The British Currency School and the Principle of Sound Money

Throughout his body of work on monetary economics, Mises steadfastly proclaimed his adherence to the basic doctrines of the mid-nineteenth century British Currency School and, in fact, upheld its “currency principle” as the essence of his own conception of sound money. According to the currency principle, the ideal monetary system was one in which the supply of money, comprising circulating gold plus bank notes and deposits redeemable in gold, should be made to behave exactly like the supply of a pure gold money.

I contend that Mises was indeed an admirer and follower of the Currency School, and that he deliberately attempted to revise and improve its doctrine and apply it to contemporary conditions. Second, I review Mises’s strong support for a free banking system and argue that it was based on his view that free banking would result in the almost total suppression of the issue of new fiduciary media and thus produce a money supply that functioned exactly as a “purely metallic currency” (in the terminology of the Currency School).

--Joseph T. Salerno, "Ludwig von Mises as Currency School Free Banker," in Theory of Money and Fiduciary Media: Essays in Celebration of the Centennial, ed. Jörg Guido Hülsmann (Auburn, AL: Ludwig von Mises Institute, 2012), 96.