“Our only hope for a stable money is … to protect money from politics.”
—F. A. Hayek, 1975At the Mont Pelerin Society meeting in Madrid in 1979, a Kansas City, Missouri, businessman stood to present a gold coin to the Austrian School economist and Nobel Prize Laureate, F. A. Hayek. On one side, the half-ounce pure gold coin bore Hayek's profile with the words “Denationalization of Money” etched in bold. On the other side was the phrase “for integrity there is no substitute” (Figure 1). While there was a likeness to the Nobel Prize gold medallion that Hayek had been awarded only five years earlier, the intended use of this coin was different: the coin was meant to be a medium of exchange and a store of value—a form of money. The man who presented the coin, Conrad Braun, was the owner of the Gold Standard Corporation, a small outfit that issued gold coins for sale in an attempt to form “a primitive private money system” within the United States.Footnote 1 Braun, who considered himself a “practical young man,” rather than a scholar or intellectual, described the invitation to present the coin to Hayek as “the greatest honor of my life.”Footnote 2
The “Hayek Half” minted by the Gold Standard Corporation. “Gold Standard Corporation gold proof medallion undated,” box 213, FAHP.
Hayek had asked Braun to present the coin as a way to demonstrate, in tangible form, the possibilities of his most recent project: the “denationalization” of currency and the introduction of competing currencies into the monetary system.Footnote 3 As early as the mid-1970s, Hayek argued that the government's monopoly on money limited private groups’ ability to experiment with the creation of currencies, thereby inhibiting innovation in the monetary system. Moreover, Hayek believed that as long as the government retained its monopoly over money, it would always be subject to political pressures from interest groups vying for profit. Diverging sharply from mainstream economists, Hayek made the radical proposal to abolish government monopoly over the currency and unleash the forces of the market to issue and experiment with new currencies.
While Hayek made the denationalization of money, or what he called “Free Money,” one of his major projects in the last two decades of his life, the effort has eluded the attention of recent scholars of the Austrian economist, who have typically examined his intellectual contributions to neoliberal thought prior to his departure from the United States in 1962 to Freiburg, Germany.Footnote 4 When scholars have examined Hayek's later life, they have tended to focus on his visits to Chile and his discussions with officials of Augusto Pinochet's military dictatorship.Footnote 5 Yet Hayek felt such urgency about this project that he paused his work on his major book Law, Legislation, and Liberty (1973–1979) to write Denationalisation of Money (1976), a 100-page pamphlet published by the London-based free-market think tank, the Institute of Economic Affairs.Footnote 6 Although it might have appeared quixotic, Denationalisation was the culmination of his lifelong criticism of the government's use of monetary tools to stabilize prices, and also an application of his philosophy that a free society evolved best through spontaneous human action, not from conscious design.Footnote 7
Hayek's turn to “Free Money” points to the growing influence of libertarian activists within the Right in the 1970s, as well as the role of inflation in galvanizing them into action. In Denationalisation, Hayek tackled the key economic issue of the early 1970s: rapid inflation combined with increasing unemployment, otherwise known as “stagflation.” Stagflation was one outcome of a greater international monetary crisis created by deficits in America's balance-of-payments and balance-of-trade accounts. Under the Bretton Woods system, the United States had pledged to redeem dollars for gold at a fixed rate, while other countries pegged their currencies to the U.S. dollar. The Federal Reserve maintained the gold supply to back the dollar, allowing foreign governments—but not private individuals—to convert dollars into gold. The quantity of U.S. dollars in circulation, however, far exceeded the nation's gold reserves. To avoid a run on U.S. gold reserves, President Richard Nixon ended convertibility of U.S. dollars to gold in 1971, which devalued the dollar and ultimately marked the end of the Bretton Woods system.Footnote 8 Yet Nixon's actions, together with the Organization of the Petroleum Exporting Countries (OPEC) crisis, only exacerbated inflation, which reached into American households as families struggled to keep up with rising prices of common consumer goods.Footnote 9
The experience of inflation across the United States raised anew old questions and struggles over the politics of money that had long been dormant in American life. Grassroots mobilizations around money had been considered the province of the nineteenth century, when the bank wars of the 1820s and 1830s or Populist calls for a popularly controlled currency presented money as a terrain of social struggle and class conflict. The establishment of the Federal Reserve in 1913 put many of these questions to rest, moving the “money question” from the center to the margins of American political discourse.Footnote 10 During the inflation crisis of the 1970s, however, public attention returned to the politics of the dollar. In the midst of this crisis, Hayek hoped to reopen dormant debates over the role of money and to mobilize a popular following in support of “Free Money.” Yet he sensed that his ideas were too radical for the public, the mainstream economics profession, or even most neoliberal intellectuals, who, by the 1960s, supported a global monetary system of flexible exchange rates. Facing such opposition, Hayek turned to a constituency who had previously supported his ideas in The Road to Serfdom and on whom he knew he could again depend: American libertarians.
