Iceland’s new money and banking proposal. Yes, why not?

Iceland is considering a new report which would rather radically change the banking system of that country:

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank.

The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”.

“The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said.

The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

To be honest, the report (which can be read at that link) is little more than a rehash of the proposals of Positive Money. And worth about as much as such a rehash is going to be. It’s worth pointing out that Julian Simon was actually correct, human ingenuity, and the knowledge it produces, is the ultimate resource. And given that Iceland’s population is some 300,000 people there’s not a great deal of it natively. We have noted around here more than once the problems that stem from trying to extract decent economic ideas from the rather larger population of Norfolk as an example.

The basic idea is that as banks create credit, credit creation is behind boom and bust, put credit creation into the hands of the government and abolish boom and bust. We don’t think that that’s how it will work out. Rather more likely is that politicians will follow the incentives of being able to spend this newly created money without having to tax to gain it and the result will be high and persistent inflation.

However, we’re absolutely delighted that someone undertakes the experiment. Actually, we’re delighted that someone else undertakes this experiment. Good luck to them say we. And we’ll come back in 20 years, see whether there’s been that abolition of boom and bust, been that persistent inflation or not, and then we can make a decision about whether to follow or not.

Economic Nonsense: 39. Only strong government regulation can hold big business in check

It isn’t strong government that causes concern for big business.  They are more worried about the smaller, newer businesses that might take away their trade.  It is competition, not government that they worry about.  Big business often cozies up to big government.  It employs lobbyists to negotiate with civil servants and ministers, and hammers out agreements on what types of regulations should be introduced, and how they should be implemented.

Big business can cope with regulation.  It can afford the staff to deal with compliance.  Small businesses, especially start-ups, find it more difficult to afford the money or the staff time that regulatory compliance takes up.  Big business knows this, and often strikes deals with lawmakers to impose regulation that will deter newcomers from entering the market.  Far from it being used to control big business, regulation often helps big business by imposing unacceptable costs on its real or would-be competitors.  People speak of “regulatory capture” when the industry works with government to secure helpful regulation.

Some regulation is needed to reassure the public that it will not fall victim to sharp practice or shady dealing, but five words should be engraved above the door of every legislator: “Competition is the best regulator.”  It is competition that keeps firms striving to deliver high quality and keen prices.  The fear of losing trade is more powerful than the fear of incurring the displeasure of government.

Regulation is commonly used to protect those in the market from competition by those who might enter it.  If no-one can trim hair without training and a certificate, the prices charged by existing hairdressers will not be undercut.  If no one can enter the taxi trade without a medallion or a two-year training course, the fares charged by existing cabbies will be protected.  All rules like these are done in the name of protecting the public, but in reality it is the established operators that they most commonly protect.

To control big business government should pursue a policy of promoting competition.  It should make it easier, not harder, to enter established markets.  This, more than regulation, will keep firms attentive to their customers.

Blithering stupidity about electronic cigarettes

Sometimes we just despair for the human species. Perhaps it might be time for us to resign and make way for intelligent life. Such is our reaction to this latest report about electronic cigarettes:

E-cigarettes need to be more strictly controlled to stop teenagers using them, health professionals have argued.

The call was prompted by new research showing that 19% of 14-17 year olds have tried the products despite them only becoming available in recent years.

An analysis by researchers at Liverpool John Moores University found that the e-cigarettes were used by 5% of teenagers who had never smoked, 50% of former smokers and 67% of light smokers.

Or as the BBC reported:

Many teenagers, even those who have never smoked, are experimenting with e-cigarettes, researchers in north-west England say.

Questionnaires completed by 16,193 14 to 17-year-olds, published in BMC Public Health, showed one in five had tried or bought e-cigarettes.

The researchers said e-cigarettes were the “alcopops of the nicotine world” and needed tougher controls.

The truth is, of course, that these results show that electronic cigarettes are an entirely marvelous product that are likely to save many lives in the future. Yes, lots of teenagers are using them. But what is the effect of their using them? As one of us has pointed out elsewhere:

That halving of teen smoking rates coincides with the invention and introduction of vaping (overlaps at least, the first devices really came in 2007). And other studies show very much the same thing. People use vaping equipment instead of smoking, not as a gateway to it nor does vaping increase smoking prevalence. It is thus a substitute, not a complement. As such of course it is to be greatly welcomed.

Electronic cigarettes lead to less smoking of cigarettes. Thus, far from our wondering about whether we ought to regulate them more the actual discussion should be about whether they are quite so wonderful that we ought to be subsidising them.

Young Writer on Liberty Competition 2015


The Adam Smith Institute invites the under-21s to enter our annual ‘Young Writer on Liberty’ competition.

This year’s theme is:
The road not yet travelled: Three paths the next government should take towards a freer United Kingdom

This is not a typical essay contest. Instead, entrants should submit three, ASI blog-style articles, each highlighting a different policy the incoming government (whoever they may be!) should adopt to make the UK freer, richer and happier.

You may argue to get rid of certain regulations, or a repeal a specific law. You might suggest reform of the banking system, the right to sell organs for money, or a move to direct democracy. You might even call to abolish politicians completely! No idea–however radical–is out of the question.

We are looking for entrants who can think creatively and express themselves clearly and succinctly. As such, winning entries will be thought-provoking, well-argued, and suitably researched.

There are categories for the Under-18s and the Under-21s, with a winner and a runner-up in each.

The winner of the Under-18 category will receive £150 prize money and a box of liberty-themed books. They will also have their articles published on the Adam Smith Institute blog.

The winner of the Under-21 category will receive 2 weeks work experience at the Adam Smith Institute, £150 prize money, a box of liberty-themed books, and have their work published on the ASI blog.

Runners-up in each category will also receive a box of books, and have an article of their choice featured on the website.

How to enter:
You should submit your three articles using our Young Writer on Liberty submission form.

The deadline for entries is 11.59pm on Thursday, 30th April. Applicants must be under 21 on this date.

If you have any questions or queries, please contact

We look forward to reading your entries!

Economic Nonsense: 38. The market cannot produce art, music, literature & museums

The market actually does produce such things in some other countries.  What the market does best is to allow people to create the wealth that will fund cultural activities.  The United States has a strong tradition in which people who have done well in business support the arts.  Names such as the Guggenheim Museum or the Getty Centre remind us of the generosity of rich patrons.  Andrew Carnegie, who found fame and fortune in the United States, funded the provision of organs in many churches in his native Scotland, as well as numerous libraries.

In fact the arts have been funded by rich patrons through the ages.  It was often regarded as a sign of good character and culture that a wealthy person would support art, architecture and sculpture.  The emergence of modern economies since the Industrial Revolution has enabled wealth to be created on an unprecedented scale.  This, in turn, has allowed some people to become rich through business and become patrons, where previously it was mostly aristocrats and rich merchants who could afford to do so.

When Kingsley Amis wrote for the Adam Smith Institute opposing arts subsidies, his central case was that if government through its arts committees funded the arts, their output would be skewed towards the desires and tastes of the paymasters, rather than from the passion and inspiration of the artist.

It must remain a suspicion that the committees responsible for handing out public funds as grants to the arts will give effect to their own tastes, rather than those which the public might freely choose to support otherwise.

Some arts can be self-supporting through ticket or admission prices, but government can help through its tax laws, remitting all or part of the tax that would have been due on money donated to artistic institutions.  It does not itself need to dole out taxpayer-funded largesse,  The UK’s National Lottery has multiplied financial support for the arts without needing taxpayer funds.  The view that the market cannot finance the arts and that government grants are needed to sustain them is simply not correct.