Did Nobel Laureate Friedrich Hayek Predict Bitcoin 40 Years Ago?


Ever since money-making has been in private hands, even after the creation of US federal reserve system in 1913, an illusion was planted in public. ECB, or the US Fed, are among the ones to announce the interest of the people.

Sovereign nations are the ones with the right to create money. The reality is different despite the theme being extensively accepted.

The fractional-reserve banking has given commercial banks the authority to print most of the broad money in the arrangement. Be that as it may, they do fail to implement the law.

Privately owned commercial banks enjoy a valuable percent of interest from the above firms. For instance, the governance of the ECB is legally in the hands of six Executive Board Members in addition to the 19 Governors each from the national central banks of member states. It sounds as if the executive board got accredited by the ruling government but in the real sense, it’s not.

The criteria apply to all EU countries. Take a look at Italy, for instance: private banks and large insurance companies like Intesa, Sanpaolo, Assicurazioni Generali, and Unicredit are the owners of Banca d’Italia.

In the US, the situation is a little unclear, however, the abstraction is the same. Each of the 12 Federal Reserve Banks is owned by the nationally chartered banks which form part of the FED. Above all, the possibility of identifying the FRB members is equal to zero. Not easy to find.

Even so, monopoly still exists in money printing. Private banking sectors get tenders from the government. Regardless, the process got hidden by the manifestation of the Fed and ECD as independent institutions. Ironically, the government which recommends privately issued fiat money and makes official tender mandate defends these institutions. As a result, the government prolongs the advantages of the banking sector.

F.A. Hayek, the 1974 Economics Nobel prize winner and one of the acclaimed late members of Austrian School of Economics, wrote a pamphlet in 1976 entitled: “Denationalisation of Money.” In his brochure, he foresaw the development of discreetly supplied money which could compete among themselves and against government monopolies. In his view, it would defect all the patents as it hinders the recognition of superior systems of rewarding a need for which a monopolist had no motive.

His speculations, theories, and perspective about the benefits of a competitive regime for money never got evaluated. As it stands, the privileges and the monopoly of legal tender can’t be impeded by privately issued money. The government would directly ban it.

With the introduction of Bitcoin, Hayek’s assumption can still be put to the test. Bitcoin is the only private issued cash that has stimulated absolute pattern shift because of its decentralized mechanism: it has confronted the monopoly privileges. Bitcoin is impervious to censorship, geopolitical influence, and intimidation.

In other words, the government cannot attack Bitcoin without a central point of failure.

Indeed, we accept the fact that banking on monopoly has led to several misfortunes in the banking system. Besides, social variability has increased since 1929. Above all, the benefits of competing for money are yet to be realized.

Hayek anticipated in his pamphlet a reasonable money reign which enables currency price stability, store of value, preservation of purchasing power and usability as a unit of account and medium of exchange for daily investment.

Back in 2016, F.M. Ametrano, the Italian professor from the Universita’ Bicocca Milano and Politecnico di Milano, was one of the leading pioneers in favor of Bitcoin. He is advocating for the new leadership of competitive money foreseen by Hayek.

Professor Villaverde of the University of Pennsylvania recently studied the influence of cryptocurrency and the latest regime of competitive money enabled by Bitcoin. He has highlighted suspicions on the power of a system in competing currencies and to sustain price strength. Besides, any analysis might be archaic because, on the other hand, crypto is developing and experimenting at electric speed.

There is an indication of more cryptocurrencies to be created with different fortunes.

Still, these tokens that will be designed are likely to have same characteristics and specific market. This is a good reason for these tokens to coexist. There is the need for crypto that saves secure power and has a store of value, and for coins that can be used as a medium of exchange and unit of account. All these have emerged from the hiccups listed by Villaverde.

The developments in crypto are likely to solve issues such as ease of use, interoperability, and how to exchange crypto among subscribers.

Professor Villaverde, however, made one crucial point.

“The peril of competition from private monies inflict market regulation on any government that supplies money. For instance, if the central bank is unable to issue enough funds, it will execute issuance problems. For cryptocurrencies, this might be the best trait. Banks need to provide effectively a sufficient administration in a world where Bitcoin and Ethereum are cementing their presence. Competition in currencies might have an adverse effect on humans.”

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