Denationalisation of Money: The Argument Refined

XIV. THE USELESSNESS OF THE QUANTITY THEORY FOR OUR PURPOSES

The usual assumptions of monetary theory, that there is only one kind of currency, the money, and that there is no sharp distinction between full money and mere money substitutes, thus disappear. So does the applicability of what is called the quantity theory of the value of money—even as a rough approximation to a theoretically more satisfactory explanation of the determination of the value of money, which is all that it can ever be.1

The quantity theory presupposes, of course, that there is only one kind of money in circulation within a given territory, the quantity of which can be ascertained by counting its homogeneous (or near-homogeneous) units. But if the different currencies in circulation within a region have no constant relative value, the aggregate amount in circulation can only be derived from the relative value of the currencies and has no meaning apart from it. A theory which is of use only in a particular situation, even if it happened to prevail during a long period, evidently suffers from a serious defect. Though we are apt to take it for granted, it is by no means of the essence of money that within a given territory there should exist only one kind, and it is usually true only because governments have prevented the use of other kinds. Even so, it is never fully true because there are always significant differences in the demand for different forms of money and money substitutes of varying degrees of liquidity. But if we assume that issuers of currency continually compete with one another for additional users of their currency, we cannot also assume, as the quantity theory can assume with some justification with respect to a currency of a single denomination, that there exists a fairly constant demand for money in the sense that the aggregate value of the total stock will tend to be approximately constant (or change in a predictable manner with the size of the population, the gross national product, or similar magnitudes).

The cash balance approach . . .

For the problems discussed in this Paper we certainly require a more generally applicable tool. It is fortunately available in the form of a theory which is more satisfactory even for dealing with the simpler situations : the cash balance approach deriving from Carl Menger, Leon Walras and Alfred Marshall. It enables us not merely to explain the ultimate effect of changes in ‘the quantity of money’ on ‘the’ general price level, but also to account for the process by which changes in the supplies of various kinds of money will successively affect different prices. It makes possible an analysis which admittedly cannot pretend to the pseudo-exactness of the quantity theory, but which has a much wider reach and can take account of the preferences of individuals for different kinds of money.

The decisive consideration to keep in mind for our present purpose is that in a multi-currency system there is no such thing as the magnitude of the demand for money. There will be different demands for the different kinds of currency; but since these different currencies will not be perfect substitutes, these distinct demands cannot be added up into a single sum. There may be little demand for (but large supply of) depreciating currencies, there will, we hope, be an equality of demand and supply for stable currencies (which is what will keep their values stable), and a large demand for (but little supply of) appreciating currencies. Though, so long as there exists a free market for currencies, people will be prepared to sell (at some price) for any currency, they will not be prepared to hold any currency; and the character of the available substitutes would affect the demand for any particular currency. There would therefore be no single quantity the magnitude of which could be said to be decisive for the value of money.

. . . and the velocity of circulation

It can be maintained that the analyses in terms of the demand for cash balances and the use of the concept of velocity of circulation by the quantity theory are formally equivalent. The difference is important. The cash balance approach directs attention to the crucial causal factor, the individuals’ desire for holding stocks of money. The velocity of circulation refers to a resultant statistical magnitude which experience may show to be fairly constant over the fairly long periods for which we have useful data—thus providing some justification for claiming a simple connection between ‘the’ quantity of money and ‘the’ price level—but which is often misleading because it becomes so easily associated with the erroneous belief that monetary changes affect only the general level of prices. They are then often regarded as harmful chiefly for this reason, as if they raised or lowered all prices simultaneously and by the same percentage. Yet the real harm they do is due to the differential effect on different prices, which change successively in a very irregular order and to a very different degree, so that as a result the whole structure of relative prices becomes distorted and misguides production into wrong directions.

Unfortunately, Lord Keynes made practically no use of this most important contribution to monetary theory of the Cambridge tradition deriving from Marshall. Though criticising the alleged tendency of all contemporary monetary theory to argue as if prices all changed simultaneously, he moved almost entirely within the framework of (or argued against) the Irving Fisher type of quantity theory. It is one of the chief damages the Keynesian flood has done to the understanding of the economic process that the comprehension of the factors determining both the value of money and the effects of monetary events on the value of particular commodities has been largely lost. I cannot attempt here even a concentrated restatement of this central chapter of monetary theory but must content myself with recommending economists who have had the misfortune to study monetary theory at institutions wholly dominated by Keynesian views but who still wish to understand the theory of the value of money to fill this gap by first working through the two volumes of A. W, Marget’s Theory of Prices [42] and then skip most of the literature of the next 25 years until Professor Axel Leijonhufvud’s recent book [37],2 which will guide them to works of the interval they ought not to miss.

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A note on ‘monetarism’

It has become usual, since the reaction against the dominance of the ‘Keynesian’ dogma set in, to lump together as ‘monetarists’ all who regard as mistaken Keynes’s denial ‘that an inflationary or deflationary movement was normally caused or necessarily accompanied’ by ‘changes in the quantity of money and velocity of its circulation’.3 This ‘monetarism’ is of course a view held before Keynes by almost all economists except a very few dissenters and cranks, including in particular those Continental economists who by their advice on policy became responsible for the great inflations of the 1920s. I agree with these ‘monetarists’ in particular on what is now probably regarded as their defining characteristic, namely that they believe that all inflation is what is now called ‘demand-pull’ inflation, and that there is, so far as the economic mechanism is concerned, no such thing as a ‘cost-push’ inflation—unless one treats as part of the economic causation the political decision to increase the quantity of money in response to a rise of wages which otherwise would cause unemployment.4

Where I differ from the majority of other ‘monetarists’ and in particular from the leading representative of the school, Professor Milton Friedman, is that I regard the simple quantity theory of money, even for situations where in a given territory only one kind of money is employed, as no more than a useful rough approximation to a really adequate explanation, which, however, becomes wholly useless where several concurrent distinct kinds of money are simultaneously in use in the same territory. Though this defect becomes serious only with the multiplicity of concurrent currencies which we are considering here, the phenomenon of substitution of things not counted as money by the theory for what is counted as money by it always impairs the strict validity of its conclusions.

Its chief defect in any situation seems to me to be that by its stress on the effects of changes in the quantity of money on the general level of prices it directs all-too exclusive attention to the harmful effects of inflation and deflation on the creditor-debtor relationship, but disregards the even more important and harmful effects of the injections and withdrawals of amounts of money from circulation on the structure of relative prices and the consequent misallocation of resources and particularly the misdirection of investments which it causes.

This is not an appropriate place for a full discussion of the fine points of theory on which there exist considerable differences within the ‘monetarist’ school, though they are of great importance for the evaluation of the effects of the present proposals. My fundamental objection to the adequacy of the pure quantity theory of money is that, even with a single currency in circulation within a territory, there is, strictly speaking, no such thing as the quantity of money, and that any attempt to delimit certain groups of the media of exchange expressed in terms of a single unit as if they were homogeneous or perfect substitutes is misleading even for the usual situation. This objection becomes of decisive importance, of course, when we contemplate different concurrent currencies.

A stable price level and a high and stable level of employment do not require or permit the total quantity of money to be kept constant or to change at a constant rate. It demands something similar yet still significantly different, namely that the quantity of money (or rather the aggregate value of all the most liquid assets) be kept such that people will not reduce or increase their outlay for the purpose of adapting their balances to their altered liquidity preferences. Keeping the quantity of money constant does not assure that the money stream will remain constant, and in order to make the volume of the money stream behave in a desired manner the supply of money must possess considerable elasticity.

Monetary management cannot aim at a particular predetermined volume of circulation, not even in the case of a territorial monopolist of issue, and still less in the case of competing issues, but only at finding out what quantity will keep prices constant. No authority can beforehand ascertain, and only the market can discover, the ‘optimal quantity of money’. It can be provided only by selling and buying at a fixed price the collection of commodities the aggregate price of which we wish to keep stable.

As regards Professor Friedman’s proposal of a legal limit on the rate at which a monopolistic issuer of money was to be allowed to increase the quantity in circulation, I can only say that I would not like to see what would happen if under such a provision it ever became known that the amount of cash in circulation was approaching the upper limit and that therefore a need for increased liquidity could not be met.5

Why indexation is not a substitute for a stable currency

The usual emphasis on the most generally perceived and most painfully felt harm done by inflation, its effect on debtor-creditor relations and in particular on the receivers of fixed incomes, has led to the suggestion that these effects be mitigated by stipulating long-term obligations in terms of a ‘tabular standard’, the nominal sum of the debt being continuously corrected according to the changes in an index number of prices. It is, of course, correct that such a practice would eliminate the most glaring injustices caused by inflation and would remove the most severe suffering visibly due to it. But these are far from being the most severe damage which inflation causes, and the adoption of such a partial remedy for some of the symptoms would probably weaken the resistance against inflation, thus prolonging and increasing it, and in the long run considerably magnify the damage it causes and particularly the suffering it produces by bringing about unemployment.

