Friedrich August von Hayek, “Can We Trust Money to Government?”

Hayek’s letter to the editor, published in the Sunday Times on June 11, 1978, and presented here in a 2022 annotated reprint, turns a dispute over British monetary policy into an argument against government monopoly of currency issuance. Responding to reporting by Stephen Fay and Hugo Young, it moves from a correction of economic terminology through an account of inflation’s consequences to a proposal for competing privately issued monies. Its central contention is that reliable money requires institutional incentives governments cannot provide once freed from the discipline of the gold standard.

Hayek begins by praising the journalists’ revelations while challenging the vocabulary shared by reporters and policymakers. Calling policies “deflationary,” he argues, obscures the fact that the controversy concerns different rates of continued inflation:

The difference was entirely between groups who wanted more and others who wanted less inflation. But apparently nobody dared to suggest that inflation be stopped altogether.

This distinction changes both the diagnosis of the dispute and the assignment of responsibility for its painful consequences. Hayek acknowledges that reducing inflation—or merely slowing its acceleration below expectations—can produce effects resembling deflation. Yet those effects do not establish that reducing inflation is the original source of the problem. Inflation stimulates activity, on his account, only while it exceeds what people anticipated. Maintaining that stimulus therefore requires further surprises, driving policy toward an acceleration that ultimately threatens the economic order.

The resulting “stabilisation crisis” is consequently an unavoidable reckoning with earlier expansion, not simply a discretionary injury imposed by advocates of monetary restraint. Hayek places responsibility on those who first recommended expansionary monetary policy as a palliative. His argument joins expectations to political accountability: the apparent success of inflation depends on conditions that cannot persist, while the eventual costs are liable to be attributed to those attempting to end it. The letter does not offer a detailed stabilization programme; it insists that the origin of stabilization’s difficulties must be correctly understood.

The larger institutional conclusion follows from the reporting’s account of how governments actually decide monetary policy. Hayek treats that process as evidence against expecting even tolerably good money from government. The gold standard formerly constrained abuse, but its effectiveness depended on public conviction as well as a formal monetary arrangement. He regards that conviction as irrecoverable. Without it, democratic governments face pressures from groups whose immediate difficulties can temporarily be relieved by monetary expansion. His objection is therefore directed at enduring incentives, rather than merely at particular ministers’ errors.

Yet the necessity of governments possessing a monopoly to issue a distinctive national currency seems natural or inevitable only because this has always existed. Governments have always enforced it to secure power and sources of finance. But it could never be argued, and has never been shown, that this was necessary or even beneficial to the smooth flow of economic activities.

Here Hayek separates historical familiarity from economic justification. The persistence of national currency monopolies does not demonstrate their necessity; he instead connects their establishment to governmental power and revenue. This clears the ground for his alternative: competition between issuers, with users rather than governments determining which monetary standards survive.

Competing private issuers, offering distinctive monies under different names, could stay in this profitable business only by offering the public good money—that is one it preferred to hold—making contracts, keeping accounts and calculating in. The public would soon show which kind of standard it preferred and only issuers who kept the value of the money they issued strictly to that standard could hope to stay in the business.

“Good money” is thus characterized through its practical uses and the willingness of people to choose it. Competitive survival would depend on maintaining value according to the preferred standard. Hayek does not specify that standard in advance: selection belongs to the public, while issuers must demonstrate reliability to remain profitable.

The editorial notes situate the newspaper controversy in Britain’s 1976 sterling crisis and IMF loan, and point to a fuller treatment of Hayek’s proposal elsewhere. They contextualize rather than enlarge the letter’s own argument. Its distinctive contribution is the compressed movement from inflation terminology to institutional design: monetary stability requires not merely better policy within a state monopoly, but freedom for enterprise to obtain the money it needs through competitive provision.