In the 1940s, Friedrich A. Hayek made a name for himself by opposing the trend towards economic planning which was developing in the UK according to his observations. Hayek recognized that this socialist trend was not so much the opposite of fascism as its predecessor.
At that time, such concerns were purely academic in nature. Nazi Germany engulfed Europe in violence and chaos, and Hayek saw what most others did not see: Nazism was the result of a long-term process of centralization, fueled by the desire for “planning”. Planning for the common good, planning for efficiency, planning for justice, fairness, equality and all other types of altruistic ideals.
Reading his most famous text, “The Road to Serfdom”, written during the most destructive period of the war, one can feel the despair in Hayek’s plea. He says to his countrymen: do not unwittingly follow the same path that your enemy has recently passed!
Hayek argued that the UK and much of the Western world had marginalised certain classically liberal principles in favour of what he called “enthusiasm for organizing everything”.
Hayek’s brilliant talent was to clearly demonstrate the causal (if not inevitable) connection between economic planning with good intentions, and the resulting deprivation of human prosperity, which is contrary to common sense.
It is obvious and natural (especially for educated intellectuals) to believe that thoughtful planning in society should lead to better results. Planning is important. And shouldn’t planning be the most important thing on the largest scale? Isn’t the government about planning society for us?
Hayek’s understanding, widely shared by Austrian economists, was that as the complexity of planning increases, it becomes unlikely that all the relevant information on which a rational plan is based is known to any one party, especially the party responsible for planning.
“This is not a dispute on whether it is necessary to plan or not. This is a dispute on whether planning should be carried out centrally, by one authority for the entire economic system, or should be divided among many people”, Hayek writes.
By establishing this dichotomy, Hayek reminds us that the opposite of centralized planning is the absence of any plans at all, but simply decentralized planning, also known as”market competition”.
Thus, our choice is between a central organization carried out by the state and a distributed organization based on the competition of individuals and firms.
Hayek passionately argues that as a society leans towards centralized planning and refuses competition, it must necessarily limit freedom and prosperity.
He was firmly convinced that individual freedom was the defining attribute of Western society, which was most under threat from socialism in general, and at that time Nazism in particular.
Thus, the planned economy is moving towards slavery. That was his point of view.
So, where did we all go after that terrible war?
Let’s look at modern society today, about 80 years after Hayek’s calls. At first glance, the economy of many countries of the world looks rather “unplanned”. Indeed, most Americans and Europeans believe that their economy is a market economy, and most complaints claim that excessive capitalism is the problem.
How many times have we seen cabinet activists smugly refer to the McDonald’s logo as proof that free-market capitalism is already here, even though it’s not so delicious?
Such people are firmly convinced of the need for more centralized planning. They always have one answer – increased regulation.
But for those who are familiar with Hayek’s work, and who care about monetary systems in this context, we are skeptical that we have any kind of open market today. Money is not only tightly regulated, but is centrally planned by some monopoly institutions.
And now we are faced with the question: is our economy primarily planned or unplanned?
Central planners have largely allowed the branches of the economic tree to grow freely, because they have found a much more important trunk, namely the money itself. They spend their days constructing and manipulating the roots of the system, not its branches, while society watches the fluttering leaves, believing that this is market capitalism.
Keep in mind that any trade in society involves two goods, and one of them is always money. Thus, money accounts for half of all trade, and yet there is practically no competition in the field of money. How can this be?
Either our market economy for some reason put up with the centralized planning of its most important good, or in fact, it is not a market economy.
It is worth remembering that in Hayek’s time, money was gold
Thus, the possibilities of centralized planning compared to money were limited. There wasn’t much to plan. Gold was a commodity, it could not be created or destroyed on a whim, and before the financialization of modern society, those responsible for monetary systems were more like mechanics than alchemists. Although they had some creative freedom, in the end they were still limited to despicable metal.
But then Bretton Woods happened. Many of Hayek’s contemporaries were there, but not Hayek. A meeting of planners usually does not attract many critics of planning. Here, a few gentlemen, in a hotel, under the noble banner of public interests and global stability, led the world a little away from disorderly market competition. Regulators agreed that money needs to be controlled.
Since then, money has been increasingly controlled by centralized planning authorities. By the early 1970s, even gold itself was not used, as it hindered this planning.
Money planning managers are no longer just mechanics, they have turned into alchemists. And that’s where the insidious serfdom, which Hayek warned about, crept in.
Today we are in a situation where the entire world economy relies on the words of one person and his minutes of meetings. For example, the Federal Reserve System is the main planner, and thanks to its financial plans, it becomes an indirect planner of a huge number of human lives.
And everyone unwittingly found themselves trapped in this system, seduced by the constantly erroneous trust that we place in politicians.
Perhaps we can agree that part of the success of the “Road to Serfdom” was the name itself.
Serfdom conveys to the modern consciousness a gloomy era of unconditional obedience. It conveys a predatory institutional hierarchy. This indicates the ignorance of an ordinary person of the injustice of his environment. It expresses a humiliating rejection of the principle that all men and women should be equal under the law, that no one person should have special legal privileges over another.