Libertarians identified the state as the central source of coercion in society and sought to diminish the reach of the state by abolishing government intervention in the economy, repealing laws about private conduct, and ending interventionist foreign policy. While libertarians initially allied with conservatives in the postwar years over their shared support for the free market, key rifts formed within this alliance over civil liberties during the 1960s rights revolution.Footnote 11 Libertarians, who supported gay rights, abortion rights, the counterculture, the use of drugs, Black power, and opposed the draft, began to coalesce into their own movement. By 1971, libertarians finally broke with their conservative allies and established their own organizations, such as the Libertarian Party, think tanks, magazines, and funding networks. Libertarians brought together a diverse array of anti-statists—from libertarian socialists to anarcho-capitalists, Objectivists, survivalists, and pacifists—whose ideas sometimes only overlapped over a shared distrust of the state. While scholars have extensively charted the rise of libertarian ideas as foundational to the modern Right, there is still little scholarship that captures the breadth of the American libertarian movement as a movement with its own organizations, intellectual culture, and libertarian sensibility that continues to pervade American life.Footnote 12
One of the most influential factions within the nascent libertarian movement was an ardently capitalist, grassroots group of hard money advocates who supported the gold standard or the exchange of gold or silver coins. Hard money advocates are an important, yet underrecognized, faction within the American Right, who became a bedrock constituency for the growing libertarian movement in the 1970s.Footnote 13 Movement libertarians found they could always depend on hard money advocates to be subscribers for magazines, donors for new organizations, and supporters for the Libertarian Party. Hard money advocates believed that inflation had directly resulted from President Nixon ending the redemption of U.S. dollars for gold in 1971, making the U.S. dollar “nothing but a printed piece of green paper.”Footnote 14 Discretionary monetary policy, in their eyes, not only led to serious economic instability but also to high interest rates, inflation, lack of capital formation, and high unemployment. Moreover, by increasing the money supply, the Federal Reserve allegedly aided the state in financing wars and expanding the welfare state. In the short run, hard money advocates attempted to avoid the costly effects of inflation by investing or hoarding capital outside of the mainstream economy. Libertarian publications of the period are littered with advertisements for workshops, books, or products that claimed to teach the reader “how to sell your home for more than it's worth!” or “how to borrow $25,000 overnight” or how to acquire precious metals such as gold bars or silver coins.
Hayek's proposal in Denationalisation spoke directly to these fears of inflation and to hard money libertarians’ ongoing search for hedges against a depreciating American dollar. The presentation of the coin at the Mont Pelerin Society exemplified Hayek's developing partnerships with small, libertarian, hard money outfits, and with activists who were emboldened by Hayek's research into the theoretical and practical possibilities of a denationalized currency. Despite Hayek's opposition to the gold standard, hard money advocates immediately embraced his proposal. Realizing that their extant commitment to gold could be combined with advocacy for competitive currencies, they used Hayek's ideas to strengthen their arguments, expand their coalition, and broaden their base.Footnote 15 Just as Hayek had hoped, hard money advocacy frequently began to take on a Free Money cast, looking beyond the gold standard to other ways of hedging against inflation. Over the next several decades, Hayek's ideas spawned various libertarian experiments in currency, though none were hugely successful. It would not be until the founders of cryptocurrency built a financial system outside of regulatory control in 2009 that Free Money advocates would get the experiment in competitive currencies that they had long sought.Footnote 16
Beyond showing the central role of Free Money advocacy and libertarianism within the growing American Right in the 1970s, this article demonstrates how Hayek and his libertarian supporters opened a new chapter in the history of the money question in American politics. Prior grassroots mobilizations around the money question had generally tried to reform monetary politics in order to increase popular control of the currency. The Populists of the late nineteenth century insisted on an expanded currency and credit structure in their battle against the concentration of political power. Hayek and the libertarians fundamentally agreed with the Populists that money was not merely a means of exchange, but a social institution and political relationship—one whose parameters should be sharply contested.Footnote 17 Yet, when faced with the money question, they provided an entirely different answer to the Populists. Rather than seek to democratize the dollar or reform monetary politics, Hayek and the libertarians sought to abolish monetary politics itself. Politics, they believed, was inherently corrupt and corrupting: a means through which better organized or better funded interest groups forced others to serve their interests. By contrast, the miracle of markets lay in their ability to displace democratic forms of oversight or political means of contestation—such as lobbying or voting—with “neutral” or “objective” market mechanisms. For Hayek and the libertarians, reforms that went only as far as deregulating the financial system or displacing power into the hands of technocrats or central bankers were not enough: they sought the wholesale abdication of the state's role in monetary policy.Footnote 18 Energized by Hayek's ideas in Denationalisation, Free Money advocates fueled the first popular mobilization around the money question since the nineteenth century—a mobilization that has since sought new ways to put money out of reach of democratic politics.
F. A. Hayek and Denationalisation of Money
“After being a theorist all my life,” Hayek said in 1977, “I have come up with two inventions.”Footnote 19 Hayek's first purported “invention” was a system of competitive currencies; his second was “limited democracy” where the nation's chief executive would no longer have the ability to change the law, and the powers of two elected assemblies would be substantially limited.Footnote 20 Both proposals attempted to limit political action by replacing discretionary action with laws or market mechanisms, and both drew from a lifetime dedicated to Austrian school economics and social theory. Then as now, Hayek's second theoretical “invention” has received more attention than his first.
Born in 1899 in Vienna, Austria, Hayek trained in economics, law, and political science at the University of Vienna before joining the faculty of the London School of Economics in 1931. After receiving much acclaim among American conservatives for his criticism of collectivism in The Road to Serfdom (1944), Hayek founded the Mont Pelerin Society in 1947, which would become the beacon of neoliberal thought for the next several decades. In 1950, Hayek left the London School of Economics to join the faculty of the Committee on Social Thought at University of Chicago where he stayed until 1962. While in the United States, Hayek expanded on his philosophy of society in The Constitution of Liberty (1960), which outlined the centrality of spontaneous action in the development of civilization and the necessity of putting limits on government action to promote individual freedom. Throughout the postwar years, conservative and libertarian activists frequently cited Hayek's work.Footnote 21
When the funding for his position at Chicago ended in 1962, Hayek moved back to Freiburg, Germany, where he remained until his retirement in 1968. Scholars of Hayek have examined his life in depth up until the 1960s, but most major accounts have not reached into the later decades of his life before his death in 1992. The Road to Serfdom remains his most studied text due to its outsized cultural impact on spurring free-market ideas among American businessmen, conservatives, and libertarians. Less attention to Hayek's later years may be the result of the widespread understanding that Hayek passed the torch to others in the American libertarian movement, particularly Milton Friedman, upon his return to Germany. Yet by engaging with the hard money circuit in the 1970s, Hayek once again appealed to the constituency that had previously admired The Road to Serfdom. Hayek pursued support from business people from small and mid-size companies who often held ideas about the economy that did not fit the common mold. Even if he was physically absent from the United States, he remained prolific, continuing to disseminate his political and economic theories using tactics developed over the course of a lifetime.
