the natural place to start.