The Denationalization of Money
| Author | Friedrich Hayek |
|---|---|
| Publisher | Institute of Economic Affairs |
Published in English | 1976 |
The Denationalization of Money is a book written by Friedrich Hayek, and published in 1976, in which he advocated the establishment of competitively issued private moneys.[1] In 1978 Hayek published a revised and enlarged edition entitled Denationalization of Money: The Argument Refined, where he speculated that rather than entertaining an unmanageable number of currencies, markets would converge on one or only a limited number of monetary standards, on which institutions would base the issue of their notes.[2]
Overview
According to Hayek, instead of a national government issuing a specific currency, use of which is imposed on all members of its economy by force in the form of legal tender laws, private businesses should be allowed to issue their own forms of money, deciding how to do so on their own.[3][4]
Synopsis
Hayek advocates a system of private currency in which financial institutions create currencies that compete for acceptance.[5] Stability in value is presumed be the decisive factor for acceptance. Hayek makes the assumption that competition will favor currencies with the greatest stability in value since a devalued currency hurts creditors, and an upward-revalued currency hurts debtors.[6] Hence users would choose the moneys which they expected to offer a mutually acceptable intersection between depreciation and appreciation. Hayek suggests that institutions may find through experimentation that an extensive basket of commodities forms the ideal monetary base. Institutions would issue and regulate their currency primarily through loan-making, and secondarily through currency buying and selling activities. It is postulated that the financial press would report daily information on whether institutions are managing their currencies within a previously-defined tolerance. Hayek's effort has been cited by economists George Selgin, Richard Timberlake, and Lawrence White.
Criticism
Economist Milton Friedman was critical of Hayek's writings of the 1970s on monetary reform. Noting Hayek's vigorous defense of "invisible hand" evolution that Hayek claimed has created better economic institutions than could be created by rational design, Friedman pointed out the irony that Hayek was then proposing to replace the monetary system thus created with a deliberate construct of his own design. Moreover, Friedman noted, there is nothing in current law to prevent voluntary bilateral exchange via any medium freely accepted by two parties.[7] In a 1977 review of the book, economist David H. Howard also noted that Hayek neglected to address the extent to which existing monetary institutions evolved to meet real economic needs. Furthermore, Howard states, Hayek's regime of competitive moneys may result in the establishment of a new monopoly similar to the existing system. According to Howard, Hayek does not consider the real costs and other inefficiencies of a system of competing moneys which might lead to such an outcome.[8]
Austrian School economist Lawrence White was critical of Hayek's assumption that the most stable currencies would win market acceptance.[9]
See also
References
- ↑ "Looking ahead to the digital imperatives". Washington Times. July 18, 1999. Retrieved 28 January 2013.
- ↑ Boettke, Peter J. (2000). The legacy of Friedrich von Hayek, Volume 1. Edward Elgar Publishing. pp. 363, 374. ISBN 1858982995.
- ↑ "Ron Paul, Upping the Ante in His Campaign for Liberty, Hoists the Flag of Hayek". New York Sun. Retrieved 28 January 2013.
- ↑ “There is no justification in history for the existing position of a government monopoly of issuing money. It has never been proposed on the ground that government will give us better money than anybody else could.” See here
- ↑ Schramm, Helmar (2008). Instruments in Art and Science. Walter de Gruyter. p. 451. ISBN 3110202409.
- ↑ Ferris, J. Stephen; John A. Galbraith (2006). "On Hayek's denationalization of money, free banking and inflation targeting". European Journal of the History of Economic Thought. 13 (13): 213–231. doi:10.1080/09672560600708359.
- ↑ Friedman and Schwartz, Milton and Anna J. (1987). Has Government Any Role in Money?. University of Chicago Press. p. 312. ISBN 0-226-74228-8.
- ↑ Howard, David H. "The Denationalization of Money: A Review" (PDF). Journal of Monetary Economics. Retrieved 31 January 2013.
- ↑ White, Lawrence. "Larry White on Hayek and Money". Library of Economics and Liberty. Retrieved 31 January 2013.