Questions about money and inflation had long been of interest to Hayek. At the start of his career, Hayek supported the gold standard and argued that monetary expansion affected relative prices, distorted the structure of production, and drove economic depressions. By the 1940s, Hayek moderated his views, making an early attempt to find a substitute for the gold standard by arguing for a commodity reserve currency. In this scheme, a currency is tied to a basket of commodities, so that the monetary authority would buy or sell raw commodities if the price of the currency fell or rose. The system had a likeness to the subtreasury system proposed by the Populists in the late nineteenth century, although Hayek's justification for the system differed dramatically. Hayek explained that a commodity reserve currency would retain the key advantages of the gold standard—known rules and automatic action by a monetary authority—while leaving behind the “unreasoned prejudice against gold” that had formed in popular opinion.Footnote 22 Consistent with the social philosophical work that Hayek would embark on over the next several decades, Hayek wished to design a rules-based order that provided monetary stability by stabilizing expectations about the supply and demand for money. After the mid-1940s, however, Hayek eschewed economics as his central concern, spending much of the next two decades fleshing out his social philosophy in The Road to Serfdom and The Constitution of Liberty. It was not until the early 1970s that he seriously returned to the subject of inflation.
Debates throughout the postwar period had divided neoliberals and libertarians into two camps on monetary policy. In the first camp, gold standard advocates sought convertibility for government-issued currency into gold, arguing that only a commodity-backed money created price stability because consumers had greater confidence in money when it was out of the hands of the state.Footnote 23 By contrast, the second camp sought to impose greater legislated constraints on the central monetary authority to limit political discretion. Friedman and other monetarists called for a “monetary constitution” that would provide rules to limit the central bank's powers, including its power to set reserve requirements and the growth rate of money.Footnote 24 Friedman argued for binding monetary rules on the grounds that technocrats and central bankers in control of the currency faced insurmountable limitations of knowledge to finetune the economy. Public Choice theorists James Buchanan and Gordon Tullock similarly argued for a monetary constitution, yet they emphasized its importance on the basis of the motivational shortcomings of monetary authorities, rather than the limitations of knowledge.Footnote 25 While most attendees at the first Mont Pelerin Society meeting in 1947 had backed the gold standard, by the 1970s the majority had migrated to the second camp led by Friedman.Footnote 26
Like both of these camps on the Right, Hayek sought a rules-based order. But he otherwise doubted the efficacy of any existing approach—whether it was monetarist, Public Choice, hard money, or Keynesian—to solve the inflation crisis. On September 25, 1975, Hayek made the first of several important addresses, “International Money,” at the Gold and Monetary Conference in Lausanne, Switzerland, where he proposed a wholly new paradigm for monetary theory. Hayek asserted that inflation could not be solved through any discretionary policy tools because the root cause of inflation was the politicization of the monetary system itself. As long as politicians were in office, they had to meet the demands of interest groups for enlarged government services or expanded credit. Even if inflation was harmful to a great majority of the population, interest groups that profited from inflation in the short run would pressure the government to meet their needs. Hayek believed that a new national or international monetary order would do nothing to alter this dynamic; rather, the public had to be taught to stomach recessions, instead of pressuring the government to avoid them. Without “the conviction of the public at large that certain immediately painful measures are necessary to preserve reasonable stability,” government would never be able to resist the appeal of cheap money. The government would always try to suppress the effects of inflation, inevitably leading to price controls and the centralized direction of the banking system. Hayek soon thereafter warned that money was “too dangerous an instrument to leave it to the fortuitous expediency … of politicians—or, it seems, economists.” Rather, “our only hope for a stable money is indeed… to protect money from politics.”Footnote 27
But instead of returning to the gold standard to take money out of politics, Hayek depicted the gold standard as a past ideal that could no longer be attained. The gold standard's key function had been to impose discipline on the government, forcing the government to weather recessions rather than increase the quantity of money beyond a fixed level of reserves. When the federal government ended the redemption of dollars in gold, the government closed off a useful tool for monetary policy. Gold had once maintained a special status among the populace, but now that the illusion had been dispelled, it was no longer a viable means of anchoring the monetary system. As he had done in many other points in his career, Hayek argued that it was not possible to return to a prior liberal order, but that a new order was necessary to respond to new circumstances.
