"Constitution or Competition? Alternative Views on Monetary Reform"

Brown, Pamela J.
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Editor/Trans.
First Pub. Date
Autumn 1982
Publisher/Edition
Literature of Liberty. Vol. v, no. 3, pp. 7-52. Arlington, VA: Institute for Humane Studies
Pub. Date
1982
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1. [1] [C]arl Menger, "On the Origin of Money," Economic Journal 2 (June 1892): 239 -255. A modern version of Menger's theory has been developed by Robert A. Jones, "The Origin and Development of Media of Exchange," Journal of Political Economy 84 (Nov. 1976): 757-775.

2. [2] Karl Brunner and Allan H. Meltzer, "The Uses of Money: Money in the Theory of an Exchange Economy," American Economic Review 61 (Sept. 1973): 799.

3. [3] Brian Loasby, Choice, Complexity and Ignorance (New York, Cambridge: Cambridge University Press, 1976) p. 165.

4. [4] In addition to those already cited, see W.W. Carlile,The Evolution of Modern Money (London: Macmillan, 1901); W. Stanley Jevons, Money and the Mechanisms of Exchange (London: Kegan Paul, 1905); W.T. Newlyn, The Theory of Money (London: Oxford University Press, 1971); Boris P. Pesek and Thomas R. Saving, Money, Wealth and Economic Theory (New York: Macmillan, 1970); C.A.E. Goodhart, "The Role, Functions, and Definition of Money," in G.C. Harcourt, ed., The Microfoundations of Macroeconomics (Boulder, Co.: Westview Press, 1977), pp. 205-277; Leland Yeager, "Essential Properties of the Medium of Exchange," Kyklos 21 (Jan. 1968): 45-68; William H. Hutt, "The Nature of Money," South African Journal of Economics 20 (March 1952): 50-64; Hutt, "The Yield from Money Held," in Mary Sennholz, ed., The Economics of Free Enterprise (Princeton: Van Nostrand, 1956): pp. 196-216; Hutt, "The Notion of the Volume of Money," South African Journal of Economics 20 (Sept. 1952): 231-241; Hutt, "The Notion of Money of Constant Value," South African Journal of Economics (Sept.-Dec. 1953); Hutt, "The Concept of Idle Money," in The Theory of Idle Resources (Indianapolis: Liberty Press, 1977); Murray N. Rothbard, "The Austrian Theory of Money," in Edwin G. Dolan, editor, The Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976), pp. 160-184; Joseph M. Ostroy and Ross M. Starr, "Money and the Decentralization of Exchange," Econometrica 42 (Nov. 1974): 1093-1113; Morris Perlman, "The Roles of Money in an Economy and the Optimum Quantity of Money," Economics 38 (Aug. 1971): 233-252; Jack Hirshleifer, "Exchange Theory: The Missing Chapter," Western Economic Journal(Economic Inquiry) (June 1973): 129-146; Robert Clower, "A Reconsideration of the Microfoundations of Monetary Theory," Western Economic Journal (Economic Inquiry) 6 (Dec. 1967): 1-8; Harold Demsetz, "The Cost of Transacting," Quarterly Journal of Economics 82 (Feb. 1968): 33-53; and R.A. Radford, "Money in a Prisoner-of-War Camp," in Jonas Prager, ed., Monetary Economics: Controversies in Theory and Policy (New York: Random House, 1971), pp. 6-8.

5. [5] In the case of the U.S. Federal Reserve System, this is only a shorthand way of describing the usual process of monetary expansion. More precisely, the Fed injects new bank reserves into the system, enabling commercial banks to issue new money.

6. [6] An especially important transfer of the first type, namely to capitalist investors from other income groups, occurs when new money is injected as loanable funds made available by the central bank. This transfer, known as "forced savings" because it involuntarily restricts the availability of resources for consumption, plays an important role in the Austrian theory of the trade cycle. See F.A. Hayek, "A Note on the Development of the Doctrine of 'Forced Saving'," in Profits, Interest and Investment (New York: Augustus M. Kelley, 1975), pp. 183-197; and Prices and Production (New York: Augustus M. Kelley, 1967), pp. 18-22, 85-91.

