Henry Hazlitt, “One Currency for the World?” — Summary

This file is a short single-author economic essay, reprinted from The Freeman in 1978. Hazlitt responds to Konosuke Matsushita’s proposal for a common world currency, prompted by the instability of floating exchange rates after the collapse of the Smithsonian agreement. The essay proceeds through three main diagnostic stages—“Balance of Payments,” “Fractional Reserve Gold Standard,” and “Gold-Exchange Standard”—before ending with a program for restored gold convertibility and stricter monetary restraint.

Hazlitt grants the practical problem that motivates Matsushita: exchange-rate volatility turns importers, exporters, and international businesses into speculators. But he argues that Matsushita misidentifies the cause. For Hazlitt, currency instability is not fundamentally produced by shifting balances of payments; those shifts are themselves effects of unequal national inflation and paper-money expansion.

His article nowhere mentions the enormous increase in the paper-money issuance of individual countries. And it nowhere mentions gold.

This omission becomes the pivot of the essay. Hazlitt’s central thesis is that the world need not invent a new supranational money; it must recover the principle that once made different national currencies practically common. He presents the late nineteenth-century gold standard as the historical answer to the desire for a world currency.

The truth is that the world once did have a common currency, in everything but name. It had such a currency roughly from the last third of the nineteenth century to 1914. It was known as the gold standard.

The key conceptual move is to separate monetary unity from political unification. A common currency, in Hazlitt’s view, does not require one issuing authority. It requires that each monetary unit be redeemable in a fixed quantity of the same commodity.

The majority of leading currencies were tied together not because they were tied to each other but because each of them was tied to gold.

Hazlitt does not idealize the old system without qualification. His section on the fractional-reserve gold standard argues that even gold convertibility was weakened when banks and governments issued more claims than they held in reserves. Credit expansion raised domestic prices, worsened the balance of payments, caused gold outflows, and forced contraction. Thus the business cycle is attributed not to capitalism as such, but to monetary expansion under fractional reserves.

The later gold-exchange standard is treated as a further dilution of discipline. After World War I, many currencies became convertible not directly into gold, but into “key” currencies such as sterling or the dollar. Bretton Woods weakened the arrangement further: other currencies were pegged to the dollar, while the dollar alone was redeemable in gold, and only for foreign central banks. Hazlitt connects this structure to postwar inflation and the 1971 suspension of gold payments.

The effect of this relaxation of discipline, combined with the growth of the Keynesian ideology, was increasing and almost universal inflation.

This history explains his rejection of Matsushita’s suggestion that the IMF might lead currency integration. Hazlitt sees the IMF not as a remedy but as part of the architecture that softened the consequences of inflation and spread weakness from bad currencies to better ones.

A profound irony in Mr. Matsushita’s proposals is that he wants to turn over the problem of curing the world’s currency ills to the International Monetary Fund. But the International Monetary Fund is the problem.

The essay’s prescriptive core is anti-technocratic. No international conference or agency can create a sound money by formula. Each country must make its own currency honest by limiting its quantity and redeeming it in gold.

Each nation must bear full responsibility for its own currency. It can make it sound only by making it convertible into gold. And it can make and keep it convertible only by strictly and constantly limiting the quantity of that currency.

Hazlitt’s final proposal is a hard-money reconstruction: stop further monetary expansion, allow private gold coinage and gold certificates, and eventually restore government currencies with 100 percent gold reserves. He even imagines a unit defined as a simple gold weight, a “goldgram,” adopted by leading countries.

Then the world would really have, for all practical purposes, the “single” and common currency that Mr. Matsushita would so much like to see.

The essay remains relevant as a concise classical-liberal response to the post-Bretton Woods monetary order. Hazlitt accepts the goal of international monetary stability but rejects managed global fiat money. For him, world currency is not achieved by centralization; it emerges when national monies are disciplined by a common, redeemable standard.