Hayek's chief goal was to create a system that retained the advantages of the gold standard without returning to the gold standard itself. He began to craft a monetary system that would not be directed by a central authority, but rather would arise from the unplanned actions of individuals. In his speech in Lausanne in 1975, Hayek made the proposal to remove the government's monopoly of money and instead allow for the proliferation of private currencies, which, through competition with one another, would provide stable sources of value for consumers.Footnote 28 Notably, Hayek did not object to the government issuing money, limiting the kinds of monies that could be used in contracts, or determining exchange rates between currencies in a given territory. Governments could issue a currency, but other private currencies would compete with it. The key was that competitive currencies would generate their own order.Footnote 29
Driven by his continuing “despair about the hopelessness of finding a politically feasible solution” to the inflation crisis, Hayek spent the next year expanding on the initial ideas he had offered in Lausanne in a pamphlet, Denationalisation of Money, published by the Institute for Economic Affairs in 1976. Once he finished Denationalisation, Hayek admitted he was anxious to get the volume out “as rapidly as possible” in the United Kingdom and the United States, as he was confident that “the book will make a splash.”Footnote 30 In Denationalisation, Hayek made an even stronger case that a government's monopoly on money had no legitimate moral or legal basis. Governments had preserved their monopolies over money for over 2,000 years through coercion and by spreading the fiction that coining and printing money was a central prerogative of the state. The effect had been that government monopoly of money had short-circuited the natural evolutionary path of the development of money.Footnote 31 Here, Hayek applied to money the evolutionary theory of social change he had developed over many years, wherein human institutions like law, morals, or language evolved through the use of trial and error to establish institutions that supported peace and freedom. Hayek's evolutionary theory of change suggested that humans should “make as much use as possible of the spontaneous forces of society,” and avoid attempting to design institutions based on ever-faulty human calculations.Footnote 32 This was as true for money as it was for any other social institution. By removing the government monopoly on money, private entities could instead engage in experimentation with currencies and thus discover its most profitable and effective forms.
Underlying all of Hayek's arguments for spontaneous order and evolutionary change—whether in law, language, morals, or money—was a teleological assumption that the resulting institutions of evolutionary change would be beneficial to society. Hayek reiterated that market competition had evolved spontaneously as a means of discovering and transmitting information, using prices as signals for market activity.Footnote 33 Prices conveyed instantaneous information to individuals, providing an automatic “self-steering mechanism” by which individuals constantly adjusted their activities. Competition in the market, moreover, provided the discipline that the gold standard once had: private issuers would be forced to provide a stable money lest their customers turn to other issuers. A competitive money supply ultimately had three major advantages: first, an increase in consumer choice; second, competition would lead to units with stable purchasing power, which would in turn increase the predictability of prices and their information value for the business cycle; and third, abolishing government monopoly over money would diminish government coercion.
Hayek wrote to his editor, Arthur Seldon, in June 1977, that he must put his work on competing currencies aside and turn back to Law, Legislation, and Liberty.Footnote 34 Yet such was his interest in the subject and his sense of its relevance that he could not help but refine his ideas. At his next speech at the National Committee on Monetary Reform in November 1977, Hayek admitted that he was “more convinced than ever” that only private issuers could create a system of sound money. Soon, he produced a second edition of Denationalisation, published in 1978, which described the role of free banking in a system of competitive currencies and responded to his critics.
Yet even with this edition, Hayek's ideas gained little traction in scholarly circles. Milton Friedman agreed in principle with Hayek's thought, but argued that there was no empirical evidence to show that competition would automatically lead to a stable unit or drive out government currencies.Footnote 35 (Hayek responded that there was indeed historical evidence demonstrating that competing currencies worked, specifically, when sterling had been displaced as the general unit of international trade, and chided Friedman for having such little faith in competition and accepting state monopoly over the currency.)Footnote 36 Other critics argued that Hayek overreached in Denationalisation by supposing that he knew what kinds of characteristics of money the public wanted and by constructing a monetary system when he himself had long ridiculed the idea that institutions could be designed using human reason.Footnote 37 Hayek spent little time on these criticisms, convinced as he was that the inflation crisis was the most pressing issue of his time. The politics of inflation, he believed, would lead the government to more and more intervention until society slid into totalitarian rule.Footnote 38 Hayek declared that the denationalization of money was not a “standby arrangement” or even “an emergency plan,” and gave hard money libertarians their marching orders: “stop the continuous progress of all government towards totalitarianism.”Footnote 39
From Hard Money to Free Money
While Hayek's ideas gained little recognition among scholars, they met with great interest from libertarian activists. After publishing Denationalisation in 1976, Hayek received letters “from all kinds of surprising quarters.”Footnote 40 Some of these letters arrived from representatives of small banking houses, who explained that they were trying to issue gold or silver accounts. Others came from individuals offering their support for his new monetary system. Arthur Aydt from St. Louis, Missouri, wrote, “I want to work with you and your plan. I am retired and have money to rent or build a monetary school—free to the public.”Footnote 41 Raymond Kendall of the Motorola Corporation expressed his interest in Austrian economics and wished to meet Hayek to discuss the denationalization of money.Footnote 42 Hayek had tapped into the hard money movement, which would prove to be the greatest audience for his ideas.