Everybody knows of course that inflation does not affect all prices at the same time but makes different prices rise in succession, and that it therefore changes the relation between prices—although the familiar statistics of average price movements tend to conceal this movement in relative prices. The effect on relative incomes is only one, though to the superficial observer the most conspicuous, effect of the distortion of the whole structure of relative prices. What is in the long run even more damaging to the functioning of the economy and eventually tends to make a free market system unworkable is the effect of this distorted price structure in misdirecting the use of resources and drawing labour and other factors of production (especially the investment of capital) into uses which remain profitable only so long as inflation accelerates. It is this effect which produces the major waves of unemployment,6 but which the economists using a macro-economic approach to the problem usually neglect or underrate.

This crucial damage done by inflation would in no way be eliminated by indexation. Indeed, government measures of this sort, which make it easier to live with inflation, must in the long run make things worse. They would certainly not make it easier to fight inflation, because people would be less aware that their suffering was due to inflation. There is no justification for Professor Friedman’s suggestion that

‘by removing distortions in relative prices produced by inflation, widespread escalator clauses would make it easier for the public to recognise changes in the rate of inflation, would thereby reduce the time-lag in adapting to such changes, and thus make the nominal price level more sensitive and variable.’7

Such inflation, with some of its visible effect mitigated, would clearly be less resisted and last correspondingly longer.

It is true that Professor Friedman explicitly disclaims any suggestion that indexation is a substitute for stable money,8 but he attempts to make it more tolerable in the short run and I regard any such endeavour as exceedingly dangerous. In spite of his denial it seems to me that to some degree it would even speed up inflation. It would certainly strengthen the claims of groups of workers whose real wages ought to fall (because their kind of work has become less valuable) to have their real wages kept constant. But that means that all relative increases of any wages relatively to any others would have to find expression in an increase of the nominal wages of all except those workers whose wages were the lowest, and this itself would make continuous inflation necessary.

It seems to me, in other words, like any other attempts to accept wage and price rigidities as inevitable and to adjust monetary policy to them, the attitude from which ‘Keynesian’ economics took its origin, to be one of those steps apparently dictated by practical necessity but bound in the long run to make the whole wage structure more and more rigid and thereby lead to the destruction of the market economy. But the present political necessity ought to be no concern of the economic scientist. His task ought to be, as I will not cease repeating, to make politically possible what today may be politically impossible. To decide what can be done at the moment is the task of the politician, not of the economist, who must continue to point out that to persist in this direction will lead to disaster.

I am in complete agreement with Professor Friedman on the inevitability of inflation under the existing political and financial institutions. But I believe that it will lead to the destruction of our civilisation unless we change the political framework. In this sense I will admit that my radical proposal concerning money will probably be practicable only as part of a much more far-reaching change in our political institutions, but an essential part of such a reform which will be recognised as necessary before long. The two distinct reforms which I am proposing in the economic and the political order9 are indeed complementary : the sort of monetary system I propose may be possible only under a limited government such as we do not have, and a limitation of government may require that it be deprived of the monopoly of issuing money. Indeed the latter should necessarily follow from the former.

The historical evidence

Professor Friedman has since10 more fully explained his doubts about the efficacy of my proposal and claimed that

‘we have ample empirical and historical evidence that suggests that [my] hopes would not in fact be realised—that private currencies which offer purchasing power security would not drive out governmental currencies.’

I can find no such evidence that anything like a currency of which the public has learnt to understand that the issuer can continue his business only if he maintains its currency constant, for which all the usual banking facilities are provided and which is legally recognised as an instrument for contracts, accounting and calculation has not been preferred to a deteriorating official currency, simply because such a situation seems never to have existed. It may well be that in many countries the issue of such a currency is not actually prohibited, but the other conditions are rarely if ever satisfied. And everybody knows that if such a private experiment promised to succeed, governments would at once step in to prevent it.

