About Your Proposal for Better Payment Arrangements: Does it Pass the Market Test?

Lawrence H. WhiteMany economists acknowledge that ordinary private goods and services need to “pass the market test”—generate revenue in excess of expenses—to show that consumers’ benefits (revealed by a willingness to pay) exceed producers’ outlays. But they make an exception when it comes to monetary instruments and payment systems. They imagine that they know what arrangements are efficient, without evidence from market tests.Such an attitude implies that we needn ’t, and therefore shouldn’t, tolerate experimentation and entrepreneurship in money and payments. What payment products are to be available, and what institutions are to be allowed to offer them, is best decided by experts. Such would-be planners do not conceive that their evaluation may not be shared by actual consumers and producers. They do not defer to market participants, even in the absence of evidence of market failure (Pareto-relevant externalities).A recent example is Harvard University ’s Jeffrey Frankel, in anopinion piece on “El Salvador ' s Bitcoin Folly. ” Frankel offers a would-be planner’s rationale for restricting markets in cryptocurrencies: “I don’t understand the need for cryptocurrencies at all. Like many economists [here he inserts hyperlinks to Bitcoin critics Noriel Roubini and Paul Krugman], I fail to see what problem they solve.” Which is equivalent to saying: “When I and certain other economists agree that a financial innovation lacks overall benefits in ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs