Friedman Versus Hayek on Private Outside Monies: New Evidence for the Debate
17 Pages Posted: 10 May 2011 Last revised: 21 Aug 2012
Date Written: May 4, 2011
Friedrich Hayek is often credited with the resurgence of interest in alternative monetary systems. His own proposal, however, received sharp criticism from Milton Friedman, Stanley Fischer, and others at the outset and never gained much support among academic economists or the wider population. According to Friedman, Hayek erred in believing that the mere admission of competing private currencies will spontaneously generate a more stable monetary system. In Friedman’s view, network effects and switching costs discourage an alternative system from emerging in general and prevent Hayek’s system from functioning as desired in particular. I offer new evidence provided by recent events in Somalia as support for Friedman’s initial doubts.
Keywords: Comparative Monetary Systems, Competitive Monies, Denationalisation of Money, Friedman, Government and the Monetary System, Hayek, Medium of Exchange, Money, Monetary Standards, Monetary Regimes, Network Effects, Regulation
JEL Classification: B20, B22, B25, B30, B31, B53, E02, E41, E42, E52, G21, G28
Suggested Citation: Suggested Citation