It is just 13 months after I commenced writing this study and only a little more than six months since its first publication. It is therefore perhaps not very surprising that the additions I found desirable to make in this Second Edition are due more to further thinking about the questions raised than to any criticisms I have so far received. The comments so far, indeed, have expressed incredulous surprise more often than any objections to my argument.

FRIEDRICH AUGUST HAYEK, Dr Jur, Dr Sc Pol (Vienna), DSc (Econ.) (London), Visiting Professor at the University of Salzburg, Austria, 1970-74. Director of the Austrian Institute for Economic Research, 1927-31, and Lecturer in Economics at the University of Vienna, 1929-31. Tooke Professor of Economic Science and Statistics, University of London, 1931-50. Professor of Social and Moral Science, University of Chicago, 1950-62. Professor of Economics, University of Freiburg i.Brg., West Germany, 1962-68.

The central argument of this Hobart Paper by Professor Hayek is that price level stability can be achieved only by removing from national governments their monopoly of money creation. Although price level performance in the years before the Paper’s publication had been unsatisfactory worldwide (in Britain, for example, the cost of living had risen by just over 500 per cent during the previous quarter-century), the Paper had little apparent practical impact.

The concrete proposal for the near future, and the occasion for the examination of a much more far-reaching scheme, is that

If the use of several concurrent currencies is to be seriously considered for immediate application in a limited area, it is evidently desirable to investigate the consequences of a general application of the principle on which this proposal is based.

For more than 2,000 years the government prerogative or exclusive right of supplying money amounted in practice merely to the monopoly of minting coins of gold, silver or copper. It was during this period that this prerogative came to be accepted without question as an essential attribute of sovereignty—clothed with all the mystery which the sacred powers of the prince used to inspire.

When one studies the history of money one cannot help wondering why people should have put up for so long with governments exercising an exclusive power over 2,000 years that was regularly used to exploit and defraud them.

The first misconception concerns the concept of ‘legal tender’. It is not of much significance for our purposes, but is widely believed to explain or justify government monopoly in the issue of money. The first shocked response to the proposal here discussed is usually ‘But there must be a legal tender’, as if this notion proved the necessity for a single government-issued money believed indispensable for the daily conduct of business.

It is a misunderstanding of what is called Gresham’s law to believe that the tendency for bad money to drive out good money makes a government monopoly necessary. The distinguished economist W. S. Jevons emphatically stated the law in the form that better money cannot drive out worse precisely to prove this. It is true he argued then against a proposal of the philosopher Herbert Spencer to throw the coinage of gold open to free competition, at a time when the only different currencies contemplated were coins of gold and silver.

So long as coins of the precious metals were the only practicable and generally acceptable kinds of money, with all close substitutes at least redeemable in them (copper having been reduced comparatively early to subsidiary token money), the only different kinds of money which appeared side by side were coins of gold and silver.