Cato Institute co-founder Ed Crane has long said in print, on television and in person that a focus on economic growth misses the point. Paraphrasing Crane, if the people are free they’ll have all the economic growth they could ever want.
It’s something to remember as Cato stages an online policy forum focused on Argentina, and why it must dollarize. Without minimizing the importance of stable money to economic progress for even a second, the forum’s assertion that Javier Milei “must” dollarize similarly misses the point.
Forum participants Emiliano Ocampo, Alfredo Romano, and Nicholas Cachanosky lament that libertarian Argentine president Milei “came to power nearly a year ago on the campaign promise to abolish the central bank and dollarize his country’s economy.” Implicit in the latter was that Milei promised to abolish the Central Bank of Argentina in order arrest ongoing devaluation of the Argentine peso, and even better, that Milei would replace the persistently devalued peso with the U.S. dollar. The policy prescription is superfluous when it’s not a non sequitur.
For one, it implies that central banks are the catalyst for currency devaluation. In reality, currency devaluation is as old as government money is, and realistically older. The first central bank was established in Sweden in 1688, yet horrid currency devaluations well predate central banks.
Governments devalue, period. To then shrink Argentine currency reform to something of the “End the Fed” variety is simplistic. A stable currency (or not) is a policy choice that governments have long made separate of central banks. Abolishment of Argentina’s central bank would perhaps have symbolic value, but how odd to presume that abolishment would revive the peso as a stable measure of value.
Furthermore, Argentina is already dollarized. Does anyone seriously think its government can borrow in pesos in global markets? Not only can the government not borrow in size in pesos, neither can the people. For instance, home purchases in Argentina and loans that enable those purchases are already made in dollars. Dollarization would be for Milei and his colleagues to merely confirm what already prevails. In other words, dollarization wouldn’t alter the non-dollarized present.
Of greater importance, production isn’t a consequence of so-called “money supply” as much as so-called “money supply” is production determined. Where there’s production there’s always stable money facilitating the exchange of it, as if placed there by – yes – an “invisible hand.”
To which some will say that the inevitability of trusted money in circulation isn’t enough, that Argentina’s economy requires the U.S. dollar as “legal tender.” Really? The bolivar is legal tender in Venezuela, the won is legal tender in North Korea and the Lebanese pound is legal tender in Lebanon, but the dollar is still the currency of business in all three.
The obsessive focus on dollarization presumes that people, corporations, and governments buy, sell, lend, and borrow in “money.” More realistically production always buys production, and production is always loaned in return for future production. Money is just the reasonably trusted store of value that moves production between buyer, seller, lender, and borrower.
Underlying the push for dollarization is a monetarist narrative that presumes governments and central banks must “supply” monetary mediums so that country economies can grow. The view is backwards. Money is the always and everywhere effect of production, not something that can be planned or decreed.
Which means that Ocampo et al needn’t worry. Milei doesn’t need to “dollarize” so that dollars circulate in Argentina, rather he needs to continue to set the Argentine people free to produce. If so, and per Crane, Argentina will have all the dollars it could ever want circulating as an effect of Milei wisely removing the barriers to freedom that have for so long suffocated the economic activity that’s always and everywhere a prerequisite for money in circulation.
