In March of this year, The Economist, published an article entitled: Prophets for Today. This article discussed the relative merits of the works of those two great economic heavyweights of the twentieth century: John Maynard Keynes (1883-1946) and Friedrich Hayek ( 1899-1992). In his book Denationalisation of Money (1976), Hayek undertook a deep analysis of the theory and practice of concurrent currencies and concluded:
“It is an extraordinary truth that competing currencies have until quite recently never been seriously examined. There is no answer in the available literature to the question why a government monopoly of the provision of money is universally regarded as indispensable,”
Friedrich Hayek was a great advocate of the powers of the market and advocated a far greater level of laissez-faire than his counterpart, John M. Keynes. He went on to advise readers that:
“A government monopoly has the defects of all monopolies: one must use their product even if it is unsatisfactory, and, above all, it prevents the discovery of better methods of satisfying a need for which a monopolist has no incentive.”
He, (Hayek), Went on to describe how the state monopoly on money acts to prevent:
“The opportunity (for citizens) to use a reliable money that will not periodically upset the smooth flow of the economy is an opportunity of which the public has been deprived by the (presence of a) government monopoly.”
In 1978 Friedrich Hayek went on to publish a revised and enlarged edition entitled “Denationalization of Money: The Argument Refined”. In this work, he stated his belief that rather than accepting a large range of various currencies, with their own individual merits and demerits, markets would converge on one, or on a limited number of, monetary standards, on which financial institutions would then base the issue of their notes. Bear in mind please that Hayek was writing this in the 1970s, a good two decades before the influential Satoshi Nakamoto paper, first published in 2008.
Hayek had begun to advocate for an abandonment of the state monopoly on money and was seeking to explain the need for a new system of private currency in which financial institutions, and/or individuals would create different currencies that would then be free to compete against each other for acceptance. Hayek stated that “Stability in Value” would prove to be the decisive factor in assessing the level of acceptance. He advocated the need for stability because he realized that a devalued currency would hurt creditors whereas an upwardly revalued one would, in turn, hurt debtors. Hayek stated that in a world where information is king, countries, banks and financial journalists would report on developments in various currencies (In the same way that CCN does today!) and people would then act, collectively as a market, to decide on which currencies they would support to succeed and which they would ignore to allow decline and, in turn, fail.
Hayek’s works on currencies have been cited by economists as diverse as George Selgin, Richard Timberlake, and Lawrence White. On the other hand, and there is always another hand, Milton Friedman, was somewhat critical of Hayek’s writings, taking the view that the great advocate of the “free market” was advocating a designed form of money, rather than a system that had, in fact, evolved from the free market.
Looking at the existing monopoly on money, we can state that like any monopoly the State creates “Barriers to entry”. In most monopolies these are in the form of economic barriers, but in the monopoly on money there are also legislative barriers. Governments introduce economic barriers in the form of taxes to safeguard their currencies, to safeguard the State monopoly on money; they introduce laws to further hamper the development of alternative currencies. Governments will remain anti-cryptocurrency simply because they will always choose, like all monopolists, to safeguard their monopolies. In a recently published academic paper titled: Hayek Money: The Cryptocurrency Price Stability Solution, Ferdinando M. Ametrano, advocates the adoption of Bitcoin as Hayek’s supreme currency; he also advocates a solution to the price volatility that Hayek warned against.
The problem with finding solutions is that many national governments have a tremendous level of interest in ensuring their monopolies are retained. We must, as advocates of cryptocurrency, make more effort to be aware of exactly who our enemies are, as well as their weapons of choice, if we are to achieve success on this adventure.