Abstract

On the Reversal of Greshanı’s Law in the Case of Denationalization of Money

Proceeding from the pervertibility of a monopoly currency, F. A. von Hayek has proposed that private banks, too, should be permitted to issue money; he anticipates that the competition mechanism would drive out qualitatively bad (inflationary) money (anti-Gresham law). The section of this article dealing with doctrinal history adduces evidence that even Nicolas Oresmius described the phenomenon of Gresham’s Law, i.e. where forms of money have different commodity values but the same nominal value, the better money will disappear from circulation; furthermore, he also made the more important discovery that international trade in an inferior currency declines. The theoretical part examines the thesis of “barometric inflation leadership” in the case of oligopolistically structured money production. It is argued that where uncertainty prevails on account of the enormous depreciation of the capital in which trust is placed or on account of the high gains where a high product quality is maintained, neither inflationary vanguard action on the part of an individual issuing bank nor inflationary action in convoy is probable. This view is confirmed on incorporating the financial market theory of the exchange rate in von Hayek’s world of bank freedom