7. [7] See John Culbertson, Macroeconomic Theory and Stabilization Policy (New York: McGraw-Hill, 1968); Nancy Smith Barrett, The Theory of Macroeconomic Policy (Englewood Cliffs, NJ: Prentice Hall, 1975); Michael R. Darby, Macroeconomics (New York: McGraw-Hill, 1976); and Rudiger Dornbusch and Stanley Fischer, Macroeconomics (New York: McGraw-Hill, 1978). Also relevant are E.S. Phelps et. al., Microeconomic Foundations of Employment and Inflation Theory (New York: W.W. Norton, 1970); and Don Patinkin, Money, Interest, and Prices (New York: Harper & Row, 1965). For a survey of recent developments by a pioneering "Rational Expectations" theorist, see Robert E. Lucas, Jr., "Methods and Problems in Business Cycle Theory," in Studies in Business-Cycle Theory (Cambridge: MIT Press, 1981), pp. 271-296.

8. [8] See also Milton Friedman, "Government Revenue from Inflation," Journal of Political Economy 79 (July-Aug., 1971): 846-856; Eamonn Butler, "How Government Profits from Inflation," Policy Review 6 (Fall 1978): 73-76; Leonardo Auernheimer, "The Honest Government's Guide to the Revenue from the Creation of Money," Journal of Political Economy 82 (May-June 1974): 598-606; Martin Bailey,"The Welfare Cost of Inflationary Finance," Journal of Political Economy 64 (April 1956): 93-110; and Michael Mussa, "The Welfare Cost of Inflation and the Role of Money as a Unit of Account," Journal of Money, Credit, and Banking 9 (May 1977): 276-286.

9. [9] But for an alternative view—that of monetary statism—see G.F. Knapp,The State Theory of Money (London: Macmillan, 1924); and Abba P. Lerner, "Money as a Creature of the State," American Economic Review 37 (May 1947 supplement): 312-317.

10. [10] S. Herbert Frankel, Money: Two Philosophies (England: Basil Blackwell, 1977), p. 86. See also this book's recent sequel, Money and Liberty (Washington: American Enterprise Institute, 1980).

11. [11] On the importance of such institutions see F.A. Hayek, Law, Legislation and Liberty, vol. II (Chicago: University of Chicago Press, 1978), ch. 7.

12. [12] These include William T. Baxter, Solomon Fabricant, et al., Economic Calculation Under Inflation (Indianapolis: Liberty Press, 1976); Ludwig von Mises, Human Action: A Treatise on Economics (Chicago: Henry Regnery, 1966), pp. 550-565; Axel Leijonhufvud, "Costs and Consequences of Inflation," in Information and Coordination (New York: Oxford University Press, 1981), pp. 227-269; William D. Bradford, "Monetary Position, Unanticipated Inflation, and Changes in the Value of the Firm," Quarterly Review of Economics and Business 16 (Winter 1976): 47-53; and Benjamin Klein, "The Social Costs of the Recent Inflation: The Mirage of Steady 'Anticipated' Inflation," in Karl Brunner and Allan H. Meltzer, eds., Institutional Arrangements and the Inflation Problem (New York: North Holland, 1976), pp. 185-212.

13. [13] See Constantino Bresciani-Turroni, The Economics of Inflation (London: George Allen and Unwin, 1937); C.A. Phillips, T.F. McManus and R. W. Nelson, Banking and the Business Cycle (New York: Arno Press, 1972); Ludwig von Mises, On the Manipulation of Money and Credit (Dobbs Ferry, NY: Free Market Books, 1978); F.A. Hayek, Monetary Theory and the Trade Cycle (Clifton, NJ:Augustus M. Kelley, 1975); Hayek, Full Employment at Any Price? (London: Institute of Economic Affairs, 1975); Hayek, "Full Employment, Planning and Inflation," in Studies in Philosophy, Politics and Economics (New York: Simon and Schuster, 1967), pp. 270 -279; Milton Friedman, "The Effects of a Full-Employment Policy on Economic Stability," in Essays in Positive Economics (Chicago: University of Chicago Press 1966), pp. 117-132; Otto Eckstein, "Instability in the Private and Public Sectors," Swedish Journal of Economics 75 (March 1973): 19-26; and Benjamin Klein, "Our New Monetary Standard: The Measurement and Effects of Price Uncertainty, 1880-1973," Economics Inquiry 13 (Dec. 1973): 461-484.

14. [14] Axel Leijonhufvud, Information and Coordination, p. 259. Italics in the original deleted.

