Under a Hard-Money Regime, the Money-Supply Process Is Totally Privatized; Mining, Minting, Certification and Warehousing of Money Are Undertaken by Private Firms for Profit

The defining characteristic of such a monetary system has been incisively identified by Milton Friedman. In his words, “A real, honest-to-God gold standard … would be one in which gold was literally money, and money literally gold, under which transactions would literally be made in terms either of the yellow metal itself, or of pieces of paper that were 100 per cent warehouse certificates for gold.”

Thus, under a genuine gold standard, the monetary unit is, in fact as well as in law, a unit of weight of gold. This is the case whether the monetary unit bears the name of a standard unit of weight, such as a “gram” or “ounce,” or whether it bears a special name, like “dollar” or “franc,” that designates specifically a standard weight of the commodity used as money.

While it is true that certain types of government intervention in the monetary system are consistent with the basic criterion of a genuine gold standard, it is equally true that no particular government policy is essential to the operation of this monetary standard. Indeed, as Friedman notes, “If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.”

Under the quintessential hard-money regime, therefore, the money-supply process is totally privatized. The mining, minting, certification, and warehousing of the commodity money are undertaken by private firms competing for profits in an entirely unrestricted and unregulated market. The money supply consists of gold in various shapes and weight denominations and claims to gold, in the form of paper notes or checkable demand deposits, that are accepted in monetary transactions as a substitute for the physical commodity money. These money substitutes are literally warehouse receipts that are redeemable for gold on demand at the issuing institutions, which hold a specifically earmarked reserve of gold exactly equal in amount to their demand liabilities. Barring fraud or counterfeiting, the total supply of money in the economy is therefore always equal to the total weight of gold held in the money balances of the nonbank public and in the reserves of the banks.

—Joseph T. Salerno, “Gold Standards: True and False,” in Money: Sound and Unsound (Auburn, AL: Ludwig von Mises Institute, 2010), 356-357.