40 years ago today: Nobel laureate in economics Hayek wanted a money like Bitcoin

The legendary interview in which Friedrich August Hayek longed for a money like Bitcoin is 40 years old today. In the interview, the Nobel Prize-winning economist drew attention to the shortcomings of state-monopolized currencies and advocated the denationalization or denationalization of money. Some of the statements often quoted in the Bitcoin community originate from this interview. Some Bitcoiners even assume that Bitcoin inventor Satoshi Nakamoto was inspired by views such as those of Hayek.

Alongside Ludwig von Mises, Friedrich August Hayek is one of the most influential representatives of the Austrian School of economics, which advocates a free market economy. Born in Austria, he is also one of the most important thinkers of libertarianism in the 20th century. Hayek made a major contribution to economics with his work on how prices transmit information and control the economy.

Ten years before the famous interview, Hayek was awarded the Alfred Nobel Memorial Prize in Economic Sciences together with Gunnar Myrdal for their profound analyses of the interdependence of economic, social and institutional relationships. The economist died in 1992 at the age of 92.

The interview, which is 40 years old today, makes it clear that the current monetary system has not only been subject to concrete criticism since the invention of Bitcoin. At the beginning of the interview, Hayek explained that governments are holding back the further development of money and that our money has actually become worse over time.

Governments say that it must not develop any further. And what we have had since then is government intervention, which is mostly wrong, mostly a misuse of money. And I have come to the position of asking whether monetary policy has ever done any good. I don't think so. I think it has only done harm and that is why I am now arguing for what I call the denationalization of money.
F_{.A. Hayek}

The Nobel Prize-winning economist was generally concerned that the quantity of money should be stable, but he was certain that people would never be able to achieve this through a decent monetary policy.

The worst thing that could happen would be if mankind ever forgot the quantity of money. [...] It is true that the price level is determined by the money supply, but we never know what the money supply is in this sense.
F_{.A. Hayek}

Hayek therefore did not share the theory of today's mainstream economists that "a little inflation" would be good. He criticized this view in the interview with John Maynard Keynes, the economist on whom today's economic theory, which attempts to justify state intervention in the market, is based.

[Keynes] had the illusion that a little inflation is good. But too much is not. He was one of the smartest men I knew, but he was not a really competent economist.
F_{.A. Hayek}

Probably the most important overlap between the economists of the Austrian School and the Bitcoin proponents is that they want free competition for money. This would mean that, as in any other market, the best good - in this case the best money - would prevail. The money that would presumably emerge as the winner would be a scarce and correspondingly stable money that also has important characteristics such as good transportability, divisibility, etc.

For centuries, the state has dictated which money citizens must use and accept. As a rule, people are forced to pay taxes in the state currency. In this way, governments create a demand for their otherwise worthless fiat money, which they can print at will in cooperation with the central bank in order to expand the state's influence and scope for action. At the same time, governments usually impose taxes on alternatives or even ban them completely in order to make them unattractive as a means of payment.

When asked how free money competition could be established, Hayek replied that "governments will never allow it". Hayek also predicted that banks would never support it, as they are now dependent on central banks as lenders of last resort. Accordingly, the Austrian argued for a kind of detour in order to implement free money.

Hayek considered a return to the gold standard to be nonsensical or impossible. Accordingly, the then 84-year-old presented an unconventional proposal.

So although I sympathize with the gold standard people, I don't think this is a possible way forward. I think that in the long run only a much more radical proposal will be feasible.
F_{.A. Hayek}

As money was already arbitrary at the time of the interview due to credit cards etc., the Austrian suggested a kind of cash book or "list of accounts" as an alternative. The reasoning behind this was that governments would find it difficult to prevent people from opening an account in "anything". Hayek's idea was that a large commodity trader could initially maintain this ledger, which everyone would then adopt over time due to network effects and a high level of trust.

So I think we can forget about the existing money and the existing banks and gradually introduce an account system that will replace state money.
F_{.A. Hayek}

The interviewer James U. Blanchard III jokingly said that this monetary unit would one day be known as "the Hayek". Hayek himself, however, spoke of the "solid" (en. solid = stable, firm).

Even if Hayek was imprecise about what he thought the perfect money or cash book should look like, he was describing something similar to what Satoshi Nakamoto had invented with Bitcoin. Bitcoin is a free money with a fixed money supply that cannot be manipulated. It is the only decentralized "cash book" that already has strong network effects and enjoys a high level of trust.

His idea of how this money could prevail despite the expected headwinds from governments also applies to the dynamics of Bitcoin. Bitcoin is designed in such a way that no one can stop it, as the 15-year history of Satoshi Nakamoto's creation has shown several times. Bitcoin is the peaceful revolution against the current monetary system, so to speak, and it is unstoppable.

I don't think we'll ever have good money again until we take the thing out of the hands of the government. That is, we can't take it out of the government's hands by force, all we can do is introduce something through some clever detours that they can't stop.
F_{.A. Hayek}