15. [15] The long-run Phillips Curve, to use that manner of speaking, is said to be positively sloped rather than negatively sloped. See Hayek, Full Employment at Any Price?; Milton Friedman, "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy 85 (June 1977): 451-472; Robert E. Lucas, "Some International Evidence on Output-Inflation Tradeoffs," in Studies in Business Cycle Theory, pp. 131-145. On the Rational Expectations theorists as "neo-Austrians," see David Laidler, "Monetarism: An Interpretation and an Assessment," Economic Journal 91 (March 1981): 1-28.

16. [16] For evidence and discussion supportive of reliance upon "discretionary" money and credit management for the achievement of policy objectives, see for example, Phillip J. Copper and Stanley Fischer, "Simulations of Monetary Rules in the FRB-MIT-Penn Model," Journal of Money, Credit, and Banking 4 (May 1972): 384-396; C.R. Whittlesey, "Rules, Discretion, and Central Bankers," in C.R. Whittlesey and J.S.G. Wilson, editors, Essays in Money and Banking in Honor of R.S. Sayers (Oxford: Clarendon Press, 1968), pp. 252-265; L.R. McPheters and M.B. Redman, "Rule, Semirule, and Discretion During Two Decades of Monetary Policy," Quarterly Review of Economics and Business 15 (Spring 1975): 53-64; D.A. Peel, "Some Implications of Alternative Monetary Rules," Indian Economic Journal 27 (July-Sept. 1979): 81-94; Daniel Ahearn, "Automatic Increases in the Money Supply: Some Problems," in Jonas Prager, ed., Monetary Economics: Controversies in Theory and Policy, pp. 352-355; and Franco Modigliani, "Some Empiricial Tests of Monetary Management and of Rules Versus Discretion," Journal of Political Economy 72 (June 1964): 211-245.

Analyses critical of credit and currency control characterized by discretionary "fine tuning" can be found in Henry C. Simons, "Rules Versus Authorities in Monetary Policy," in Economic Policy for a Free Society (Chicago: University of Chicago Press, 1973), pp. 160-183; Martin Bronfenbrenner, "Statistical Tests of Rival Monetary Rules," Journal of Political Economy 69 (Feb. 1961): 1-14; Bron-fenbrenner, "Statistical Tests of Rival Monetary Rules: Quarterly Data Supplement," Journal of Political Economy 69 (Dec. 1961): 621-625; Milton Friedman, A Program for Monetary Stability (New York: Fordham University Press, 1975); Edward S. Shaw, "The Positive Case for Automatic Monetary Control," in Jonas Prager, editor, Monetary Economics: Controversies in Theory and Policy, pp. 348 -351; and Bennett T. McCallum, "Price Level Stickiness and the Feasibility of Monetary Stabilization Policy with Rational Expectations," Journal of Political Economy 85 (June 1977): 627-634.

Further discussions of both the pros and cons of discretionary money management are contained in Edward Gramlich, "The Usefulness of Monetary and Fiscal Policy as Discretionary Stabilization Tools," Journal of Money, Credit, and Banking (May 1971); Richard H. Puckett and Susan B. Vroman, "Rules Versus Discretion: A Simulation Study," Journal of Finance 28 (Sept. 1973): 853-865; Victor Argy, "Rules, Discretion in Monetary Management, and Short-Term Stability," Journal of Money, Credit and Banking 3 (Feb. 1971): 102-122; Ronald S. Koot and David A. Walker, "Rules Versus Discretion: An Analysis of Income Stability and the Money Supply," Journal of Money, Credit, and Banking 6 (May 1974): 253-262; Wilfred Lewis, Jr., "The Relative Effectiveness of Automatic and Discretionary Fiscal Stabilizers," in Robert W. Crandall and Richard S. Eckhaus, eds., Contemporary Issues in Economics: Selected Readings (Boston: Little, Brown, and Company, 1972), pp. 178-181; and Erich Schneider, "Automatism or Discretion in Monetary Policy?," Banca Nazionale del Lavoro (June 1970): 111-127.

17. [17] Hans F. Sennholz, Inflation or Gold Standard, p. 57.

