Revisiting Hayek’s Free Market Money Vision

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Beginning in earnest in 1931, a series of epic debates commenced between two titans of economic policy. At one end of the spectrum was Friedrich Hayek, the Austrian-British titan who championed classic liberalism. On the other end of this imaginary platform stood Milton Friedman, a fellow champion of free markets. 

The back and forth between these two typically like-minded focused on whether competing currencies, promoted by private issuers, could create a more stable global monetary system. While Hayek was a proponent, Friedman was skeptical whether Hayek’s vision would ever become reality

This debate ensued into the mid-to-late 1970s, at a time when the dollar regime was the most unstable it had been since World War II. In the U.S. the Arab oil embargo sent gasoline, airline, and home heating prices soaring. In response, the Federal Reserve began releasing money onto the monetary system which had an adverse impact on purchasing power for everything else. The consumer price index, which typically moved at an efficient, modest pace, suddenly rose to a 14% annual rate

The Emergence of Bitcoin

Although Bitcoin’s emergence was decades away, the debate between the two economic sages now appears prescient. For crypto fans, Hayek’s views make him a key early adherent to a new monetary system, one where the government's monopoly over currency issuance is extended to the private realm. This, asserted Hayek, would foster much-needed monetary competition and allow people the freedom to choose their own currencies. 

In other words, Hayek believed that markets, not states, were the true accelerant for individual liberty once noting that “a policy which deliberately adopts competition, markets, and prices as its ordering principles.” 

Expanding upon this view in his perennial bestselling book “The Road to Serfdom,” Hayek argued that Germany and the Soviet Union’s economic missteps were tied to state planning, believing that it hindered the natural flow of markets, disrupted liberty, and established a linear path toward serfdom based slavery. 

In a 2012 study of virtual currencies, the European Central Bank noted that “the roots of Bitcoin can be found in the Austrian school of economics,” of which Hayek was a key adherent and advocate. Today, many libertarians would likely argue that crypto is an important alternative to government monetary control, upending its monopoly on how money is circulated, as well as its influence on credit and interest rates. 

Yet, Hayek himself was skeptical about whether his proposal around a private monetary model would ever be adopted, to the point where in the 1980s he came to view it as “completely utopian.” 

In an interview given at the University of Freiburg in 1984, he concludes:

“I don’t believe we shall ever have good money again before we take it out of the hands of the government.  We can’t take it violently out of the hands of the government. All we can do is by some sly, roundabout way to introduce something they can’t stop.”

This is where many believe that Hayek was most prophetic, for the meteoric rise in cryptocurrency in recent years appears to be that very “sly, roundabout” solution that he advocated for. 

Today, anyone can securely open a crypto account from their mobile device allowing them their own private form of money. Moreover, the market-driven crypto market is in alignment with Hayek’s vision of free markets acting as the transactional engine for goods and services within an economy. Cryptocurrency in other words is predicated on a voluntary agreement among those participating in a digital free market ecosystem. 

Despite crypto’s continued rapid advancement, this digital economy model will face increasing resistance from governments in the years hindering its mass adoption. Market volatility, privacy issues, interoperability, all criticism that Hayek would share, will continue to be key areas of pushback. 

Eric Voorhees one of the world’s top crypto advocates and thought leaders who founded bitcoin startup Coinapult and crypto exchange ShapeShift in a June 19, 2021 article entitled Decentralized Cryptocurrency Systems and Hayek’s Unplanned Economy for the American Institute for Economic Research opined:

“Hayek wanted to see society embrace decentralized order, not just because it was more efficient, but because it was the best guarantor of human flourishing. It is a poetic tribute that Satoshi’s design for Bitcoin solved this exact problem of decentralized order in the realm of money —the exact realm under which we’d all become serfs under a regime of fiat.”

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