No Monarchs, Only People

Nick Rowe tells a story about monetary policy, central banks, and whom to obey. What's fascinating about this story is how incredibly honest it is.

First of all, Rowe begins by admitting that central banks are effectively monarchs, setting guidelines that we must all obey. This one admission is precisely what Austrian School adherents have been criticizing for a century. Like all situations, monarchs rule at the expense of freedom and the choices of the masses. Rowe's parable gives away the whole game.

Second of all, Rowe admits that the only real power central banks have is society's collective belief in their authority. In other words, in order for despots to be effective, they must have at least the illusion of the consent of the governed. Or, if you don't like the phrase "the consent of the governed," you may replace it with another phrase I like.

Rowe's story climaxes with a naive child wondering why we couldn't just decide to obey the queen. I submit the following re-writing of the story's end, however...

Then one day a small boy had a suggestion: "Why does anyone give us orders? Why don't we act according to our own best interest, and that of those we care about?" 
The people were bemused. "We should obey! We're not the king! I fail to see any possible mechanism that links our choices what is happening out there in the real world. How can our choices possibly get the King to give orders in a lower tone? Everyone knows he can't lower his voice any lower. Sure, if everyone expected that everyone else would act in their own rational self-interest, then each individual would have to be stupid not to act in their own. But why should anyone expect that? Your reasoning is circular. Kings are real flesh and blood, with real kingly powers. Your belief in individual choice and monetary freedom is just fairy tale nonsense. Free choices are like Tinkerbell; they only have powers if people believe in them! Tell me what concrete steps my own choices could take to make people better off, and then I will believe you." 
The small boy started talking about imaginary worlds where there are no kings or queens, and where nobody gave anyone else any orders, and people still lived and thrived, happily. 
But the people just laughed. Those imaginary worlds weren't the real world, where kings gave orders, and people obeyed kings. And the boy's imaginary worlds didn't even include the role of the king's ministers, so they totally ignored the channel through which the king's orders were communicated to the people! Who could possibly take such stories seriously?
What a silly small boy I am.


  1. Man, that was quick!

    You are quite correct. I take as concrete fact that people agree to use the central bank's money as the medium of exchange. Given that fact, someone at the central bank must be monarch, and must give orders somehow or other.

    But that fact is not concrete, and we could all choose to use something else as medium of exchange, if we coordinated on some other equilibrium.

    My hunch though is that money is a natural monopoly/monarchy. We all want to use the same money as people around us, just like we want to talk the same language as people around us.

    If I'm right on this, the only question is who gets to be monarch, and how they give their orders.

    1. I have your blog feeding directly into my Google Reader, so I get updates as soon as you make them. That, combined with the fact that parables are my favorite expository mechanism account for the speed of the response. ;)

      Not all natural monopolies are monarchies, of course. I'm in favor of arriving at the socially preferred currency through free choices and market competition, as opposed to government decree.

  2. "everyone else would act in their own rational self-interest"

    I am not sure why anyone would assume the above is true. In general, by my own observation (and not rigorous science), it is not true.

    The ending of your story would however be the same, you just left out the part where the people who made consistently irrational decisions perish, live miserable existences or learn from the mistake.

    Thanks for linking to Nick's blog. I will keep my eye on that as well.

    1. When you say that in general people do not act in their own rational self-interest, are you saying that they genuinely believe that they are not acting in their own interest? Or, are you saying that they are acting in such a way that *you* believe their interests would be best served otherwise?

  3. We actually do live in the world the boy described. The problem is, someone's best self-interest is always take what control they can, and many people just have no idea what their best self interest is, so they want someone to go ahead and tell them what to do.

    It's just an inherent property of hydrogen; you put enough together, and you end up with monarchs.

    1. I fear you might be right about that, which is why I think it's important to put up as many barriers against would-be monarchs and bureaucrats as possible.