18. [18] See Murray N. Rothbard, "The Case for a 100 Percent Gold Dollar," in: Leland B. Yeager, editor, In Search of a Monetary Constitution (Cambridge: Harvard University Press, 1962), pp. 94-136; Rothbard, What Has Government Done to Our Money? (Novato, CA: Libertarian Publishers, 1978); Henry Hazlitt, The Inflation Crisis and How to Resolve It (New York: Arlington House, 1978); See also Joseph T. Salerno, "A Proposal for Monetary Reform:The 100% Gold Standard," Policy Report (July 1981): 6-11. For an analysis and defense of free banking on a species standard see Lawrence H. White, "Free Banking as an Alternative Monetary System," in M. Bruce Johnson and Gerald P. O'Driscoll, Jr., eds., Inflation of Deflation? (Cambridge, MA: Ballinger Publishing Co., forthcoming).

19. [19] See F.A. Hayek, "A Commodity Reserve Currency," in Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 92-106; Benjamin Graham, "The Commodity Reserve Currency Proposal Reconsidered," in Leland Yeager, ed., In Search of a Monetary Constitution; Milton Friedman, "Commodity Reserve Currency," in Essays in Positive Economics; and Robert E. Hall, "Explorations in the Gold Standard and Related Policies for Stabilizing the Dollar," in Hall, ed., Inflation (Cambridge, MA: National Bureau of Economic Research, forthcoming).

The interested reader will also want to peruse "A Proposal for Monetary Reform" (unpublished ms., Sept. 1980) by John F.O. Bilson, in which an "equity" reserve standard is proposed. Under Bilson's scheme, the Federal Reserve System is transformed into a "type of Mutual Fund" which maintains a monetary base incorporating reserves composed of a diversified portfolio of "internationally traded" financial assets.

20. [20] Neil H. Jacoby, "The President, the Constitution, and the Economist in Economic Stabilization," History of Political Economy 3 (Fall 1971): 398.

21. [21] Cited in Friedman,A Program for Monetary Stability p. 85. An earlier version of the Act prepared by the Senate Banking and Currency Committee did contain a clause specifically instructing the Fed to manage the currency system for the clear and unambiguous co-purpose of "accommodating the commerce of the country and promoting a stable price level." (Hearings before the Committee on Banking and Currency, U.S. Senate, 63rd Congress, 1st session on S. 2639, 1913, vol. 2, p. 1730, sec. 15 of the bill.) It was deleted from the bill while in committee because it was believed that such a provision was an unnecessary precaution. It appears that a genuine ignorance of the potential importance of such an explicit provision caused its removal from the Act. See Irving Fisher, Stabilized Money: A History of its Movement (London: George Allen and Unwin, 1935), pp. 148 ff.

22. [22] For a detailed historical discussion see Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1971), pp. 189 ff. See also Irving Fisher, Stabilized Money; and C.A. Phillips, T.F. McManus, and R.W. Nelson, Banking and the Business Cycle.

23. [23] James M. Buchanan and Richard E. Wagner, Democracy in Deficit (New York: Academic Press, 1977); James M. Buchanan, Richard E. Wagner, and John Burton. The Consequences of Mr. Keynes (London: Institute of Economic Affairs, 1978); F.A. Hayek, "The Campaign Against Keynesian Inflation" in New Studies in Philosophy, Politics, Economics, and the History of Ideas (Chicago: University of Chicago Press, 1978), pp. 191-231; and Murray N. Rothbard, For a New Liberty (New York: Collier Books, 1978), ch. 9.

24. [24] John M. Culbertson, Macroeconomic Theory and Stabilization Policy, p. 453.

25. [25] Milton Friedman, "Should There Be an Independent Monetary Authority?," in Leland B. Yeager, ed., In Search of a Monetary Constitution, pp. 224-225, 239, 236.

26. [26] Milton Friedman, A Program for Monetary Stability, p. 86.

27. [27] Friedman, A Program for Monetary Stability, p. 93. See also Friedman, "The Effects of a Full-Employment Policy on Economic Stability: A Formal Analysis"; and Phillip Cagan and Anna J. Schwartz, "How Feasible is a Flexible Monetary Policy?," in Richard Selden, ed., Capitalism and Freedom—Problems and Prospects (Charlottesville: University Press of Virginia, 1975), pp. 262-310.