We have a clear disregard for serfdom for a long time, since we are still different. And the medieval lord had his own castle, and the modern lord has his own bank.
And just as the medieval serf is not inclined to question or oppose his master, and the modern citizen is not inclined to question or oppose his money.
Serfdom, which Hayek warned about, arose as a result of the gradual introduction of centrally planned money.
But then Bitcoin happened
“I don’t believe that we will ever have good money again before we take it out of the hands of the government. That is, we will not be able to forcibly remove them from the hands of the government,” Hayek once wrote. “All we can do is to introduce something in some cunning, roundabout way that they will not be able to keep”.
Hayek wanted society to adopt a decentralized order, not only because it was more efficient, but also because it was a better guarantor of human prosperity. This is a poetic tribute to the fact that Satoshi’s design for Bitcoin solved exactly this problem of a decentralized order in the field of money.
Bitcoin has solved a problem known as the Byzantine generals problem, which has been a long-standing problem in computer science. How can we get several parties to agree on something to avoid failures when some parties cannot be trusted?
Before Bitcoin, value systems, such as the monetary system itself, had to be centralized at scale, because disparate computers could not trust each other if there was no controlling authority – a lord, to use our analogy with serfdom.
Thus, before the advent of Bitcoin in 2009, it could be argued that Hayek’s call for decentralized competition was inappropriate. Money in our modern era had to be planned centrally.
And if money was planned centrally, how could a proper market ever be formed? It cannot be said that capitalism exists on a paper basis.
Fortunately, by allowing money to be used at scale and at a distance without centralized coordination, Satoshi made Hayek’s “unplanned economy” feasible in the modern context. Blockchains in general have become a new tool for economic coordination between strangers at a distance.
Both the coordination and the economic boom that occurred with the advent of this new technology were as inspiring as they were stunning.
In the face of instability, periodic disasters and stupid dog memes, people often lose sight of how important cryptocurrency has become as a social and economic phenomenon.
This is a phenomenon in which a fortune of $1.5 trillion was created in just over a decade. Where any person on Earth can instantly transfer value to any other person, and no one can interfere or stop it.
Where the value of any amount can be hidden in the brain and restored thousands of miles from where it was created.
Where credit and exchange markets have been formed to trade billions of dollars a day, but at the same time they do not have an office, a CEO and are not managed by any companies.
There are thousands of hypercomputing value systems experimenting with game theory and improving the state of cryptography itself.
And all this without a single damn state license related to any of them. The absolute opposite of every central planner, Bitcoin has been the most efficient financial asset in existence since it first attracted the British Chancellor and his rescue bank with its genesis block more than a decade ago.
According to any honest observation, cryptocurrencies are the greatest example of a rapid spontaneous order in a capitalist context in the entire history of mankind.
This would certainly have brought Hayek to tears.
And it would be completely predictable for Hayek, who said:
“Wherever the obstacles to the free exercise of human ingenuity were removed, man quickly became able to satisfy an ever-expanding circle of his desires”.
This is exactly what is happening in the cryptocurrency industry right now. Only since industrial freedom opened the way to the free use of new knowledge, science has achieved great success, which over the past 150 years has changed the worldview and the face of the world.
Everything can be tried in cryptography right now, and there are many people who are ready to support these experiments at their own risk. In cryptocurrency, competition is universal, it is intense, ruthless, and yet … it is peaceful.
The Crypto is Thriving Without Any Central Plan
Hayek would probably argue that it is thriving precisely because there is no central plan.
This is a space in which unrestrained capitalism manifests itself in all its glory. This is exactly what repels planners, and they are quick to point out the instability and periodic disasters that crypto investors face.
And there were many disasters. There was a lot of fraud, a lot of mistakes. Do not underestimate these things, as they are a symbol of any great milestone of human experience, this very important area, far beyond the horizon of the central planner.
It is often difficult to find pure examples of ideologies in the real world. Is America capitalist? Is China communist? And what is Russia like in general? Everything is not quite what it seems. Has central planning or open markets worked? The data is vague, and an inquisitive mind can weave almost any narrative out of them.
In cryptocurrencies, however, we have one of the best examples of an ecosystem close to the pure expression of ideology: in this case, the ideology of market competition without borders. No State can interfere with it at the technical level, and it is developing so quickly that even at the legal or political level, the state cannot effectively manage it.
This is one of the most interesting events taking place in the world today.
The crypt in general, and Bitcoin in particular, offer us an empirical demonstration of money and the financial system, unplanned by any government. On the contrary, we have a fiat currency and a banking system, the last fatal fantasy of centralized planning.
Unlike in Hayek’s time, we do not need to argue about the superiority of one of these systems over the other. Free market money appears in the world to compete with the Goliath establishment from a zero position. If he wins, the dispute is settled.
If we are lucky, but fortunately, without the permission of any planner, we will all witness how Hayek’s ideal of decentralization will manifest itself in the financial markets in the coming years.