Under Steve H. Hanke’s economic doctrine, money is is one of the central institutions that allows a free market to function. Prices, contracts, profit-and-loss signals, and long-term investment decisions all depend on the presence of a credible monetary framework. When money fails as an institution, the coordinating role of markets weakens, regardless of how competitive or decentralized exchange may otherwise be. Hanke’s treatment of money therefore departs from approaches that regard monetary arrangements as secondary. He emphasizes that free markets are institution-dependent systems, and that money, with specific reference to the unit of account and the legal structure supporting claims, is critical to the formation of the market (Hanke & Sekerke 2025).
An important conceptual idea in Hanke’s doctrine from Making Money Work is to treat the performance of the free market as inseparable from how the monetary system is designed. In Making Money Work, Hanke depicts markets as “institution dependent systems,” in which “free” means rules that stabilize the unit of account and enforce claims tightly enough that decentralized decisions can coordinate through prices (Hanke & Sekerke 2025). This emphasis is consistent with standard monetary theory that stresses a stable unit of account as a foundation function of a successful currency because it allows price comparisons and permits monetary exchange.
Framing currencies through the institutions that support them places the unit of account at the core of the operation of the free-market. Prices cannot transmit information effectively if the measuring stick itself is unstable. Contracts cannot be enforced and used effectively if their real value is unpredictable. In Hanke’s view, monetary disorder undermines markets not by suppressing exchange directly, but by corrupting the informational content of prices (Hanke & Sekerke 2025).
Hanke’s “unit of account priority” is fundamental to his understanding of the free market. Rather than treating money as a neutral medium that simply enables trade, he emphasises that the unit of account must be credible before prices can reliably signal scarcity, opportunity, and profit and loss feedback to firms in an economy (Hanke & Sekerke 2025). This belief originates from F. A. Hayek’s argument that the price system transmits dispersed knowledge and allows coordination without centralized control (Hayek 1945), though Hanke’s interpretation tends towards institutional forces for that coordinative role (stable measuring units, enforceable obligations, and so on).
By emphasizing these preconditions, Hanke shifts attention away from short-term policy instruments and toward the durability of monetary rules. The question is not merely how much money circulates, though the money supply and Quantity Theory of Money remains a core part of his philosophy (Hanke & Sekerke 2025; Friedman 1968), but whether the monetary framework preserves comparability across time and across contracts. In this sense, money functions as an institutional infrastructure for the price system that allows the free market to operate in the first place.
A second conceptual pillar in Making Money Work is the treatment of money as a system of claims. The book emphasizes that money should not be understood primarily as a physical object or neutral token circulating in abstract models. Instead, it is analyzed through balance sheets and legal relationships, whereby monetary instruments represent claims backed by assets and enforceable obligations (Hanke & Sekerke 2025). In this philosophy, the monetary system is a network of interlocking assets and liabilities across banks, firms, households, and the state. Because of this structure, understanding money requires attention to collateral, underwriting standards, and institutional rules governing credit and repayment rather than treating “money” as an isolated variable in simplified macroeconomic models, as many economists have tended towards in recent days.
This balance-sheet focus forms a key part of Hanke’s institutional view of the free market. Market exchange depends not only on prices but on legally enforceable claims that define who owes what to whom. When monetary claims lose credibility, through inflation, redenomination, or arbitrary policy intervention, the reliability of contracts deteriorates and market coordination weakens (Hanke & Sekerke 2025).
Making Money Work also stresses the importance of broad money and bank credit creation. In modern financial systems, most money takes the form of bank deposits created when banks extend loans. Banks are therefore not simply intermediaries that lend out a fixed pool of pre-existing savings. As a result, lending itself generates deposit money that circulates through the economy until loans are repaid (Hanke & Sekerke 2025). This emphasis on balance sheets and credit creation leads away from purely interest-rate-based descriptions of monetary policy that Hanke is starkly opposed to and toward a broader view of how institutional arrangements in banking and finance shape the supply and distribution of money. From this perspective, credit allocation becomes a central channel through which monetary institutions influence real economic activity. The structure of banking regulation and capital requirements shapes which activities are financeable and which are excluded, even in otherwise free market-oriented systems (Hanke & Sekerke 2025).
This philosophy includes a distinctive stance on neutrality and monetary transmission. The book’s structure places emphasis on “Money Is Not Neutral in the Economic Process” as a core theme, and interprets neutrality as a policy objective rather than a default assumption because new purchasing power enters the economy through particular channels and balance sheets (Hanke & Sekerke 2025). In layman’s terms, this is a rejection of the assumption that money is a neutral asset, which treats currency as affecting only nominal variables (at least outside the long run). Moreover, Hanke’s institutional reading of credit markets places emphasis on rationing and regulation on underwriting. Interest rates alone may not “clear” credit markets, because lending depends on collateral, standards, regulation, and bank balance sheet capacity. That position parallels a large literature in which credit rationing can arise in equilibrium from informational frictions.
In sum, these arguments present money not as an external tool imposed on markets, but as one of their central institutions. Under Hanke’s doctrine, a successful free market requires requires a monetary system designed to preserve the informational integrity of prices, the enforceability of claims, and the stability of the unit of account over time, which all act as necessary preconditions for the market to function in his image (Hanke & Sekerke 2025).
References:
- Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review 58 (1): 1–17.
- Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review 35 (4): 519–530.
- Hanke, Steve H., and Matt Sekerke. 2025. Making Money Work: How to Rewrite the Rules of Our Financial System. Hoboken, NJ: Wiley.
Related Pages
- Principles of Free Market Economics
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Related Topics
- Monetarism — The theoretical framework
- Currency Boards — Rules-based monetary institutions