28. [28] See H. Geoffrey Brennan and James M. Buchanan, Monopoly in Money and Inflation: The Case for a Constitution to Discipline Government (London: Institute of Economic Affairs, 1981); Brennan and Buchanan, "Money Creation and Taxation," in The Power to Tax: Analytical Foundations of a Fiscal Constitution (New York: Cambridge University Press, 1980), pp. 109-134; Richard E. Wagner, "Economic Manipulation for Political Profit: Macroeconomic Consequences and Constitutional Implications," Kyklos 30 (1977): 395-410; and Keith Acheson and John F. Chant, "Bureaucratic Theory and Choice of Central Bank Goals," Journal of Money, Credit, and Banking 5 (May 1973): 637-655.

29. [29] Brennan and Buchanan, Monopoly in Money and Inflation, p. 23.

30. [30] Richard E. Wagner, "Politics, Monetary Control, and Economic Performance: A Comment," Mario J. Rizzo, ed., Time, Uncertainty, and Disequilibrium (Lexington, MA: D.C. Heath, 1979), pp. 178, 180.

31. [31] Gordon Tullock, "Competing Monies," Journal of Money, Credit, and Banking 7 (November 1975), pp. 496-497.

32. [32] John M. Culbertson, Macroeconomic Theory and Stabilization Policy, p. 148.

33. [33] Wagner, "Politics, Monetary Control, and Economic Performance," p. 179.

34. [34] Milton Friedman, A Program for Monetary Stability, p. 19.

35. [35] Milton Friedman, "The Optimum Quantity of Money," in The Optimum Quantity of Money and Other Essays (Chicago: Aldine Publishing Co., 1970), p. 34.

36. [36] In addition to Friedman's above-cited works see Milton Friedman, Monetary Correction (London: Institute of Economic Affairs, 1974), and Friedman, "A Monetary and Fiscal Framework for Economic Stability," in Essays in Positive Economics, pp. 133-156. Also see Richard T. Selden, "Stable Monetary Growth," in Leland B. Yeager, ed., In Search of a Monetary Constitution.

37. [37] E.S. Shaw, "Monetary Stability in a Growing Economy," in Moses Abramovitz, ed., The Allocation of Economic Resources (Standford: Standford University Press, 1959).

38. [38] Martin Bronfenbrenner, "Statistical Tests of Rival Monetary Rules," pp. 1-2; "Statistical Tests of Rival Monetary Rules: Quarterly Data Supplement," pp. 624 -625.

39. [39] Clark Warburton, "Rules and Implements for Monetary Policy," Journal of Finance 8 (March 1953): 8; John M. Culbertson, Macroeconomic Theory and Stabilization Policy, p. 432.

40. [40] Henry C. Simons, "Rules Versus Authorities in Monetary Policy," pp. 164, 169; Willford King, "Sound Money—Why Needed and How Obtained," in Leland B. Yeager, ed., In Search of a Monetary Constitution, pp. 315-316.

41. [41] Jacob Viner, "The Necessary and the Desirable Range of Discretion to be Allowed to a Monetary Authority," in Leland B. Yeager, ed., In Search of a Monetary Constitution, pp. 244-274; Henry Simons, "Rules Versus Authorities in Monetary Policy"; Clark Warburton, "Rules and Implements for Monetary Policy"; William H. Hutt, Keynesianism—Retrospect and Prospect: A Critical Restatement of Basic Economic Principles (Chicago: Henry Regnery, 1963), pp. 100-101; and Hutt, A Rehabilitation of Say's Law (Athens, OH: Ohio University Press, 1974), pp. 61-62. For Friedman's case against a fixed price-level rule, see his "The Role of Monetary Policy," American Economic Review 58 (March 1968): 1-17.

42. [42] James M. Buchanan, "Predictability: The Criterion of Monetary Constitutions" in Leland B. Yeager, ed., In Search of a Monetary Constitution, pp. 155-183.

43. [43] Friedman, "Should There Be an Independent Monetary Authority?," p. 243. Emphasis added.

44. [44] Simons, "Rules Versus Authorities in Monetary Policy," pp. 175-176. This article first appeared in 1936.

45. [45] Friedman, "A Monetary and Fiscal Framework for Economic Stability," p. 135; "Should There Be an Independent Monetary Authority?," pp. 233-234; A Program for Monetary Stability, p. 99.

46. [46] Hutt, Keynesianism, Retrospect and Prospect, p. 100.

47. [47] John M. Culbertson, Macroeconomic Theory and Stabilization Policy, p. 423.

