F.A. Hayek was a Nobel-prize winning economist. In the 1970s, in the middle of a punishing recession and inflationary period that lasted into the beginning Ronald Reagan’s presidency, Hayek proposed that the solution to government-caused inflation and its associated problems was to allow the issuance of private, irredeemable money to compete with fiat issued by governments in a book called “The Denationalisation of Money.” Decades before Bitcoin or anything like it had been conceived, at a time when even online checking would have seemed futuristic to everyday people, Hayek believed that private currency would encourage competition and that a variety of sound money options would arise as a result.
William J. Luther, the director of the American Institute for Economic Research’s Sound Money project, writes in a recent article that in many ways Bitcoin and the crypto market generally fulfill the vision that Hayek had. He notes that critics of the “denationalization” plan were correct in some of their assumptions, like the fact that once a lot of people are using a given private money, there’s a high incentive to inflate the currency, i.e., sell more notes without real accountability.
However, blockchain-enabled cryptocurrencies solve this problem, by and large, with a fixed issuance schedule that cannot be altered by a single participant. Indeed, for an inflation plan to ever succeed in something like Bitcoin would require the collusion of nearly all its participants. Not that it hasn’t happened before, but in that case, as expected, the participants hard-forked away from the chain that had been victimized.
And just as Hayek believed, such a move would only make alternatives which had not succumbed to such debasement that much more attractive.