Friedrich August Hayek was more successful than anyone else in spreading Austrian ideas in the English-speaking world. Among mainstream economists, he is mainly known for his popular “Way to Slavery” (1944). We wrote about his biography and Austrian school in a previous article. Today we will focus on further analysis of his book entitled “Denationalisation of Money”.

The author’s deliberations concern what would happen if the government allowed anyone to use the currency of their choice. Hayek tries to convince readers of the idea that the government would allow entrepreneurs to innovate in the monetary sector. The new changes would be based on creating digital currencies or other assets that could be considered money. Importantly, each individual would be free to create and use new goods.

How to secure an account on the exchange and where to safely store cryptocurrency?

In the field of economics, Hayek opposed the proponents of a planned economy as early as the 1920s. History has shown that while most economists have succumbed to the charms of the planned economy, Hayek was actually right. This model of running a state proved to be a bankruptcy. The best example of this was the collapse of the Soviet Union.

What is inflation?

Friedrich Hayek in his book “Denationalisation of Money” explains many economic phenomena and indicates their causes. One of the important phenomena, which affects the corruption of traditional money, is inflation. It is defined as a sustained increase in the general price level of goods and services. It can be measured as an annual percentage increase.

As inflation increases, for every zloty we have, we will buy fewer goods and services. It is observed in terms of purchasing power. It tells us about real, material goods that can be bought with money. For example, if the inflation rate is 2% per year, theoretically a product for 2.5$ will already cost 2.6$per year. This example shows how the money we keep in our wallet loses value every year. This happens every time inflation occurs.

As we mentioned earlier, inflation is a general price increase. In a market economy, the prices of goods and services can vary. Some prices rise, others fall. We talk about inflation when there is a general price increase, not just some products. The currency you choose is simply not worth as much as it was before. It is worth noting that some prices differ more than others. To calculate the average price increase, the prices of products that make up a significant part of our spending – for example, electricity – are usually assigned. This is more important in the inflationary basket than products on which we spend less – for example, sugar or postage stamps.

The safety of our bitcoins

Each household has different spending habits. Some have a car and eat meat, others use public transport and are vegetarians. The average spending habits of all households determine the importance of different products and services to measure inflation.

Hayek and the monetary system

Analyzing the monetary system, Friedrich Hayek was against the domination of the single currency. He argued that it was necessary for different assets to compete with each other. This would increase the transparency of the system while giving each of us a choice.

The economist explains, therefore, that we have to come out of the dogma that money and its creation is a privilege belonging only to power. This concept, which seems obvious to us today, has been a kind of standard for centuries. Let us remember that since the Middle Ages the control of currency has belonged to royal power. The king certified and guaranteed that a given coin was equal to a given amount of gold or silver. The lord spoke and the rest had to take his word for it. The supply of money in circulation was strictly controlled by the king. Over the years, over the course of many dynasties, this always resulted in the same thing, i.e. spoiling the money.

In the mid-seventies, Hayek’s absorbed inflation, which reached 15% in Europe and the United States, gave him the basis for his questioning of the issue of money. For the Austrian economist, there are two ways to stop the inflationary spiral. The first was to return to the gold standard, which allows, because of the finite amount of precious metal, to limit the reckless creation of money. It should be stressed that governments do not have their money. Such a model eats our hard-earned money, which we put aside as savings.

The return of the rally to the crypto market in 2020?

The second idea was a model of currency competitiveness. To this end, it is necessary to enable private entities to create and develop their own currency in order to cut off from the monopoly of countries that use the currency as a printing press, in order to artificially revive the economy. We are witnesses of how this may look today. All this is happening in the digital world, and it is Bitcoin and its derivatives that are leading the way in terms of how competitive (cryptic) currencies can be with each other.

Cryptocurrencies are cure for all evil?

The appearance of the cryptocurrencies in everyone’s everyday life would therefore make Friedrich Hayek’s dream come true. For a thinker, currency competition is a great idea. It is a process of discovering different currencies, based on trials and mistakes. All in order to choose the asset that is right for us at the moment. This would keep the currencies that would best meet the expectations and needs of the users. Rigid rules of central banks, which often do not follow the path of ordinary person, would no longer matter.

Blockchain and marijuana – ParagonCoin and PotCoin services

Hayek’s vision can not only make the world a better place, but also systematically makes people aware that currencies can be decentralized and private. As a result, governments do not control them. In many developing countries, the central banking system has failed its citizens. This has resulted in people’s wealth decreasing even over days or weeks. Bitcoin and other cryptocurrencies have become the tool that allows many people to survive the current crises they encounter every day. All these innovative currencies, as well as the related payment systems, are a perfect example of Hayek’s ideas, which he presented in his book “Denationalisation of Money”.

Friedrich Hayek believes that it is the monopoly of power to issue money that makes economies regularly fall into crises. Citizens who lose their savings suffer as a result.

Travon Temple
Witold Adruszczak CEO of the project for 3 years associated with the crypto industry. This year we have decided on an international project. Our goal is to build Bitcoin awareness in the world. Education and support for people with no experience in the new industry which are cryptocurrencies. If you need more support please write in the comment. For all I always try to answer questions under the articles.