48. [48] F.A. Hayek, "Toward a Free Market Monetary System," Journal of Libertarian Studies 3 (Spring 1979): 1.

49. [49] Hayek, Choice in Currency: A Way to Stop Inflation (London: Institute of Economic Affairs, 1976), p. 16.

50. [50] Hayek, "Toward a Free Market Monetary System," pp. 2, 5.

51. [51] Hayek, "Toward a Free Market Monetary System," pp. 7-5.

52. [52] For secondary accounts see Vera C. Smith, The Rationale of Central Banking (London: P.S. King, 1936), chs. 6-10; Lawrence H. White, "Free Banking in Britain: Theory, Experience, and Debate" (Ph.D. dissertation, UCLA, 1982), chs. 2-3; and Phillipe Nataf, "Free Banking: A Workable System," paper presented at the 10th annual conference of the Committee for Monetary Research and Education, Harriman, NY, 14 March 1982.

53. [53] Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Campbell-Skinner-Todd edition. (Oxford: Oxford University Press, 1976), I, pp. 320-321.

54. [54] Smith, Wealth of Nations, I, pp. 321, 329. Smith added the two qualifications that issuers be restricted from issuing (1) notes below some minimum denomination and (2) notes not unconditionally payable on demand. Both restrictions had been imposed on the Scottish banks in 1765.

55. [55] John Stuart Mill, Principles of Political Economy (London: John W. Parker, 1848), p. 675. Mill believed in having a non-market authority act as a central holder of bank reserves.

56. [56] Herbert Spencer, Social Statics (New York: D.Appleton and Co., 1881), pp. 434, 436. Spencer placed no qualifications on his support for free banking.

57. [57] William P. Gramm, "Laissez-Faire and the Optimum Quantity of Money," Economic Inquiry 12 (March 1974): 125-133.

58. [58] Harry G. Johnson, "Equilibrium Under Fixed Exchanges," American Economic Review 53 (May 1963): 113; Paul A. Samuelson, "What Classical and Neoclassical Monetary Theory Really Was," Canadian Journal of Economics 1 (Feb. 1968): 9-10; Boris P. Pesek and Thomas R. Saving, Money, Wealth and Economic Theory (New York: Macmillan, 1970), pp. 69 ff.

59. [59] Earl A. Thompson, "The Theory of Money and Income Consistent With Orthodox Value Theory," in P.A. Samuelson and G. Harwich, eds., Trade, Stability, and Macroeconomics: Essays in Honor of Lloyd Meltzer (New York: Academic Press, 1974), pp. 427-453. On Say's Law see William H. Hutt,A Rehabilitation of Say's Law; and Axel Leijonhufvud, Information and Coordination, pp. 79-101.

60. [60] Benjamin Klein, "The Competitive Supply of Money," Journal of Money, Credit, and Banking 6 (Nov. 1974): 423-453.

61. [61] Benjamin Klein, "Competing Monies, European Monetary Union, and the Dollar," in M. Fratianni and T. Peeters, eds., One Money for Europe (London: Macmillan 1978); Klein, "Money, Wealth, and Seignorage," in Kenneth Boulding and Thomas Frederick Wilson, eds., Redistribution Through the Financial System (New York: Praeger, 1978).

62. [62] Gordon Tullock, "Competing Monies," Journal of Money, Credit, and Banking 7 (Nov. 1975): 491-498.

63. [63] Benjamin Klein, "Competing Monies: A Comment," Journal of Money, Credit, and Banking 8 (Nov. 1976): 513-519; Gordon Tullock, "Competing Monies: A Reply," Journal of Money, Credit, and Banking 8 (Nov. 1976): 521-525.

64. [64] F.A. Hayek, Choice in Currency: A Way to Stop Inflation (London: Institute of Economic Affairs, 1976), pp. 17-18. The pamphlet's text has subsequently been reprinted in Hayek, New Studies in Philosophy, Politics, and the History of Ideas, pp. 218-231.

65. [65] Hayek, Denationalisation of Money—The Argument Refined, 2nd ed. (London: Institute of Economic Affairs, 1978).

66. [66] For example Henry Hazlitt, in The Inflation Crisis, and How to Resolve It, p. 184, mistakenly interprets Hayek as contemplating private monies each convertible into a basket of commodities. Hayek, Denationalisation of Money, pp. 106-107, clearly denies that convertibility would be necessary.

