Liberty Maven

On November 10, 1977, Friedrich A. Hayek gave a lecture at the Gold and Monetary Conference in New Orleans in which he described how a currency based on the gold standard functions.  Basically he says that “the gold standard is a partly effective mechanism to make governments do what they ought to do in their control of money.“  Then, he goes on to describe how a truly free-market monetary system could work, which is described more fully in his book Denationalization of Money.

I do believe that if today all the legal obstacles were removed which prevent such an issue of private money under distinct names, in the first instance indeed, as all of you would expect, people would from their own experience be led to rush for the only thing they know and understand, and start using gold. But this very fact would after a while make it very doubtful whether gold was for the purpose of money really a good standard. It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power.

Interesting stuff.  Read the whole lecture here.