The hard money movement was a sprawling, diverse strand of the libertarian movement that came together over a search for investment and profit, and, prior to Hayek's publication of Denationalisation, over support for gold ownership and the gold standard.Footnote 43 Gold ownership in the United States had long been prohibited by the federal government, frustrating hard money advocates in search of a tangible store of wealth. During the Great Depression, President Roosevelt had signed an executive order on April 5, 1933, that forbade the hoarding of gold coin, gold bullion, and gold certificates.Footnote 44 Still, remnants of the gold standard system remained until President Nixon finally ended the redemption of gold in 1971. Many movement libertarians and hard money advocates pointed to Nixon's wage and price controls and the closing of the gold window as the moment when they awakened to the need for libertarian action. As Texas Congressman Ron Paul reminisced, “I remember the day very clearly … Nixon closed the gold window, which meant admitting that we could no longer meet our commitments and that there would be no more backing of the dollar. After that day, all money would be political money rather than money of real value. I was astounded.”Footnote 45 Hard money advocates would repeatedly refer to U.S. dollars as “fiat” or “paper” money with no real worth, given that the government no longer had an obligation to redeem paper notes for gold.Footnote 46
Following the end of gold redemption, hard money supporters banded together to advocate a return to the gold standard and the legalization of gold ownership. Supporters of gold ownership openly defied the law to challenge the ban, purchasing gold in private markets in Canada and bringing it back into the United States, or prominently displaying gold at press conferences and challenging the Treasury to take legal action.Footnote 47 James U. Blanchard III, founder of the National Committee to Legalize Gold, arranged for a plane to fly a sign that said “Legalize Gold” at Nixon's second inauguration to protest the prohibition against private gold ownership.Footnote 48 The Treasury continued to maintain that removing the ban on gold ownership would engender speculation in gold markets that could hurt the international monetary system. Yet Congress experienced growing pressure over the 1970s to lift the ban so that individuals could buy gold as a hedge against rising inflation. Much to the delight of hard money advocates, President Gerald Ford signed a bill in 1974 legalizing private ownership of gold.Footnote 49
Prior to this bill, hard money advocates had long been putting their ideas into action by privately minting and selling gold and silver coins. Hard money firms in the United States included Deak-Perrea, a currency trading firm; Monex International, Ltd., which specialized in the purchase and sale of precious metals and foreign currencies; and James U. Blanchard & Co., a marketer of silver coins. The hard money outfit that Hayek took most interest in was the Gold Standard Corporation, established by Conrad Braun. In April 1977, Hayek invested $1,500 in the corporation by buying 10.2145 troy ounces of gold at the Gold Standard rate of $146.85 in order to see how Braun's system worked.Footnote 50 (Hayek closed his account in June the next year after losing a portion of his initial investment.Footnote 51)
Braun was ecstatic to have Hayek's attention. He reflected that it was “very flattering and ironic that I was simultaneously ‘doing’ what a great mind was ‘thinking.’”Footnote 52 For a little-known hard money seller, the attention of a Nobel laureate brought much needed legitimacy to his limited operations. Braun wrote to Hayek, “While many of the popular (but less esteemed) sound money figures have ignored my primitive efforts and still others have ridiculed them, your recognition has given me and I hope will give others the courage and inspiration to carry on with action where you have left off.”Footnote 53 He had opened Gold Standard Corporation in early 1977 with the hopes of establishing a sound means of trade and a syndicate of independent clearing centers outside of the paper banking system. He proudly claimed to be neither an economist nor a monetary expert, but rather an average man with sound monetary sense.Footnote 54 Braun understood how radical his work was, indicating he would continue production of the coins “so long as the market will bear it or until such a time that government suppresses our activities.”Footnote 55
Braun soon asked Hayek whether the Gold Standard Corporation could mint a “Hayek Half” coin with Hayek's portrait on it, as he had done for Adam Smith and the founder of the American Institute for Economic Research, E. C. Harwood. Hayek agreed and Braun's production of the Hayek Half began sometime in the summer of 1979, after Hayek sent several photographs of himself for Braun's artist.Footnote 56 Hayek was excited about being featured on one of the Gold Standard Corporation coins, offering Braun a few hundred addresses of persons likely to be interested in the Hayek Half—chiefly members of the Mont Pelerin Society.Footnote 57 Following the presentation of the coin at the Mont Pelerin Society meeting in Madrid, Braun sold over 1,000 Hayek Halfs and circulated 200,000 coins by the end of 1979.Footnote 58
While Braun was only a bit player in the hard money circuit, one of the most prominent advocates of gold and a leader of the hard money movement was Blanchard, who Hayek would also come to know personally.Footnote 59 Blanchard grew up in Houston, Texas, and graduated from Louisiana State University, before encountering libertarianism through the works of Ayn Rand. Blanchard felt deeply that “by far the most dangerous power the government has is the power to create and control the money supply.”Footnote 60 He became interested in hard money after reading Austrian economists Ludwig von Mises and Hayek, which motivated him to sell hard assets through his company James U. Blanchard & Co.Footnote 61 Blanchard also started the Gold Newsletter in November 1971, with anarcho-capitalist and hard money advocate Murray Rothbard on his advisory board. The Gold Newsletter featured essays on gold and monetary reform; interviews with economists, bankers, investment advisors, and brokers; investment advice; and news on legislation in Washington and the international monetary system. Notably, the Gold Newsletter not only provided commentary, but arranged the wholesale purchase of gold coins and directed subscribers to minting outfits. Gold advocacy always retained this dual purpose: to spread knowledge of the theoretical benefits of gold and to meet investors’ practical investment needs. The Gold Newsletter grew rapidly during the 1970s, starting with a circulation of 3,000 individuals in 1972 and claiming to have 10,000 members in all fifty states and across thirty-eight foreign countries by 1977.Footnote 62 The newsletter also boasted that it was read by “almost all the young libertarian scholars in the United States.”Footnote 63
Blanchard's greatest accomplishment for the movement was organizing the National Committee to Legalize Gold, which called itself “a libertarian organization” advocating for “legalization of gold ownership” that “would effectively limit the power of the state's money monopoly.”Footnote 64 After Ford legalized gold ownership in 1974, the National Committee to Legalize Gold renamed itself the National Committee for Monetary Reform (NCMR) and outlined a three-point program: to prevent the sale of U.S. gold reserves; to legalize gold contracts; and to educate the public on the necessity of a gold standard.Footnote 65 This program aimed to restrict competition and limit the supply of gold in the commodity market.