If we want historical evidence of what people will do where they have free choice of the currency they prefer to use, the displacement of sterling as the general unit of international trade since it began continuously to depreciate seems to me strongly to confirm my expectations. What we know about the behaviour of individuals having to cope with a bad national money, and in the face of government using every means at its disposal to force them to use it, all points to the probable success of any money which has the properties the public wants if people are not artificially deterred from using it. Americans may be fortunate in never having experienced a time when everybody in their country regarded some national currency other than their own as safer. But on the European Continent there were many occasions in which, if people had only been permitted, they would have used dollars rather than their national currencies. They did in fact do so to a much larger extent than was legally permitted, and the most severe penalties had to be threatened to prevent this habit from spreading rapidly—witness the billions of unaccounted-for dollar notes undoubtedly held in private hands all over the world.

I have never doubted that the public at large would be slow in recognising the advantages of such a new currency and have even suggested that at first, if given the opportunity, the masses would turn to gold rather than any form of other paper money. But as always the success of the few who soon recognise the advantages of a really stable currency would in the end induce the others to imitate them.

I must confess, however, that I am somewhat surprised that Professor Friedman of all people should have so little faith that competition will make the better instrument prevail when he seems to have no ground to believe that monopoly will ever provide a better one and merely fears the indolence produced by old habits.

 

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11 But, as I wrote 45 years ago [24, p. 3] and would still maintain, ‘. . . from a practical point of view, it would be one of the worst things which could befall us if the general public should ever again cease to believe in the elementary propositions of the quantity theory’.

12 [a short guide to Professor Leijonhufvud’s book is his Keynes and the Classics, Occasional Paper 30, IEA, 1969 (7th Impression, 1981) .—ED.]

13 R. F. Harrod [23a, p. 513],

14 In another sense I stand, however, outside the Keynes-monetarists controversy: both are macro-economic approaches to the problem, while I believe that monetary theory neither needs nor ought to employ such an approach, even if it can hardly wholly dispense with such an essentially macro-economic concept. Macro-economics and micro-economics are alternative methods of dealing with the difficulty that, in the case of such a complex phenomenon as the market, we never command all the factual information which we would need to provide a full explanation. Macro-economics attempts to overcome this difficulty by referring to such magnitudes as aggregates or averages which are statistically available. This gives us a useful approximation to the facts, but as a theoretical explanation of causal connections is unsatisfactory and sometimes misleading, because it asserts empirically observed correlations with no justification for the belief that they will always occur.

   The alternative micro-economic approach which I prefer relies on the construction of models which cope with the problem raised by our inescapable ignorance of all the relevant facts by ‘reducing the scale’ by diminishing the number of independent variables to the minimum required to form a structure which is capable of producing all the kinds of movements or changes of which a market system is capable. It is, as I have tried to explain more fully elsewhere [30], a technique which produces merely what I have called ‘pattern’ predictions but is incapable of producing those predictions of specific events which macroeconomics claims, as I believe mistakenly, to be able to produce.

15 To such a situation the classic account of Walter Bagehot [3, penultimate paragraph] would apply: ‘In a sensitive state of the English money market the near approach to the legal limit of reserve would be a sure incentive to panic; if one-third were fixed by law, the moment the banks were close to one-third, alarm would begin and would run like magic’

16 A remarkable recognition of this fundamental truth occurs in the opening paragraphs of the final communique of the Downing Street ‘summit’ meeting of 8 May, 1977, chaired by the Prime Minister of the UK and attended by the President of the USA, the Chancellor of West Germany, the President of France, the Prime Minister of Japan and the Prime Minister of Italy. The first few lines said: ‘Inflation is not a remedy for unemployment, but is one of its major causes’. This is an insight for which I have been fighting, almost single-handed, for more than forty years. Unfortunately, however, that statement over-simplified the issue. In many circumstances inflation indeed leads to a temporary reduction of unemployment, but only at the price of causing much more unemployment later. This is exactly what makes inflation so seductive and politically almost irresistible, but for that reason particularly insidious.

17 M. Friedman [20b], p. 31.

18 Ibid., p. 28.

19F. A. Hayek [31a], vol. III.

