When the founding president of TOBAM, Yves Choueifaty, launches “I did not identify Satoshi Nakamoto, but I identified his two fathers”I don’t expect him to tell me about a Franciscan monk of the early XIVe century named after William of Ockham. The book he hands me next, For true currency competition by Friedrich August von Hayek, intrigues me similarly but seems more concrete. In The denationalization of moneyfrom its original title, Hayek proposes a solution to the monopoly of monetary emission by the State which, according to him, is the harmful cause of repeated economic crises due to the devaluations of national currencies and destructive inflation.
A harmful monopoly
Hayek is not going with a dead hand. As soon as a group of people benefits from the monopoly of the monetary emission, sooner or later it abuses it. The result is crises, human and economic. This is the unequivocal statement that Hayek establishes from the first lines of his book. Excessive monetary creation by central banks would, according to the Viennese thinker, only have insidious effects on the economy and employment in the long term – and few people can demonstrate the contrary. The state? “Main source of instability“Monetary policies?”Cause of depressions.” The author has the merit of being clear: “The main imperfection of the market order, which has been the cause of justified criticism, namely its predisposition to recurrent periods of recession and unemployment, is a consequence of the ancestral monopoly of monetary issuance attributed to the state.“
“The main imperfection of the market order is a consequence of the ancestral monopoly of monetary emission attributed to the State”
As Hayek likes to recall, “it is probably impossible for mere pieces of paper to gradually come to be accepted and held as money if they do not represent a claim on something of value.” We obviously think of the end of the Bretton Woods agreements and the convertibility of the dollar into gold. The state uses and abuses the printing press, but so far nothing new. Hayek actually points to market manipulation orchestrated by central banks: “The past instability of the market economy results from the fact that the most important regulator of market mechanisms, namely money, could not itself have been the fruit of a market process.”
Desirable competition
The solution would be to abolish the monopoly of monetary issuance and, in fact, to operate like any other market, open to other financial players. Concretely, this would involve the circulation of competing, different currencies, issued by private banks. This free competition would naturally select the most effective monetary policy. Neither more nor less than the mechanics of supply and demand, and the resulting point of equilibrium. This system would limit inflation and guarantee a certain monetary stability. Disconcertingly simple and as old as the world, this device joins the principle of parsimony of Ockham’s razor. To sit, a chair is enough. No need for Mercedes-Benz. And in the end, it is the people who will decide.
“Under such a system, what is now called monetary policy would be neither necessary nor even possible”
Powell? The guard ? Thanks, no more need for your services. “Under such a system, what is now called monetary policy would be neither necessary nor even possible.” Interest rates, on the other hand, would similarly be determined by the market. Free exchange of currencies would also be more desirable and applicable “than the utopian project of creating a new European currency, which would ultimately only have the effect of further entrenching the sole source of all monetary scourges, namely the monopoly of issue and control money by the state. The Euro just has to behave…
The Bitcoin Remedy
“I think we can do a lot better than gold has ever done”. Friedrich, Satoshi heard you. He created Bitcoin, limited to 21 million copies. This ceiling will be reached in 2140. “Nakamoto’s real eureka is to have invented the first currency whose money supply is constant”, recalls Yves Choueifaty. The quantity of money which is, according to Friedrich, the “key determinant of its value”. And the Austrian warns us: “A change of such magnitude as the one considered here could initially give rise to a great deal of uncertainty and confusion.”
“Nakamoto’s real eureka is to have invented the first currency whose money supply is constant”
So much so that, seeing their power threatened, governments hasten, claiming to want to protect the people, to control, to regulate, to padlock. “And everyone knows for a fact that if such a private experiment were about to succeed, governments would soon step in to stop it.” Hayek is not fooled. “The older generation of bankers will probably be totally unable to imagine how the new system might operate, and therefore almost unanimous in rejecting it.” Needless to say, even though Hayek talks about currency competition, one cannot help but think of Bitcoin and see his words as prophecy. However, as rightly pointed out Adam Tebble, a professor of political theory at King’s College, Bitcoin takes decentralization a step further than Hayek ever envisioned. The blockchain is indeed independent of any organization, of any private entity.
Strong barriers
Hayek indicates the way to follow on the last page of the book: “What we need now is a Free Money Movement. […] A greater understanding of the superficially invisible effects of inflation will be required to bring about the abolition of harmful government prerogatives in monetary matters. There is therefore an immense work of education to be accomplished, before we can hope to free ourselves from the most serious threat, inherent in the present monetary institutions, for social peace and continued prosperity.
“Freeing us from the gravest threat, inherent in present monetary institutions, to social peace and continued prosperity”
Before ending with: “What is now urgently required is not the construction of a new system but the speedy removal of all legal obstacles which have for two thousand years blocked the way to evolution enabling us to achieve the beneficial results which we cannot fully predict today.”
Any seizure of a supra entity on the currency is, for Hayek, destructive. “I don’t believe we’ll have good money until we take it out of government hands,” he says in a interview given at the University of Friborg in 1984. “We cannot violently remove it from the hands of the government. All we can do is sneak in something they can’t stop.”
And for the anecdote, we thank the Ministry of Economy, Finance and Industrial and Digital Sovereignty – hats off to the communication team for this concise name – of wrongly educating us about Hayekby making companies bear the hat of state monetary laxity: “This allows companies to borrow recklessly without taking sufficient account of real consumer demand. This lag leads to price increases in an attempt to compensate for unprofitable investments.
Marc Munier