In 1976, Friedrich A. Hayek wrote a book called ‘The Denationalization of Money’, where he asserted that every individual or organization should be allowed to issue their own currency.
According to him, the central banks would keep their privilege of issuing dollars or francs, but other institutions would be allowed to compete in creating money, offering currency under their own brand.
Hayek was confident that the ducats he envisioned, issued so that prices expressed in them stayed constant, would take out the dollars or sterlings.
Here's how Hayek's conception was truncated and cryptocurrencies appeared. Keynes also suffered from other problems!
The problem is that the dollar and the sterling are backed by strong, diversified economies. Alternative currencies are not, so they have to get blank checks. Conversely, the economies of the United States, of the Eurozone and of the United Kingdom are tangible references, and the money they issue are connected with the whole gamut of products and services.
Cryptocurrencies are linked to a much smaller, qualitatively poorer offer than the euro, the dollar and the pound.
They do not generate trust; they are just a response to the quantitative easing (QE) practiced first in the Anglo-Saxon world, then in the Euroland.
And a very serious question is, what happens to the alternative currencies when their references disappears? They are not anchored in demand and supply, like the said reference – it is mere leverage. Of course, the reference too lacks intrinsic value, unlike a century ago, when one could take a banknote to a bank and get its equivalent in a certain value – a couple of grams of gold or silver.
To the difference of the past, money nowadays certify fluctuating property rights on a certain amount of goods and services. Sadly, the uncertainty and volatility result from the oscillation of that amount according to the inflation of monetary mass by the central bank. Even so, the dollar, euro and pound are better instruments of exchanges.
Don’t take my word on it; listen to someone who asserts a central bank allowed discretion on the money offer is a fox in a henhouse. He’s Murray N. Rothbard.
He nevertheless says that money are not sought for themselves, but because people trust that the money-merchandise will be easily accepted by anyone in exchange. People even accept paper tickets marked as “dollars”, not for their aesthetic value, but because they are certain to be able to sell them for the goods and services they want.
Money cannot be made up of thin air, through a social contract or by issuing paper tickets with new names, Rothbard adds. They must stem from a valuable non-monetary merchandise. In practice, precious metals like gold and silver, which are in high and constant demand per weight unit, acquired the role of money against other merchandises. And if money is still called ‘geld’ or ‘argent’ in some languages, the ancestral support is evident.
Mises’s regression theorem proves that money must have their origin in a non-monetary useful merchandise traded on a free market.
Rothbard underlines that the essential problem of Hayek’s ducat is that no one would accept it. The tickets with new names could not hope to compete against the dollars and the pounds, which appeared as gold and silver weight units and have been on the market for centuries as a means of exchange and instrument of monetary calculation and accounting.
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