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.
Knowing better
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.
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