My colleague Nick Snow asks, "What's so funny about peace, love, and a free market in money?" He uncovers this 1977 WSJ article, where Hayek presents his Denationalisation of Money proposal to a wider audience.
I have written critically on Hayek's proposal. Nicolas Cachanosky provides a summary of my paper.
Before asking whether there is something funny about a free market in money, a distinction should be made between inside and outside money. Under free banking, private banks provide inside money (banknotes and demand deposits) redeemable for the prevailing outside money (gold and/or silver, historically). Under central banking, private banks provide inside money (demand deposits) redeemable for the prevailing outside money (Federal Reserve notes).
After making this distinction, it is possible to see what is so funny about Hayek’s proposal. He wants private issuers to provide outside money. He wants the monetary system to work without the very constraint that made episodes of free banking successful: a contractual obligation to redeem notes for some scarce commodity. That, I believe, is laughable.