67. [67] Hayek, Denationalisation of Money, p. 98.

68. [68] Lance Girton and Don Roper, "Substitutable Monies and the Monetary Standard," in Michael P. Dooley, Herbert M. Kaufman, and Raymond E. Lombra, eds., The Political Economy of Policy-Making (Beverly Hills: Sage Publications, 1979), pp. 233-246. See also Girton and Roper, "Theory and Implications of Currency Substitution," Journal of Money, Credit, and Banking 13 (Feb. 1981): 12-30.

69. [69] Roland Vaubel, "Free Currency Competition," Weltwirtschaftliches Archiv 112 (1977): 435-459.

70. [70] Martin Bronfenbrenner, "The Currency-Choice Defense," Challenge (Jan.-Feb. 1980): 31-36; F.A. Hayek, "Toward a Free Market Monetary System" Lawrence H. White, "Gold, Dollars, and Private Currencies," Policy Report (June 1981): 6-11; Peter Lewin, "The Denationalization of Money," unpublished ms. (June 1981).

71. [71] Outstanding among these are Gordon Tullock, "Paper Money—A Cycle in Cathay," Economic History Review 9 (August 1957): 393-407; Luigi Einaudi, "Medieval Practice of Managed Currency," in Arthur D. Gayer, ed., The Lessons on Monetary Experience (New York: Augustus M. Kelley, 1970), pp. 259-268; Roland Vaubel, "Currency Competition in Monetary History," paper presented at the Institutum Europaeum conference on European Monetary Union and Currency Competition (December 1980); Bray Hammond, Banks and Politics in America from the Revolution to the Civil War (Princeton: Princeton University Press, 1957): Richard H. Timberlake, "Denominational Factors in Nineteenth-Century Currency Experience," Journal of Economic History 34 (December 1974): 835-884; William Woolridge, "Every Man His Own Mintmaster," in Uncle Sam, The Monopoly Man (New Rochelle, NY:Arlington House, 1970), pp. 54-74; Hugh Rockoff, "The Free Banking Era: A Reexamination," Journal of Money, Credit, and Banking 6 (May 1974): 141-168; Yu Ching Jao, Banking and Currency in Hong Kong (London: Basingstoke, 1974); and Lawrence H. White, "Free Banking in Britain: Theory, Experience, and Debate," ch. 2.

72. [72] Hayek, Denationalisation of Money, p. 44.

73. [73] Vaubel, "Free Currency Competition," pp. 445-446.

74. [74] Boris Pesek, "[Optimal Monetary Growth:] Comment," Journal of Political Economy 76 (July-Aug. 1968): 889.

75. [75] Klein, "The Competitive Supply of Money," pp. 429-430.

76. [76] Henry Hazlitt, The Inflation Crisis, and How to Resolve It, p. 185.

77. [77] See Hayek, Denationalisation of Money, pp. 42 ff; and Girton and Roper, "Substitutable Monies and the Monetary Standard," pp. 238-239.

78. [78] See Klein, "The Competitive Supply of Money," pp. 432-438, for elaboration of the "brand-name capital" concept.

79. [79] Vaubel, "Free Currency Competition," pp. 453, 458.

80. [80] Vaubel, "Free Currency Competition," pp. 437, 458. For similar "natural monopoly" arguments see Harry G. Johnson, "Problems of Efficiency in Monetary Management," Journal of Political Economy 76 (Sept.-Oct. 1968): 971-990; Richard N. Cooper, "European Monetary Unification and Integration of the World Economy," in Lawrence B. Krause and Walter S. Salant, eds., European Monetary Unification and Its Meaning for the United States (Washington, 1973); C.P. Kindleberger, "The Benefits of International Money," Journal of International Economics 2 (Nov. 1972): 425-442; R.I. McKinnon, "Optimum Currency Areas," American Economic Review 53 (Sept. 1963): 717-724.

81. [81] Such heterogeneity within any given "industry" is inconsistent with models of "perfect competition." Compare Hayek, Denationalisation of Money, pp. 72 ff.

82. [82] Vaubel, "Free Currency Competition," p. 440.

83. [83] This is Vaubel's characterization of the currency industry: "Free Currency Competition," p. 458.

