Free Choice of Currencies

This file is a single-author political-economic essay, reprinted from The Freeman (August 1977). Hazlitt revisits his own “Search for an Ideal Money” while assessing F. A. Hayek’s Choice in Currency and Denationalization of Money. Its thesis is that monetary reform should end state privilege through contractual currency choice, but that reliable private money must be redeemable in gold or silver on a 100 percent reserve basis, not issued as discretionary paper or “abstract” commodity-basket units.

“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.”

This principle organizes the essay. Hazlitt values gold because its scarcity places money partly beyond political fiat. Yet he distinguishes the classical fractional-reserve gold standard from a pure gold standard: the former allowed credit overexpansion and contraction, especially under central banking. His reform is not nostalgia for the old system but a stricter gold basis in which states and banks cannot multiply claims at will.

His warmest agreement with Hayek concerns Choice in Currency. Hazlitt accepts the attack on Keynesian monetary expansion and on international schemes that would soon yield to pressure for cheap money. The immediate remedy is legal: citizens should be free to contract for payment in gold, Swiss francs, D-marks, or other currencies, and courts should enforce the bargain actually made.

The legal tender laws should be repealed.

Repeal would not abolish government money overnight; it would remove coercive protection. If a state currency depreciates while alternatives are lawful, users can exit, making inflation self-punishing.

If it continued to inflate, its citizens would forsake its money for other currencies. Inflation would no longer pay.

Hazlitt supports the point with hyperinflationary episodes in which people abandoned official paper in practice. A renewed gold standard may therefore begin through breakdown in the worst inflating countries rather than through official wisdom. The first core move is to replace monetary planning with enforceable exit.

The disagreement comes in Hazlitt’s reading of Denationalization of Money. He endorses Hayek’s attack on monopoly money as a source of inflation, depression, state overspending, and economic nationalism, but doubts that competing private issuers of paper units would preserve value merely through reputation.

Most libertarians can endorse the first four of these points unreservedly. About the fifth and those following I personally harbor grave doubts.

Those doubts are empirical and conceptual. American “free banking,” for Hazlitt, warns of overissue, discount confusion, panic, and worthless notes. He also criticizes Hayek’s private “ducat” and commodity-reserve standard as vague: a currency can be redeemable into a definite weight of gold or silver, but not practically into a changing price-index basket. Parties who want purchasing-power protection can index contracts; money need not be a managed commodity basket. The second core move is to separate freedom to choose currencies from freedom to issue irredeemable substitutes.

Hazlitt’s positive program is narrower than Hayek’s but meant to be more reliable. Citizens should be allowed to use foreign monies, private gold or silver coins, and private certificates; coins should state their weight, and notes should be metallic claims.

But these should be only gold or silver certificates, redeemable on demand in the respective quantities of the metals specified.

He treats such certificates as warehouse receipts: the issuer must hold the corresponding metal, and overissue should be fraud. Competition would discipline national currencies immediately, while expanding gold use would create dual prices—gold and paper—until paper failed or was fixed to gold. This is denationalized custody of a full-reserve metallic standard, not denationalized fiat.

The essay remains relevant because it marks a division within market-liberal monetary reform. Hazlitt shares Hayek’s hostility to legal tender and monopoly, yet refuses to rest monetary order on issuer reputation alone. For him, contract and redeemability are the safeguards against political discretion. The remaining obstacle is the state’s unwillingness to surrender monetary privilege.

The main problem is not economic; it is political.

Hazlitt’s “free choice of currencies” finally means abolishing coercive tender laws, validating monetary contracts, and permitting private coinage and 100 percent certificates. Choice matters because, in his view, it points toward a private full gold standard worthy of trust.