Monetary Nationalism

September 12, 2011

by Jerry O’Driscoll

I recently read Money, Markets and Sovereignty by Benn Steil and Manuel Hinds. I highly recommend it. The jacket blurb accurately summarizes the book’s importance: “Benn Steil and Manuel Hinds offer the most powerful defense of economic liberalism since F. A. Hayek published The Road to Serfdom more than sixty years ago.”

Steil and Hinds focus on the institutional underpinnings of liberalism: the rule of law, globalization (free trade and free movement of capital) and commodity money. Their arguments on all points are powerful. Their argument on money runs against the grain of modern monetary theory. They rely heavily on history to buttress their arguments.

Reading the book motivated me to reread Hayek’s Monetary Nationalism and International Stability, upon which a good part of their monetary analysis is based. Though written in 1937, the book makes a powerful argument against the international monetary arrangements of the last 40 years: the 182 national fiat currencies.

Hayek argues the benefits of national fiat currency are largely illusory, and fiat money introduces problems unknown under the gold standard. For instance, Hayek, and Steil and Hinds explain why short-run capital flows can be destabilizing in a fiat money system, while they are stabilizing in a commodity standard. The two works follow the Misesian strategy of criticizing policies (or institutions) by demonstrating that they produce results different from or even the opposite of those intended by their advocates.

This year’s Cato monetary conference (November 16, 2011) will focus on monetary reform. Instead of a keynote address by a senior Fed official (a hallmark of past conferences), the opening address will be by Ron Paul. Panel I will be “Rethinking the Global Fiat Money System.” Chaired by Mary O’Grady of the Wall Street Journal, the panel will consist of Benn Steil, George Melloan and myself.

11 Responses to “Monetary Nationalism”


  1. Jerry, this sounds interesting.
    FYI, we also have a paper that was motivated by Hayek (1937).

    http://www.gfinm.de/images/stories/workingpaper19.pdf


  2. I look forward to your panel at Cato. Here’s my own take on Hayek’s Monetary Nationalism: http://www.independent.org/publications/policy_reports/detail.asp?type=full&id=9

  3. Ekkehard Says:

    Thank you for this recommendation. I have just ordered the above mentioned book.
    We are currently working on Monetary Nationalism to be re-published in German in the forthcoming Volume A3 “Entnationalisierung des Geldes” http://www.mohr.de/wirtschaftswissenschaft/neue-buecher/buch/gesammelte-schriften-in-deutscher-sprache-4.html
    I was – with all due respect – surprised that Hayek had also embraced a World Currency before he became attracted by the Commodity Reserve Currency in the late 1930’s. Has anybody noticed this fact, too? Does anybody know more and maybe relevant on this issue?
    W.r.t. Monetary Nationalism, I think that the great contribution of Hayek is to approach monetary economics from an institutional perspective at a time when the predominant discussions were mainly devoted on how monetary politics should be executed during the time of crises. Who else but Hayek offers such a systematic analysis of the rules and institutions of different monetary regimes in these days? Hayek also observes that choice among monetary rules is a problem we consider today as being subject to political economics .
    One concludes that MN offers a first attempt of how CPE later approaches monetary constitutions – without the contractarian perspective, of course.
    I hope that the above mentioned book also includes something on this latter issue – to which Buchanan could offer more than many expect.
    With best regards,
    Ekkehard Köhler


  4. Thanks to everyone not just for comments, but also links to papers.

    Professor Kohler,

    I agree with your analysis. Hayek offered a comparative institutional approach. Buchanan has been writing papers on money and institutions even now.

    I think in monetary economics Hayek was at times swayed by what he perceived to be politically possible. In MN his preferred banking structure was free banking. But he didn’t that was politically possible. So he opted for managed currency.

    With best regards,

    Jerry O’Driscoll

  5. N. Joseph Potts Says:

    I wish there were a way to get this book (or at least the recommendation of it) before Barry Eichengreen, I struggled through Golden Fetters and was left rather worse than dissatisfied.

    It’s not that it would likely persuade Eichengreen, much less move him to admit it. Rather, it might make him aware that people are on to his mumbo-jumbo.


  6. Eichengreen’s Exhorbitant Privilege is more balanced and I have reviewed it favorably (overall) for the Freeman.


  7. [...] O’Driscoll’s review of Money, Markets, and Sovereignty. I read it in 2009, and I liked it but wasn’t crazy impressed. [...]

  8. Pietro M. Says:

    I just bought the book. I hope it is as interesting as the review.

    By the way, I hope to meet you at the Mises Seminar of the Istituto Bruno Leoni at Sestri Levante, Italy, the 7th and 8th of October.

    With you, Peter Boettke and Vernon Smith, it will be an impressive meeting.


  9. Pietro,

    I look forward to meeting you and to the Mises seminar.

  10. chidemkurdas Says:

    It’s great that monetary institutions — so important for economic well-being but taken as a given in much policy discussion — are getting more attention.


  11. Ben senin analiz katılıyorum. Hayek karşılaştırmalı bir kurumsal yaklaşım sundu. Buchanan, şimdi bile para ve kurumlara makaleler yazmaktadır.


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