84. [84] Loasby, Choice, Complexity and Ignorance, pp. 189-190. On competition as a process see also F.A. Hayek, "The Meaning of Competition," in Individualism and Economic Order (Chicago: University of Chicago Press, 1948), pp. 92-106; Hayek, "Competition as a Discovery Procedure," in New Studies, pp. 179-190; and Israel Kirzner, Competition and Entrepreneurship (Chicago: University of Chicago Press, 1973).

85. [85] Vaubel, "Free Currency Competition," pp. 457-458.

86. [86] Hugh Rockoff, "The Free Banking Era: A Reexamination," Journal of Money, Credit, and Banking 6 (May 1974): 144-145.

87. [87] Bettina Greaves and Percy Greaves, "On Private Paper Money," in Ludwig von Mises, On the Manipulation of Money and Credit, pp. 275-279; Henry Hazlitt, The Inflation Crisis, ch. 24.

88. [88] Greaves and Greaves, "On Private Paper Money," pp. 278-279, emphasis added.

89. [89] Mises, The Theory of Money and Credit, p. 70, emphasis in the original. On legal tender see also Herbert Spencer, Social Statics, p. 339; Thomas H. Farrer, Studies in Currency (London: 1898), p. 399; C.P. Kindleberger, "The Benefits of International Money," p. 426; and especially Vaubel, "Free Currency Competition," p. 438.

90. [90] See F.A. Hayek, Denationalisation of Money, p. 42; Lance Girton and Don Roper, "Substitutible Monies and the Monetary Standard," p. 238.

91. [91] See, for example, the discussions in Milton Friedman, "Should There Be an Independent Monetary Authority?," pp. 221 ff.; and Richard H. Timberlake, "The Significance of Unaccounted Currencies" unpublished ms. (1980), p. 17.

92. [92] See F.A. Hayek, The Constitution of Liberty (Chicago: University of Chicago Press, 1960); Hayek, Law, Legislation and Liberty (Chicago: University of Chicago Press, 1973-79); Alexander James Field, "On the Explanation of Rules Using Rational Choice Models," Journal of Economic Issues 13 (March 1979): 49-72; John Rawls, A Theory of Justice (Cambridge: Harvard University Press, 1971).

93. [93] Henry Hazlitt, in The Inflation Crisis, p. 185, for example, objects that "you cannot make a currency convertible into an abstraction" such as an index number. For fascinating historical evidence to the contrary see Luigi Einaudi, "The Medieval Practice of Managed Currency." See also Dennis W. Richardson, "The Emerging Era of Electronic Money: Some Implications for Monetary Policy," Journal of Bank Research 3 (Winter 1973): 261-264.

94. [94] Hayek, Denationalisation of Money, discusses such potential problems as "parasitic" currencies (pp. 60-62), as well as the problems of transition to multiple currencies (sec. XXII).

95. [95] See F.A. Hayek, Law, Legislation and Liberty, vol. I, for this concept. Other such social institutions include moral codes, language, writing, and the convention of market exchange itself.

96. [96] Milton Friedman, "Should There Be an Independent Monetary Authority?," p. 242; Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1965), pp. 39, 53; Friedman, A Program for Monetary Stability, pp. 7-8; James M. Buchanan, "Predictability: The Criterion of Monetary Policy," p. 192; James M. Buchanan and T. Nicholaus Tideman, "Gold, Money and the Law," in Henry Manne and Roger Miller, eds., Gold, Money and the Law (Chicago: Aldine, 1975), pp. 42-43; and Henry Simons, "Rules Versus Authorities in Monetary Policy," p. 162.

97. [97] For this distinction between rules and commands see Hayek, Law, Legislation and Liberty, vol. I, pp. 48, 149 ff. On constructivism see ch. I of that volume.

98. [98] Hayek, The Constitution of Liberty; Hayek, Law, Legislation and Liberty; Hayek, "Economic Freedom and Representative Government" and "The Constitution of a Liberal State" in New Studies; Hayek, "Toward a Free Market Monetary System." See also Bruno Leoni, Freedom and the Law (Los Angeles: Nash Publishing, 1972).

99. [99] Frederic Bastiat, The Law (Irvington-on-Hudson, NY: Foundation for Economic Education, 1950), p. 60, emphasis added.

100. [100] Girton and Roper, "Substitutable Monies and the Monetary Standard," p. 234.

101. [101] Loasby, Choice, Complexity and Ignorance, p. 192.

End of Notes.

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