Hayek’s 1976 pamphlet argues that persistent inflation is not a technical error in policy management but the expected result of giving governments monopoly power over money. Its immediate target is Keynesian full-employment policy, which Hayek treats as a modernized form of inflationism: the belief that rising aggregate expenditure can permanently secure prosperity. Against this, he insists that employment depends on relative prices, wage relations, and the structure of production, not merely on total demand.
The consequence is that over a longer period the Keynesian remedy does not cure unemployment but makes it worse.
The argument moves from monetary theory to institutional design. Inflationary expansion, Hayek says, temporarily draws labour into employments sustainable only while further inflation continues; when acceleration stops, the resulting unemployment is not cured but revealed. The deeper problem is political. Democratic governments face constant pressure from voters, debtors, interest groups, and employment policy to provide “more and cheaper money.” Therefore the remedy cannot simply be wiser central banking or better monetary rules administered by the same political authorities.
Our only hope for a stable money is indeed now to find a way to protect money from politics.
Hayek’s crucial distinction is between a government’s ability to issue money and its legally protected monopoly over money. He does not primarily object to state currencies existing; he objects to the legal compulsion that shields them from competition. Legal tender rules, exchange restrictions, and official privileges prevent people from escaping a depreciating currency and thereby remove the most effective discipline on monetary abuse.
What is so dangerous and ought to be done away with is not governments' right to issue money but the exclusive right to do so and their power to force people to use it and to accept it at a particular price.
The positive proposal is “choice in currency”: individuals should be free to make contracts, hold accounts, save, borrow, and pay in whatever money they trust, whether domestic, foreign, metallic, or privately supplied. Legal tender should be confined to obligations explicitly contracted in the state’s own currency and to public dues such as taxes. If a government inflated, citizens could shift their transactions and savings into more reliable monies. The loss of demand for the national currency would then check abuse more quickly than international agreements, central-bank promises, or constitutional declarations.
Hayek also revises the conventional appeal to Gresham’s Law. The saying that bad money drives out good is valid, he argues, only when law fixes exchange ratios and compels acceptance. Under free exchange, depreciating money would tend to be abandoned, while trusted money would gain wider use.
Gresham's Law operates only if the two kinds of money have to be accepted at a prescribed rate of exchange.
The pamphlet therefore rejects both national monetary discretion and supranational monetary planning. Hayek is skeptical of a European Monetary Unit or managed monetary union because such schemes merely transfer discretionary power to a new authority. What he wants instead are legal guarantees that governments cannot obstruct currency choice. Banking freedom matters because modern money is chiefly deposits and credit, not coins; a genuinely competitive system must allow financial institutions to denominate liabilities in currencies people prefer.
The appended responses expose the proposal’s political difficulty. Ivor Pearce welcomes Hayek’s attack on Keynesian inflationism; Harold Rose questions whether abolishing legal tender would add much beyond exchange freedom; Douglas Jay objects that multiple currencies would be impractical and that democratic governments cannot renounce monetary control; Keith Joseph emphasizes the moral force of letting ordinary people protect themselves from state-made inflation. Sudha Shenoy’s historical note reinforces Hayek’s case through examples from monetary theory and episodes such as assignats, plural coin circulation, and hyperinflation, all showing that legal compulsion cannot by itself create monetary trust.
The pamphlet’s radicalism lies in replacing monetary policy with monetary exit. Hayek does not propose a superior official rule so much as a constitutional withdrawal of privilege: stable money is more likely to arise when users can desert bad issuers than when governments promise restraint while retaining monopoly power.
This work was divided into 16 sections when it entered the library's research corpus—an apparatus for search and citation, not necessarily the author's own table of contents. Each title opens its summary.
Put a question to this work; the Librarian answers from its 16 sections and cites the passage.
Ask the Librarian