In 1974, the NCMR held its first annual conference in New Orleans, which was described by one attendee as a “multi-day monetary madness marathon.”Footnote 66 NCMR conferences aimed to educate their attendees in monetary theory, while also providing practical tools for profit maximization through talks about the end of government intervention in the economy, the national and international environment for investment, and the theoretical possibilities for changing the monetary system to create better conditions for profit.Footnote 67 At its first conference in March 1974, the NCMR attracted 700 attendees to New Orleans. NCMR conferences continued to grow in size, welcoming over 1,000 in March 1975 and 6,000 in 1980, swiftly becoming the hard money movement's largest conference.Footnote 68 Although its funding sources are unknown, the NCMR had enough money to donate $30,000 to the Libertarian Party in 1976.Footnote 69 Dozens of firms selling precious stones would set up shop at NCMR conferences to sell diamonds, rubies, emeralds, or other varieties, competing for space and customers. Colored stones, as one attendee put it, were “on the investment frontier—fraught with risks but also filled with opportunities.”Footnote 70 Other vendors, part of a veritable “army of capitalist entrepreneurs,” would sell books, investment newsletters, and counterfeit gold bars.Footnote 71
Importantly, the NCMR's annual conference attracted not only investors in precious stones, but a host of economists, politicians, and other luminaries such as Milton Friedman, Arthur Laffer, Jack Kemp, Barry Goldwater, Jesse Helms, and Ayn Rand, who understood the importance of this growing investor, hard money movement for garnering political support and fundraising. While the NCMR conferences were open to all, they marketed to a wealthy clientele.Footnote 72 It is thus no surprise that Hayek made two prominent speeches about the denationalization of money at NCMR conferences to an audience delighted to hear his ideas. Hayek delivered his first address, “International Money,” in September 1975 at a NCMR-sponsored conference in Lausanne, Switzerland, speaking alongside prominent speakers who held similarly radical or libertarian ideas, such as Member of Parliament and former cabinet minister of Britain Enoch Powell, editor of the Times of London William Rees-Mogg, and investment guru Harry Schultz.Footnote 73 Over the years, the NCMR would attract many of the same figures who circulated through elite libertarian organizations like the Mont Pelerin Society. But by contrast, the NCMR provided libertarian circles with a more casual, less academic space that openly declared individual profit maximization as its aim.Footnote 74
The NCMR not only brought libertarians together, but was also essential in spreading Hayek's vision of competitive currencies. After the publication of Denationalisation of Money in 1976, the NCMR bought thousands of copies, hoping to put them into the right hands to further Hayek's ideas. Blanchard understood that Hayek's project could bridge different sides of the debate within hard money libertarianism. Whereas Blanchard had once been a “great gold enthusiast,” he considered a state-backed gold standard as too “authoritarian” and found Hayek's system of a freely competitive monetary system preferable.Footnote 75 In turn, Hayek recognized how essential the NCMR and hard money advocates were to the acceptance of his ideas. Hayek sought out individuals deemed “useful propagandist[s] for the publication.”Footnote 76 Moreover, he worked with his editor, Arthur Seldon, to ensure that editions of Denationalisation would be made available in New Orleans when he spoke again at the NCMR's “Gold and Monetary Conference” in November 1977.Footnote 77
When Blanchard asked Hayek to return to the conference in 1977, he expressed his hope Hayek would “include an explanation of how gold would fit into a totally free market society.”Footnote 78 Recognizing that the conference attendees were mostly concerned with gold, Hayek proposed “to speculate on what would happen if governments removed all restrictions, suggesting that, though at first gold would probably be most popular, the hope placed in it would probably be disappointed and gradually competitively issued paper moneys displace it.”Footnote 79 Hayek hoped to show that while the gold standard had once been an important institution for providing monetary discipline, it would eventually be displaced by a system that would do more to incorporate the spontaneous forces of society. When Hayek spoke at the NCMR conference in November 1977, an estimated 1,200 attendees attended, as well as twenty-six speakers from six different countries. Following the conference, Blanchard reiterated that Hayek's original ideas on “money and … consistent defense of a free market approach to monetary reform is fundamentally important to what we are trying to accomplish.”Footnote 80 Although hard money advocates like Blanchard had long focused their energies on a return to gold ownership and the gold standard, they recognized that Hayek's theory of competitive currencies could be a revolutionary solution for addressing their concerns about limiting monetary discretion.
Hayek's proposal to denationalize the currency transformed debates about monetary reform within the hard money movement. When Denationalisation was reviewed in the Gold Newsletter, it was deemed “nothing less than an international financial revolution.”Footnote 81 Competitive currencies captured the fundamental goal of hard money advocates—constructing a system with no political oversight—while presenting new, revolutionary possibilities. Although Hayek's proposal did not specifically suggest the reimposition of the gold standard, his proposal allowed for the continued ownership and trade of gold, and the possibility that consumers might eventually elect to return to the gold standard.Footnote 82 By the end of the 1970s, hard money advocacy had taken on a protean form that incorporated both support for the gold standard and competitive currencies—transforming hard money advocacy at times into Free Money advocacy.
