The Austrian Way: Why digital currencies could be the best thing since sliced bread

Since August 1971 we’ve been in what we’ve heard called the Bretton Woods II currency paradigm.

During this time we’ve seen all too present inflation, declining purchasing power of currencies, seldom balanced budgets and the growing power of central bankers.

This central planning in finance has unsurprisingly fuelled growing economic imbalances, unsustainable vendor-financing circuits and on-going currency wars.

Central planning in money hasn’t been serving us very well, with savers being trampled under Keynesian foot.

Whilst we think ultimately all of this is a fight against monetary gravity, destined to fail, recently new hope has arrived on the horizon.

New forms of private money

Technology and the internet are here to save the day once again, giving us the phenomenon of digital currencies.

Bitcoin, Bitcrap, Lightcoin, Feather coin and any other digital currencies you might have heard of are now emerging.

This phenomenon, powered by a small global army of anti-fiat, libertarian developers, coders, investors and hustlers, is bringing change and progress to the boring subject of money.

Digital currencies are private monies that are market based not centrally planned solutions. They are decentralised networks of money, owned, audited and guarded by their participants.

Sounds bloody odd you might say.

What do these geeks know that we don’t?

How the hell is this bringing change and improvement to money?

Defining money

As far as we and most others can see, money needs to be three things:

  • A means of exchange: money needs to be easily exchangeable for goods and services that I want to consumer. I need to be able to easily swap my money for food, drink, shelter etc.
  •  A unit of account: money needs to be an easy measuring stick, against which the value of goods and services can be quickly calibrated and valued. I need to be able to quickly work out that 1 grote buys me one pint, half a pack of fags or one thirtieth of a Sky Sports package.
  •  A store of value: money needs to be able to store the value of my labour, ideas and work today, to be able to be realised by me at a later point in time when I want to. I need to be able to save the value of my weekend’s work now, to then spend it in years to come when I buy a house, car, mail order bride or whatever.

Digital currencies have arisen due to concerns for this third point.

Having a monopoly over the issuance of money, the most important monopoly in any economy, allows wise men to err on too great a scale.

Fiat money issued by the state is a notoriously bad store of value. The temptation to print, clip coins and meddle is irresistible.

Here’s Aristotle on the problems of fiat money:

In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.

It’s all about the supply, stupid

Given that the value of money is determined by its supply and that fiat-money can be created so easily, digital currencies seek to provide new forms of money where supply is far more limited.

For example, Bitcoin is said to be restricted to a future population of 21 million Bitcoins.

These anti-fiat nerds want to provide us with an alternative to our heavily printed national currencies and savers who are currently getting raped in the on-going currency wars. They want to take monetary powers and supervision out of the hands of an oligarchy and spread it amongst us all.

We welcome the efforts of these code writing money geeks, because their movement is providing welcome competition into the monetary arena. It is also an alternative to central planning in money.

With competition comes change, evolution, innovation and generally better service and outcomes.

Whilst digital currencies are still young, immature and perhaps a few steps away from being truly fit for the market’s purposes, the rate of change, progress and improvement is truly breath-taking. There are few areas of the global economy undergoing as much creative destruction as digital money.

In praise of these new digital enigmas

Will digital currencies knock the dollar of its reserve currency perch? Will they survive the early noughties? Will we ever be able to use them easily and securely on the high street and online?

Digital currencies are truly new forms of what we and hero to Bogpaper, Kevin Dowd, refer to as private money. We welcome them with a smile.

Digital currencies could be the largest threat to central banking and fiat money in our lifetimes.

Potentially digital currencies could circumvent the communist legal tender laws we are all too often saddled with and allow Their’s Law (Google it if you’re bored…) to assert itself on a global scale never seen before.

How the phenomenon of digital currencies plays out is far from predictable, but we look forward to seeing the market’s search for better monies in action. At the moment it is engaged in new ways to wrestle monetary authority from the few to the many.

Good luck to you private money-making nerds.

Your contribution to the market for money is welcome, long overdue and to be applauded.

Vive la competition!

2 comments on “The Austrian Way: Why digital currencies could be the best thing since sliced bread

  1. Hampy
    July 13, 2013 at 10:12 am #

    I was bored. I did Google it but no success. Link please?

  2. theaustrianway
    July 14, 2013 at 6:27 pm #

    Thank for reading Hampy.

    This link should help you out! http://en.wikipedia.org/wiki/Gresham's_law#Reverse_of_Gresham.27s_Law_.28Thiers.27_Law.29

    Essentially Thiers Law is where good money drives out bad, where legal tender laws are not in effect, with the outcome that market participants only accept the better form of money and the lesser form disappears from trade and commerce.

    The best discussion of Thiers Law, and its opposite Gresham’s Law, I have ever found was by Prof Peter Bernholz in his book ‘Monetary Regimes and Inflation’. The good Prof is now Emeritus and often deemed one of the top minds in monetary economics. IMHO Paul Krugmann, Barry Eichengren and other deep cover Keynesians could benefit from reading this book.

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