20 In an interview given to Reason magazine, IX: 34, New York, August 1977, p. 28.

• 1The benefits of monetary competition in the particular context of the EEC were set out in Vaubel (1979), revived in Wood (1989), and were subsequently urged upon EEC Finance Ministers by Nigel Lawson in a paper (HM Treasury, 1989) he presented to a meeting of these Ministers when he was Chancellor.
• 2See [31]. Numbers in square brackets will throughout refer to the Bibliography at the end of the Paper (pp. 138-144).
• 3The same applies to the postal monopoly which everywhere appears to provide a steadily deteriorating service and of which in Great Britain (according to The Times, 25 May, 1976) the General Secretary of the Union of Post Office Workers (!) said recently that ‘Governments of both political complexions have reduced a once great public service to the level of a music-hall joke’. Politically the broadcasting monopoly may be even more dangerous, but economically I doubt whether any other monopoly has done as much damage as that of issuing money.
• 4Cf. Adam Smith [54, p. 40]: ’…those public offices called mints: institutions exactly of the same nature with those of the aulnagers and stampmasters of woollen and linen cloth’.
• 5See [35], [59] and [60].
• 6Law, Legislation and Liberty: Vol. I was Rules and Order, Routledge & Kegan Paul, 1973. Vol. 2, The Mirage of Social Justice, will appear about the same time as the present Paper. Vol. 3, The Political Order of a Free Society, nearing completion, will be published, I hope, in 1978.
• 7It is worth remarking that in a recent paper (1986) co-authored with Anna Schwartz, Milton Friedman has moved close to the position here advanced by Professor Hayek.
• 8Knapp [36], and compare Mann [41].
• 9But, though I had independently arrived at the realisation of the advantages possessed by independent competing currencies, I must now concede intellectual priority to Professor Benjamin Klein, who, in a paper written in 1970 and published in 1975 [35], until recently unknown to me, had clearly explained the chief advantage of competition among currencies.
• 10Joseph Gamier [21].
• 11The republication of this Hobart Paper now is particularly timely. First, of course, because inflation has once more risen. But, secondly, because there is now an opportunity to have a substantial degree of competition in the supply of money. The countries of the EEC are committed to abolishing all exchange controls between each other. There are proposals to go further, to fix exchange rates and impose a common European currency. But if these latter proposals are resisted we will have competition between national currencies within Europe. By a very simple measure we will have harnessed the incentives of prestige and profit (for governments get revenue from money creation) to deliver stable money.
• 12In my despair about the hopelessness of finding a politically feasible solution to what is technically the simplest possible problem, namely to stop inflation, I threw out in a lecture delivered about a year ago a somewhat startling suggestion, the further pursuit of which has opened quite unexpected new horizons. I could not resist pursuing the idea further, since the task of preventing inflation has always seemed to me to be of the greatest importance, not only because of the harm and suffering major inflations cause, but also because I have long been convinced that even mild inflations ultimately produce the recurring depressions and unemployment which have been a justified grievance against the free enterprise system and must be prevented if a free society is to survive.
• 13At any rate, the minting prerogative of the ruler was firmly established under the Roman emperors. When, at the beginning of the modern era, Jean Bodin developed the concept of sovereignty, he treated the right of coinage as one of the most important and essential parts of it. The regalia, as these royal prerogatives were called in Latin, of which coinage, mining, and custom duties were the most important, were during the Middle Ages the chief sources of revenue of the princes and were viewed solely from this angle. It is evident that, as coinage spread, governments everywhere soon discovered that the exclusive right of coinage was a most important instrument of power as well as an attractive source of gain. From the beginning the prerogative was neither claimed nor conceded on the ground that it was for the general good but simply as an essential element of governmental power. The coins served, indeed, largely as the symbols of might, like the flag, through which the ruler asserted his sovereignty, and told his people who their master was whose image the coins carried to the remotest parts of his realm.
• 14The task the government was understood to assume was of course initially not so much to make money as to certify the weight and fineness of the materials that universally served as money, which after the earliest times were only the three metals, gold, silver, and copper. It was supposed to be a task rather like that of establishing and certifying uniform weights and measures.
• 15The further pursuit of the suggestion that government should be deprived of its monopoly of the issue of money opened the most fascinating theoretical vistas and showed the possibility of arrangements which have never been considered. As soon as one succeeds in freeing oneself of the universally but tacitly accepted creed that a country must be supplied by its government with its own distinctive and exclusive currency, all sorts of interesting questions arise which have never been examined. The result was a foray into a wholly unexplored field. In this short work I can present no more than some discoveries made in the course of a first survey of the terrain. I am of course very much aware that I have only scratched the surface of the complex of new questions and that I am still very far from having solved all the problems which the existence of multiple concurrent currencies would raise. Indeed, I shall have to ask a number of questions to which I do not know the answer; nor can I discuss all the theoretical problems which the explanation of the new situation raises. Much more work will yet have to be done on the subject; but there are already signs that the basic idea has stirred the imagination of others and that there are indeed some younger brains at work on the problem.
