The Re-levation of Hayek: An inquiry into Denationalisation of Money
Hayek's Denationalisation of Money: The argument Refined starts with a premise and lays the grounds for the unfolding of a global economy that would emerge post Keynesian society when national authorities no longer have monopoly rights on currency creation and monetary policy.
The premise that he starts with is comparable to the introduction/advent of bitcoin as a new form of (digital) gold, which if kept stable enough in value, would spark the political evolution that Hayek describes in great and simple detail.
Below are the excerpts that are most relevant and significant in painting the picture of the world we now face ever since Satoshi Nakamoto's bitcoin experiment smashed the legacy of government monopoly over the creation of money:
The purpose of this scheme is to impose upon existing monetary and financial agencies a very much needed discipline by making it impossible for any of them, or for any length of time, to issues a kind of money substantially less reliable and useful than the money of any other. As soon as the public became familiar with the new possibilities, any deviations from the straight path of providing an honest money would at once lead to the rapid displacement of the offending currency by others. And the individual countries, being deprived of the various dodges by which they are now able temporarily to conceal the effects of their actions by 'protecting' their currency, would be constrained to keep the value of their currencies tolerably stable.
The idea of depriving government altogether of its age-old prerogative of monopolising money is still too unfamiliar and even alarming to most people to have any change of being adopted in the near future. But people might learn to see the advantages if, at first at least, the currencies of the governments were allowed to compete for the favor of the public.
It has the defects of all monopolies: one must use their product even if it is unsatisfactory, and, above all, it prevents the discovery of better methods of satisfying a need for which a monopolist has no incentive.
But the people have never been given the opportunity to discover this advantage. Governments have at all times had a strong interest in persuading the public that the right to issue money belongs exclusively to them.
A money deliberately controlled in supply by an agency whose self-interest forced it to satisfy the wishes of the “users” might be the best. A money regulated to satisfy the demands of group interests is bound to be the worst possible.
It is perhaps significant, however, that Adam Smith does not mention the control of the issue of money among the 'only three duties [which] according to the system of natural liberty, the sovereign has to attend to'.
It seems to me to be fairly certain that:
(a) a money generally expected to preserve its purchasing power approximately constant would be in continuous demand so long as the people were free to use it;
(b) with such a continuing demand depending on success in keeping the value of the currency constant one could trust the issuing banks to make every effort to achieve this better than would any monopolist who runs no risk by depreciate his money;
(c) the issuing institution could achieve this result by regulating the quantify of its issue; and
(d) such a regulation of the quantity of each currency would constitute the best of all practicable methods of regulating the quantity of media of exchange for all possible purposes.
This is the process by which the unreliable currencies would gradually all be eliminated. The condition required in order that this displacement of the government money should terminate before it had entirely disappeared would be that government reformed and saw to it that the issue of its currency was regulated on the same principles as those of the competing private institutions. It is not very likely that it would succeed, because to prevent an accelerating depreciation of its currency it would have to respond to the new currencies by a rapid contraction of its own issue.
I have never doubted that the public at large would be slow in recognizing the advantages of such a new currency and have even suggested that at first, if given the opportunity, the masses would turn to gold rather than any form of other paper money. But as always the success of the few who soon recognize the advantages of a really stable currency would in the end induce the others to imitate them
I am certain that many of the present leaders of the profession will not be able to conceive how it could possibly work and therefore will describe the whole system as impracticable and impossible.
Once public had an alternative, it would become impossible to induce it to hold cheap money, and the desire to get rid of currency that threatened to depreciate would indeed rapidly turn it into a dwindling money. The inflationists would protest because in the end only very 'hard' money would remain. Money is the one thing competition would not make cheap, because its attractiveness rests on it preserving its 'dearness'.
Since it has become generally understood that whoever controls the total supply of money of a country has thereby power to give in most situations almost instantaneous relief to unemployment, even if only at the price of much unemployment later, the political pressure on such an agency must become irresistible.
We indeed begin to see how completely different an economic landscape the free issue of competitive currencies would produce when we realize that under such a system what is known today as monetary policy would neither be needed nor even possible. The using banks, guided solely by their striving for gain, would thereby serve the public interest better than any institution has ever done or could do that supposedly aimed at it. Irresistible.
...it is really a crime like theft to enable some people to buy more than they have earned by more than the amount which other people have at the same time foregone to claim.
When committed by a monopolistic issuer of money, and especially by government, it is however a very lucrative crime which is generally tolerated an remains unpunished because its consequences are not understood. But for the issuer of a currency which has to compete with other currencies, it would be a suicidal act, because it would destroy the service for which people did want to hold his currency.
Because of a lack of general understanding, the crime of over-issue by a monopolist is still not only tolerated but even applauded.
Neither I, nor apparently anybody else, then thought of the much more effective discipline that would operate if the providers of money were deprived of the power of shielding the money they issued against the rivalry of competing currencies.
The gold standard, fixed rates of exchange, or any other form of obligatory conversion at a fixed rate, served no other purpose than to impose upon the issuers of money such a discipline and, by making its regulation automatic, to deprive them of the power arbitrarily to change the quantity of money.
Though gold is an anchor-and any anchor is better than a money left to the discretion of government-it is a very wobble anchor. It certainly could not bear the strain if the majority of countries tried to run their own gold standard. There just is not enough gold about.
Money which is current only because people have been forced to accept it is wholly different from money that has come to be accepted because people trust the issuer to keep it stable.
...the control over the supply of money gives national governments more power over actions which are wholly undesirable from the point of view of international order and stability.
The two goals of public finance and of the regulation of a satisfactory currency are entirely different from, and largely in conflict with, each other.
Nothing can be more urgent than that we dissolve the unholy marriage between monetary and fiscal policy.
I do not think it an exaggeration to say that it is wholly impossible for a central bank subject to political control, or even exposed to serious political pressure, to regulate the quantity of money in a way conducive to a smoothly functioning market order. A good money, like good law, must operate without regard to the effects that decisions of the issuer will have on known groups or individuals.
For the vast majority of people the appearance of several concurrent currencies would merely offer them alternatives; it would not make necessary any change in their habitual use of money. Experience would gradually teach them how to improve their position by switching to other kinds of money.
...there would be no important necessary change in the conduct of business or unavoidably difficult adaptations.
The urgency of these steps derives from the fact that, once the displacement of the hitherto exclusive currency by new currencies had commenced, it would be rapidly speeded up by an accelerating depreciation that would be practically impossible to stop by any of the ordinary methods of contracting the circulation. Neither the governments nor the former central banks would posses the reserves of other currencies or of gold to redeem all the old money the public would want to get rid of as soon as it could change from a rapidly depreciating currency to on int had reason to believe would remain stable. It could be brought to trust such a currency only if the bank issuing it demonstrated a capacity to regulate it in a precisely the same manner as the new issue banks competing with it.
Indeed it would be the day of final triumph of the new system when governments began to prefer to receive taxes in currencies other than those they issue!
Good money can come only from self-interest, not from benevolence.
I fear that since 'Keynesian' propaganda has filtered through to the masses, has made inflation respectable and provided agitators with argument which the professional politicians are unable to refute, the only way to avoid being drive by continuing inflation into a controlled and directed economy, and therefore ultimately in order to save civilization, will be to deprive governments of the power over the supply of money.