All Commentary
Wednesday, October 1, 1986

Book Review: Money And Freedom by Hans F. Sennholz


Libertarian Press, Inc., Spring Mills, PA 16875 • 1985, Also available from The Foundation for Economic Education. 102 pages • $6.00 paperback

Money is the most marketable economic good in society. Individuals attach value to money with the future expectation of obtaining with it goods and services in the market; money is valuable because of its purchasing power. Money facilitates exchange and makes possible an advanced division of labor.

Since the creation of the Federal Reserve System in 1913, the federal government has enjoyed a money monopoly. The government, which controls the Federal Reserve, may inflate the currency seemingly at will, since legal tender laws force individuals to accept the state’s devalued money.

But inflation has dire consequences. As Professor Hans F. Sennholz points out in his latest, provocative book, Money and Freedom, inflationary booms lay the groundwork for recession and depression. With more money available on the loan market, interest rates decline, and businesses are lured into making bad capital invest ments. Because the investments are not accompanied by corresponding increases in savings, capital costs will rise to meet increasing demand. The boom, therefore, must lead to a bust, a time of adjustment to correct previous malinvestments. If the government continues to inflate, then hyperinflation and eventually the total destruction of the currency will follow.

In order to restore stability and integrity to money, Sennholz advocates monetary freedom, that is, the private issuing of coins and bank notes. A “parallel standard” of competing monies would replace the government monopoly. Legal tender laws would apply only to the issuers of currencies, who would be required to redeem their monies at face value. Thus, the government would be required to accept its fiat paper money at face value, but could not force it on anyone else.

A particular form of money, like any other economic good, will be driven out of the market if it fails to satisfy consumer demand. Given monetary freedom, individuals will likely choose gold as their money, as they have in the past. Gold is highly marketable, easily divisible, and cannot be “created” out of thin air by the government. Furthermore, gold does not require coercion to gain acceptance. As Sennholz states, “Gold does not need legal tender force; no honest money needs legal tender, but it needs to be free from government regulation, taxation, manipulation, intervention, and threat of confiscation.” (p. 83)

In a section entitled, “False Solutions: Managed Money,” Sennholz examines reform proposals of economists from the monetarist, supply side, and social credit camps. While the proposals vary widely, they all fail to take into account the main problem: the government money monopoly. Sennholz’s critique of authors such as Milton Friedman, Robert Mun-dell, and Wickliffe B. Vannard is excellent, and though current Austrian proposals remain un-mentioned, the section serves as a fine overview of the popular monetary solutions being set forth today.

Books which espouse sound economic analysis are essential if the present monetary system is to be reformed. Sennholz’s Money and Freedom is such a book. It provides explanations of past mistakes and solutions to present problems. The clarity with which Sennholz expresses his ideas makes complicated economic ideas understandable to the reader, and even those who disagree with Sennholz will benefit from his analysis. The government money monopoly has failed. Only when freedom is restored to money will a sound currency be established.