"... but it could preserve this business only if it did in fact promptly buy at the current rate any of its notes offered to it. So long as it succeeded in maintaining the real value of its notes, it would never be called upon to buy back more than a fraction of the outstanding circulation. Probably no would doubt that an art dealer who owns the plates of the engravings of a famous artist could, so long as his works remained in fashion, maintain the market value of these engravings by judiciously selling and buying, even though he could never buy up all the existing prints." (Page 49)This little book is dense with worthy ideas such as that. Most economists express three uses for money. Hayek defined four: cash purchases; reserves for future purchases; standard of deferred payment; unit of account.
F. A. Hayek apparently had little or no experience with numismatics. Many of his theoretical claims are supported by facts known to those of us who study the art and science of the forms and uses of money. Other of his theoretical assertions are denied by the facts of history. And to be fair, numismatists, schooled in economics by publicly-funded (or aristocratic) institutions, also err when narrating the history of money. The idea that coins were invented by merchants to make bullion more convenient for retail trade is the best example of such error. Charles Seltman, the British numismatist who promoted that silly idea via the Encyclopedia Britannica, never worked behind a retail sales counter. Similarly, for all their theoretical knowledge Hayek and the other Austrians had no experience as merchants.
Hayek says that it is unfortunate that there existed no complete history of the experience of government monopoly on money. However, he does cite Murray N. Rothbard's monograph, What Has Government Done to Our Money (1963, 1974). That work is little more than a sketch. Like Hayek, Rothbard had little involvement with the artifacts. Rothbard relied on "The Use of Private Tokens for Money in the United States," by B. W. Barnard from The Quarterly Journal of Economics, Vol. 31, No. 4 (Aug., 1917). That academic paper reported all known issues without regard to their actual use. Today, Bar Cents and Immune Columbia are regarded as rare and likely saw little use in their time. Nova Constellatio tokens really did circulate. In short, Rothbard's data was flawed because he gave weight to an academic paper instead of going to numismatists. Any active collector of American money could have shown him (and Hayek), the material evidence they sought to support their theories.
"The early Middle Ages may have been a period of deflation that contributed to the economic decline of the whole of Europe. ... But where, as in Northern Italy, trade revived early, we find at once all the little princes vying with one another in diminishing the coin - a process which in spite of some unsuccessful attempts of private merchants to provide a better medium of exchange, lasted throughout the following centuries until Italy came to be described as the worst money and the best writers on money." (page 34)Yet this complaint - common among historians and cited by gold bugs - ignores one of the arguments for gold-based money: with the quantity fixed by nature, each new invention, import, or innovation caused the existing money to increase in value: hard money is worth ever more over time. That was the case in the Middle Ages as expanding trade brought more products to market. It is also true that warlords and generals debased their coins, a common cheat in both Roman and modern times, as well. But that negative motivation was only part of the story. Absent new discoveries such as the mines of Joachimstal and the looting of the Americas, deflation is a beneficial consequence of hard money. Moreover, some strong currencies, such as the English sterling penny and the Venetian gold ducat, enjoyed international reputations. That meant, however, that they left one place and went to another. For a local ruler to keep his coins in his realm, the issues had to be useful only locally, otherwise the locale would quickly enjoy an influx of imported goods and a loss of currency.
One solution to that is a token currency. The strength of a monetary medium, itself durable and cheap, but also a token for precious metals that do not pass hand to hand was explored by Neil Carothers in Fractional Money (New York, J. Wiley & Sons, 1930), a book that grew out of his doctoral dissertation some years earlier. Again this data is a century old. We know these facts; and they support Hayek's theories.