Henry Hazlitt, “The Search for an Ideal Money” (1975)

This is a short single-author monetary essay, reprinted from The Freeman. Written after the collapse of Bretton Woods, it treats the “ideal money” problem as a political-institutional problem rather than a technical puzzle. Hazlitt begins from the visible disorder of the 1970s—floating exchange rates, inflation, and uncertainty—and frames the search for reform as a choice among systems for limiting monetary power.

Even the man in the street, in brief, senses that the world is drifting toward monetary chaos.

The essay’s structure is classificatory. Hazlitt divides reformers into paper-money advocates and gold-standard advocates, then subdivides each into discretionary and rule-bound camps. His harshest criticism falls on discretionary fiat money, which he identifies with Bretton Woods and the post-1971 monetary order. For Hazlitt, Bretton Woods did not fail accidentally; by making weaker currencies depend on stronger currencies and ultimately on the dollar, it transmitted inflation internationally and encouraged governments to postpone discipline.

What has to be made crystal clear, if we are to lay the foundations for any permanent sound monetary reform, is that the present worldwide inflationary chaos is not a mere accident.

His treatment of monetarism is more nuanced but still hostile. He credits monetarists for seeing the relation between money supply and purchasing power and for wanting explicit limits. Yet he rejects both their empirical confidence and their political theory: productivity growth is not automatic, price-level stability is not necessarily the right aim, and any legally fixed growth rule would invite pressure for a higher rate during recession. The conceptual move is to shift attention from the formula to the hands that administer it.

The central and fatal flaw of the monetarist proposal is its extreme political naivete.

Hazlitt’s core thesis follows: sound money requires removing discretionary control from politicians as far as possible. A monetary constitution that still authorizes the State to manage money remains vulnerable to the short-run incentives of officeholders, pressure groups, and inflationary finance.

The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians.

Gold enters the argument not as nostalgia but as an institutional constraint. Its virtue is that it is not producible by statute, bureaucratic target, or electoral convenience. Hazlitt therefore defends gold chiefly as a way to make monetary quantity resistant to political manipulation.

The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.

But the essay does not simply endorse the nineteenth-century gold standard. Hazlitt argues that the classical fractional-reserve gold system permitted credit pyramiding and helped generate the boom-bust cycle. The stronger alternative would be a pure gold or 100 percent reserve system, though he admits that an immediate liquidation of existing fiduciary money would be needlessly destructive.

In brief, the gold standard with a fractional-reserve system tended almost systematically to bring about the cycle of boom and slump.

The final sections turn from ideal design to feasible transition. Since Hazlitt doubts that governments will soon restore sound money voluntarily, he proposes a libertarian first step: legal enforcement of private contracts payable in gold or gold value. Out of such contracts, especially under continuing inflation, a private gold standard could emerge alongside state paper.

Thus there would grow up, side by side with fiat paper money, a private domestic and international gold standard.

The essay’s relevance lies in its diagnosis of monetary instability as a problem of concentrated political power. Its lasting conceptual move is to treat money not primarily as an instrument to be optimized by experts, but as a legal and institutional order whose central danger is discretionary state control.

Certainly as long as we retain our nearly omnipotent redistributive State, no sound currency will be possible.