Friedrich August von Hayek (1899-1992) was a Viennese economist, lawyer and philosopher. He was famous for receiving the Nobel Prize in 1974. Together with Gunnard Myrdal, he received this award in the field of economics for his “pioneering work in the field of money theory and economic fluctuations, as well as for his in-depth analysis of the interdependence of economic, social and institutional phenomena”. They showed the harmful impact of government monetary policy on the stable development of the economy. Hayek was a huge supporter of liberalism. He also widely criticised the model of planned economy and socialism. He was also one of the most influential people in the Austrian school.
Friedrich Hayek wrote several outstanding books, and one of them, entitled “The denationalisation of money”, is very close to the idea of cryptocurrencies. It is very possible that the creator (or creators) of Bitcoin, hiding under the pseudonym Satoshi Nakamoto, was aware of Hayek’s work written in 1976. One could even come up with a loose theory that Hayek could be a grandfather of cryptocurrency. He predicted the creation of private currencies, but could not know exactly what form they would take.
What is an Austrian school?
The Austrian school is a heterodox school of economic thinking based on methodological individualism. This concept says that social phenomena result from the motivation and actions of individuals.
It is also characterized by strong criticism of neoclassical, Marxist, Keynesian and monetarist economic theories. Although Austrians have different views on economic policy, the Austrian school is usually seen as “the economic science of the free market”. Friedrich August von Hayek was both one of the founders and probably the most prominent representative of the Austrian School of Economics.
The Austrian Nobel Prize winner Friedrich August von Hayek was born in Vienna in 1899. After World War I, he received his doctorate in law and economics. He was a pupil of Ludwig von Mises, who claimed that it was impossible for a planned economy to function rationally. His views forced Hayek to abandon the old paradigms and adopt liberalism. Later Hayek was appointed to the London School of Economics thanks to Lionel Robbins, another student of Mises. In London, he began a permanent debate with J.M. Keynesm on specific economic views.
Friedrich Hayek later worked at the University of Chicago, the University of Freiburg and the University of Salzburg, where he retired in 1977. In 1974 he received the Nobel Prize for Economics for his analysis of the interdependence of economic, social and institutional phenomena. After his retirement, he devoted himself to traveling, spreading his ideas. This outstanding economist died in 1992 in Freiburg and was buried in Vienna.
The government destroys money
Hayek rightly blamed governments for the huge inflation that broke out in the 1970s. States monopolised currency formation, and this process has been going on for years. In addition, the contractual obligations to exchange banknotes for gold and silver were lifted. The next step was to significantly increase the money supply. This resulted in an accumulation of debt, which cannot be repaid at present. Of course, inflation has continued and we are still dealing with it today. According to Hayek, the solution would be to allow currency competition by eliminating monopolies and denationalising money.
Why can only a government issue its currency? Wouldn’t a private company do better in a free market environment?
Friedrich A. Hayek claims that the power that has a monopoly on money emission causes the economies to fall into crises regularly. This is also why citizens lose their savings. In 1976 he published his work “The denationalisation of money”. Given his liberal political affiliation, Hayek attributes all the evil to the fact that the central banks of the nation states have a monopoly on control and the issue of money. They are the only ones that influence such an important aspect of every citizen’s life. A clear negative consequence of bad monetary policy decisions (which are ultimately political decisions made by politicians) is inflation. The same phenomenon that Professor Hayek pointed out as the main economic tumor. Inflation, in fact, directly affects the pockets of ordinary citizens. According to Hayek’s proposal, any person or company would be free to create their own money to compete with the watered-down money issued by the government that was already in circulation.
He also pointed out that all competing issuers would not create the same currency, but completely different, with potentially different names and characteristics. Each such money issuer would manage its own currency. Among other things, it would decide on the amount of money in circulation in order to best meet the needs of a given society. An issuer who prints too many of its own banknotes would notice a significant decline in the acceptability of its currency because it would lose value.
Let us consider whether Bitcoin can be included in this definition. He is certainly the closest to it, from everything that has been invented so far. Hayek believed that society would choose the currencies that would suit it best at the moment. In turn, private issuers of such money would be forced de facto to offer competitive and better alternatives to public money.
It would also result in governments having to gradually “repair” their currencies (i.e. lower inflation rates) or lose market share in relation to private entities. This solution is certainly an interesting idea that Hayek wrote about more than 40 years ago.