Free Money in National Politics
By December 1980, the libertarian Congressman Ron Paul of Texas had never been more hopeful for the prospects for Free Money in national politics. Ronald Reagan, an ostensible gold supporter, had just been elected to the presidency. While Reagan had made no explicit commitments while on the campaign trail, he was often quoted saying that as president he would consider returning to the gold standard—going so far as to assert that “no nation in history has ever survived fiat money, money that did not have precious-metal backing.”Footnote 83 Reagan also supported an implicit gold plank in the Republican Party platform to restore sound money and impose fiscal restraint. Paul registered his optimism in a letter to Hayek, writing, “Although I am the only Hayekian and believer in free-market money in Congress, there are more who are sympathetic,” and certainly now was the time to “emphasize that there is an alternative to state money.”Footnote 84
Born in Pittsburgh in 1935, Paul received a medical degree at Duke University in 1961, which he later employed to run a private practice in obstetrics and gynecology in Texas in 1968. Like many other libertarians, Paul “came to his politics more from philosophy than from experience,” by reading Ayn Rand and Austrian School economists, particularly Ludwig von Mises and Hayek.Footnote 85 Once elected to Congress, Paul made a name for himself by voting in line with his principles rather than following the Republican Party line, as well as for his criticisms of American interventionist foreign policy, his xenophobic views on immigration, and his opposition to the Federal Reserve. While he was initially an avid gold standard supporter, after reading Denationalisation, Paul became the most visible supporter of Hayek's ideas in national politics.
Once Reagan took office, Paul and other hard money supporters, including supply-side economists, called on Reagan to appoint a Gold Commission to assess the possibility of returning to a gold standard. Reagan at first ignored these calls, preoccupied as he was with budget cuts, tax cuts, and spending reductions, but he finally caved to pressure in June 1981, naming a commission with seventeen members from the Federal Reserve Board, Congress, the Council of Economic Advisors, and the public. Led by monetarists Treasury Secretary Donald T. Regan, Under Secretary of the Treasury Beryl Sprinkel, and economist Anna Schwartz, the commission did not include any supply-side economists, leaving hard-money advocates like Paul to make the case for gold.
To most onlookers, it was immediately obvious that the commission would never be amenable to the imposition of the gold standard and was simply a political concession to gold supporters. Even so, the gold standard was curiously absent from commission discussions. Commission members such as Paul only made limited attempts to persuade their colleagues of the necessity of the gold standard per se and instead advocated a system of competitive currencies.Footnote 86 Paul admitted during the commission that he was “not necessarily a strong or rigid supporter of the gold standard” and would prefer that banks issue commodity-backed money, whatever that commodity might be. The crucial point was that the government should not have a monopoly on money, nor should a central bank, and the private proliferation of currencies should be allowed.Footnote 87 Paul argued, “I don't want a law that says that thou shall use and mandate a gold standard. We want competition, we want fairness.”Footnote 88 Over the course of the commission, Paul suggested time and again that they “deal in a little bit more depth with the parallel type of standard where dollars would be competing more or less” with other currencies.Footnote 89
By the commission's last meeting on January 9, 1982, a majority had rejected most hard money and Free Money proposals, instead recommending that the Federal Reserve examine the monetarist proposal of employing a monetary rule for the growth of the nation's money supply. The commission made just one concession to Free Money advocates: a recommendation to mint gold coins, which would not be legal tender but would be exempt from capital gains and sales taxes.Footnote 90 These coins would not be much different from the gold medallions minted by the Treasury as part of the American Arts Gold Medallion Act of November 1978. But by calling these new gold objects “coins” rather than “medallions,” the commission made a symbolic concession to Free Money advocates, who had hoped the gold coins could serve, or eventually would serve, as legal tender (Figure 2). Free Money advocates believed that use of the gold coins would convince Americans of the necessity of gold in economic transactions, leading them eventually to seek a gold standard.Footnote 91 Hard money and Free Money advocates claimed the Gold Commission as a small victory, some even declaring it as “the greatest victory for gold bugs in the 20th century.”Footnote 92
The American Gold Eagle authorized by the Gold Bullion Coin Act. “1 Oz American Gold Eagle Coins BU,” Blanchard, accessed May 19, 2023, https://www.blanchardgold.com/product/1-oz-american-gold-eagle-coin-bu-dates-vary/.
Just as American libertarians attempted to bring Free Money ideas to the fore of American politics, Hayek similarly looked for ways to put his ideas into action in the United Kingdom. In the early 1980s, even as his work was primarily focused on an attack on the intellectual and moral foundations of socialism that would be later published as The Fatal Conceit (1988), he also spent a surprising amount of time and energy seeking the practical implementation of his proposals for monetary reform.Footnote 93 In September 1981, Hayek spoke at the Visa International Conference in Athens, Greece, announcing his intention to develop a “practical proposal” for bringing about competitive currencies. Although Hayek was well aware that governments were unlikely to abdicate their monopoly of the monetary supply in the near future, he believed that he might introduce a privately issued monetary unit with the help of financiers.Footnote 94
In July 1985, Hayek reached out to Lord Ralph Harris of High Cross, a British economist and head of the Institute of Economic Affairs, to say he would be visiting London and would like to meet experts in banking. Hayek hoped to unveil his proposal, which was no longer “a theoretical critique … but … an operational idea which should be taken up for early action—preferably in England.”Footnote 95 Lord Harris organized a meeting of British academics and bankers on May 13, 1985, to explore the possibility of implementing Hayek's proposal.Footnote 96 The meeting brought together an impressive group of elites, including Citibank CEO Walter Wriston, deputy chair of Barclays John Quinton, and London School of Economics professors Harold Rose and Brian Griffiths, among others. At the meeting, Hayek described how he had long hesitated to announce his idea for a name for a currency—a name that would put these men “a great step ahead of all others.” The name, “The Standard,” would be the best name to introduce a new stable monetary unit, he argued, because it was “symbolic of the intention you pursue, that it may spread like wild-fire all over the world that there are standards available.” Hayek's hope was to persuade these men to create an independent company—for instance, “Standard Accounts Limited”—and invest millions of pounds to get the venture started.Footnote 97
Although Hayek initially presented these ideas to this select circle of bankers and thinkers, none of them took up his proposal. Instead, he made his ideas public in 1986. When he published an article in Economic Affairs presenting his ideas, it was accompanied by images of a “Hayek Half-dollar” with an exact likeness to Braun's Hayek Half, though the coins were to be minted in silver by the hypothetical “The Standard Money Co.”Footnote 98 Hayek had given up hope of profiting from The Standard, and instead turned his efforts toward ensuring that someone would take up his idea, particularly in London, so that London could once again become “the financial center of the world.” He still believed that once such a unit existed, it would become the unit of long-term business contracts and used by courts to interpret contracts, and it would gradually displace the existing central banking and monetary system. That same year, Hayek became ill and was not able to enter into any further examination of the problems he raised, nor implement his new monetary unit before he died in 1992.Footnote 99 Still, the dream of competitive currencies would live on among Free Money advocates.
