Quarterly Journal of Austrian Economics
Optimal Monetary Policy
Volume 6, No. 4 (Winter 2003)
The competitive production of money can work and, we might add, has worked well in all known historical cases. We have shown that from a normative point of view that stresses the integrity of private property, it is superior to its logical alternative: government control of the money supply. And we have argued at some length that there is no tenable utilitarian case to be made for modifying the free-market production of money through political means. Conventional monetary policy and its institutional underpinnings in the form of central banks and similar monetary organizations are therefore useless at best, and should be abandoned. Politically induced changes in the money supply—the very essence of noninterventionist monetary policy—do not alleviate the problem of scarcity. Their main effect is to enrich some groups at the expense of other groups, and to create several grave problems that are unknown in the market economy. Our analysis has also shown the importance of a competitive production of money. It is an error to equate the free market in money with the prevalence of commodity money. The late-nineteenth-century gold standard was a fiat standard! Problems start as soon as any type of money enjoys the legal privilege of being the “standard” money, and thus is immunized from competition. We have shown that competition is essential for the smooth replacement of one (technologically inferior) money by other commodity monies. It is equally essential for a fast adjustment process in times of hyperinflation or deflationary spirals. In the light of this, the nineteenth century standardization movement appears as one of the burdensome legacies of classical liberalism.
Cite This Article
Hülsmann, Jörg Guido. "Optimal Monetary Policy." The Quarterly Journal of Austrian Economics 6, No. 4 (Winter 2003): 37–60.