Hayek and the Denationalization of Money

Discussion

Stefan Eich:

“EM: Hayek’s 1975 address at a London free-market think-tank – expanded into a remarkable brochure titled The Denationalization of Money ¬– made a case for the complete removal of the state from the process of issuing money. Money issuance would, thus, be completely privatized, in order to “protect money from politics.” Before we discuss the influence of this essay on the proponents of Bitcoin and other crypto-currencies, could you give us some context to Hayek’s intervention? What were the historical conditions (e.g. the demise of Bretton Woods, skyrocketing inflation) that made him take such a position – something of a departure from his earlier stance, which still granted the state some authority over monetary matters?

SE: It’s in the context of the Great Inflation of the 1970s that Hayek gives up his prior acceptance of central banking and essentially becomes radicalized. In his 1974 Nobel speech and in his correspondence, one can find him making grand pronouncements about how inflation will lead to the collapse of Western civilization and the loss of the Cold War. For him the perceived stakes could not have been higher!

As important as his change of mind is, however, the change in perception among his audience is probably equally important. By 1976, these kinds of pronouncements – which would have been shrill beforehand – had arrived in the mainstream. In the fight against inflation, politicians had gradually adopted a military language of combatting a skilled enemy and the ground was prepared for Hayek to launch a radical missive that would have been shocking a decade earlier.

All that happens, of course, in the wake of the collapse of the Bretton Woods system and a disorienting new global economic world in which exchange rates are now freely fluctuated. This uncertainty was further compounded by attempts on the part of first OPEC and then the G77-backed New International Economic Order (NIEO) to fundamentally alter global economic relations. Finally, on the level of theory, there is the rather violent breakdown of the postwar Keynesian consensus, which opens the door to radical ideas in economics, such as monetarism, that had been seen as crude and fringe beforehand. Hayek is able to capture all that anxiety and uncertainty when articulating his proposal to rob states of their ability to issue money.“

(https://the-crypto-syllabus.com/stefan-eich-on-hayek-and-money/)

Anti-Fiat Strategies for the Denationalization of Money

Stefan Eich:

“On the level of rhetoric, we can distinguish between two distinct strategies. The first, closely associated with Bitcoin and its early adopters, offers a vision of money not just beyond the state but liberated from all politics. This is the original Bitcoin vision of money beyond trust and hence beyond any form of power or politics. It draws heavily on what Fred Turner has called the anti-political side of the counterculture that morphed into cyberculture over the course of the 1980s. Much of the early cypherpunk vision of electronic money drew on that anti-political strand of the counterculture.

But, and one cannot stress this enough, this is obviously a complete delusion and a very dangerous one. Power, trust, and politics will always form part of money and the same is true for cryptocurrencies, including Bitcoin, as anyone will attest who has spent any time studying them.

From the oligopolistic power of miners, to the associated energy consumption, to underlying questions about the design of the consensus protocol, to disputes over so-called forks in the blockchain, politics and power don’t disappear and their imprints can be found all over crypto.

A second set of strategies essentially grants as much and is no longer wedded to the claim of crypto is beyond politics, but it adds a different perverse twist. Decentralization is on this account no longer presented as allowing us to transcend politics, but instead as allowing for a new democratization of money. Where the first rhetorical strategy is a (self-)delusion, this is a sleight of hand based on a bizarre understanding of democracy. Democracy on this reading is a libertarian fiction opposed to the state and any form of mass politics. Alongside crypto, much of FinTech and decentralized finance today has adopted the slogan of “democratizing money” or “democratizing finance.” Not only is that an empty meaning of democracy, but it’s one that conflicts directly with what political theorists actually consider essential to democracy: namely, forms of collective decision-making based on the egalitarian principle of “one person, one vote.”

Instead of this basic democratic principle, the crypto conception of democracy is essentially the old neoliberal aspiration of “one dollar, one vote.” Contrary to egalitarian conceptions of democracy as a form of rule based on collective agency, the FinTech fantasy of democracy as decentralization is simply the freedom of the strong trumping that of everyone else – only now wrapped up in the gibberish of blockchain-speak.”

(https://the-crypto-syllabus.com/stefan-eich-on-hayek-and-money/)

More information

• The Arusha Initiative for the Democratization of Money at the Global Scale