Abstract

The object of the article is to review the demand introduced into the debate by Klein und Hayek for abolition of the currency-issuing monopoly of government and for authorization of competing, private issuing banks. In Section II, several arguments for and against this proposal are discussed, doubts as to the functional efficiency of competition among private banks proving preponderant. With the help of a simple analytical approach, Section III examines whethera finite price level is reconcilable with the existence of private issuing banks or whether the privatization of currency production would lead to sustained inflation. In the proposed model framework it proves that either specific parameter constellations obtain or special model versions must be applicable in order to avoid a sustained inflationary process. From this it follows that in all other cases the desired objective of price level stability aimed at with the proposal of private currency production cannot be achieved but that in the long run the target will be missed.