Conclusion
Hayek's proposal to denationalize the currency found no immediate purchase among mainstream economists. The collapse of Bretton Woods in the 1970s ushered in a new monetary system that did not eradicate the government monopoly of money, but rather established a global system based on capital mobility and floating fiat currencies operated via independent central banks. If policy makers had drawn anything from libertarians, it was not a greater use of gold or competitive currencies in the monetary system, but rather Friedman's advocacy of floating exchange rates, the role of central banks in controlling inflation, and the use of monetary rules.Footnote 100 Proposals for a gold standard or competitive currencies sometimes made headlines, but in the end, they remained peripheral to the dominant policy and scholarly treatments of the monetary system.
Even so, Hayek's ideas continued to hold a prominent place in libertarian circles, which have proven to be an enduring source of opposition to the present monetary system. Denationalisation succeeded in galvanizing support because Hayek presented a forward-looking, untested proposition that incorporated gold in a world that was less and less likely to return to the gold standard. In his monetary proposals, as throughout his life, Hayek encouraged his fellow hard money supporters to have “courage and confidence” in the workings of the free market, “even if we cannot predict where it will lead.”Footnote 101 Hard money advocates jubilantly took up the Free Money mantle, championing Hayek's ideas, and offering some of the most ardent opposition to the prevailing monetary system since the Progressive era. They used revolutionary language, believing that their proposal for competitive currencies “would be one of the major transformations in monetary history”—finally providing an answer to the money question that had pervaded American politics since the country's founding.Footnote 102
Hayek's ideas also spawned discussions of monetary reform at the Mont Pelerin Society, the Institute for Humane Studies, the Frankfurt International Monetary conference, the Cato Institute, and within libertarian scholarship at large.Footnote 103 The Cato Institute organized its first of many annual monetary conferences in January 1983 to educate libertarians on Hayek's view of monetary policy, as well as other monetary alternatives.Footnote 104 Over the course of the 1980s, Cato's annual monetary conferences brought monetarists, Public Choice theorists, hard money advocates, and competitive currency supporters into the same room, many of whom tried to find common ground and present more unified opposition against discretionary monetary policy.Footnote 105 These conferences have since provided a place for libertarians to develop a monetary politics that lauds decentralization over centralization, market mechanisms over technocratic discretion, private currencies over public currency, and a world of economic contracts over a social contract.
Finally, although Hayek's unit “The Standard” never took hold, Hayek's ideas inspired other experiments in currency and information networks over the next several decades.Footnote 106 Most notably, Hayek and Austrian School economists influenced a group known as the Extropians in the San Francisco Bay Area who explored the possibilities of cryptographically authenticated digital cash. In 1995, leading Extropian Max More wrote in Extropy: The Journal of Transhumanist Thought that Hayek's “groundbreaking” theorization of competing currencies should be combined with “anonymous digital money.”Footnote 107 Splashed across the front cover of the issue was an imaginary currency of “Hayeks” featuring a portrait of Hayek in what appears to be an Extropy t-shirt (Figure 3). While there were only ever a few thousand Extropians, their numbers included almost every key person involved in creating Bitcoin, the world's first cryptocurrency.Footnote 108 Even if no direct line can yet be drawn from Denationalisation to Bitcoin, the world of libertarian experimentation that produced cryptocurrency had certainly been profoundly shaped by Hayek. When the pseudonymous Satoshi Nakamoto founded Bitcoin, he built a decentralized monetary system that relied on technological innovations and market mechanisms, rather than the vagaries of politics, the public interest, or social “trust”—just as Hayek had once hoped.Footnote 109
An imaginary “Fifteen Hayeks” issued by the “Virtual Bank of Extropolis.” Extropy, 7, no. 2 (2nd/3rd Quarter 1995).
Recognizing that Hayek's ideas have had enduring intellectual force in libertarian circles leads us to revise our periodization of the rise of cryptocurrency and look back to the 1970s as a seedbed for projects for competitive currencies. The inflation crisis of the 1970s prompted Hayek to theorize and attempt to implement a new monetary system, namely one that would eliminate state monopoly over the currency and would instead give private issuers of currency the freedom to compete on the market. Hayek's ideas in Denationalisation were pivotal in translating hard money concerns for a world that, in all likelihood, would never return to the gold standard. As hard money libertarians took up the Free Money cause, they became an influential, yet underrecognized, movement within the broader American Right promoting a radical, decentralized monetary politics in opposition to state power. Libertarians have since remained some of the most powerful challengers to the reigning monetary system, repeatedly sounding Hayek's call to protect money from democratic politics.
Open access