• 16In conclusion I will merely say that this task has seemed to me important and urgent enough to interrupt for a few weeks the major undertaking to which all my efforts have been devoted for the last few years and the completion of which still demands its concluding third volume. The reader will, I hope, understand that in these circumstances, and against all my habits, after completing a first draft of the text of the present Paper, I left most of the exacting and time-consuming task of polishing the exposition and getting it ready for publication to the sympathetic endeavours of Mr Arthur Seldon, the Editorial Director of the Institute of Economic Affairs, whose beneficial care has already made much more readable some of my shorter essays published by that Institute, and who has been willing to assume this burden. His are in particular all the helpful headings of the sub-sections and the ‘Questions for Discussion’ at the end. And the much improved title of what I had intended to call Concurrent Currencies was suggested by the General Director of the Institute, Mr Ralph Harris. I am profoundly grateful to them for thus making possible the publication of this sketch. It would otherwise probably not have appeared for a long time, since I owe it to the readers of Law, Legislation and Liberty that I should not allow myself to be diverted from completing it by this rather special concern for longer than was necessary to get a somewhat rough outline of my argument on paper.
• 17How, then, to achieve monetary stability? Milton Friedman, and recently many others, have urged a monetary rule, embedded where possible in a ‘monetary constitution’, so that the growth of money is steady and predictable. There can be no doubt that such a rule would end the grosser failures of monetary management. But why do we need to regulate our suppliers of money? Here competition comes in. For regulation of an industry—by government, regulatory agency, or rule—can be defended only if the industry is not regulated by competition. In general, competition will deliver the best attainable outcome. Why not in money? That is the question addressed in this Paper; and the answer is that competition in the supply of money will produce that desired outcome, just as it does in other economic activities.
• 18During the Middle Ages, however, the superstition arose that it was the act of government that conferred the value upon the money. Although experience always proved otherwise, this doctrine of the valor impositus was largely taken over by legal doctrine and served to some extent as justification of the constant vain attempts of the princes to impose the same value on coins containing a smaller amount of the precious metal. (In the early years of this century the medieval doctrine was revived by the German Professor G. F. Knapp; his State Theory of Money still seems to exercise some influence on contemporary legal theory.)
• 19It is an extraordinary truth that competing currencies have until quite recently never been seriously examined. There is no answer in the available literature to the question why a government monopoly of the provision of money is universally regarded as indispensable, or whether the belief is simply derived from the unexplained postulate that there must be within any given territory one single kind of money in circulation—which, so long as only gold and silver were seriously considered as possible kinds of money, might have appeared a definite convenience. Nor can we find an answer to the question of what would happen if that monopoly were abolished and the provision of money were thrown open to the competition of private concerns supplying different currencies. Most people seem to imagine that any proposal for private agencies to be allowed to issue money means that they should be allowed to issue the same money as anybody else (in token money this would, of course, simply amount to forgery) rather than different kinds of money clearly distinguishable by different denominations among which the public could choose freely.
• 20The value of paper money obviously can be regulated according to a variety of principles—even if it is more than doubtful that any democratic government with unlimited powers can ever manage it satisfactorily. Though historical experience would at first seem to justify the belief that only gold can provide a stable currency, and that all paper money is bound to depreciate sooner or later, all our insight into the processes determining the value of money tells us that this prejudice, though understandable, is unfounded. The political impossibility that governments will achieve it does not mean there is reason to doubt that it is technically possible to control the quantity of any kind of token money so that its value will behave in a desired manner, and that it will for this reason retain its acceptability and its value. It would therefore now be possible, if it were permitted, to have a variety of essentially different monies. They could represent not merely different quantities of the same metal, but also different abstract units fluctuating in their value relatively to one another. In the same way, we could have currencies circulating concurrently throughout many countries and offering the people a choice. This possibility appears, until recently, never to have been contemplated seriously. Even the most radical advocates of free enterprise, such as the philosopher Herbert Spencer or the French economist Joseph Garnier, seem to have advocated only private coinage, while the free banking movement of the mid-19th century agitated merely for the right to issue notes in terms of the standard currency.