In 1946, one of Friedrich Hayek’s best works was published, “The Use of Knowledge in Society”, which would then allow him to be awarded the Nobel Prize in Economics about 30 years later. 75 years have passed since the publication of that extraordinary work and we can still learn the lesson taught. No matter how much he, and Mises more than him, warned against the presumptuous knowledge of individuals supposedly wiser than everyone else: the proverbial “power grabbing” by central planners is now more rampant than ever. And, let’s not forget, that this result was also possible thanks to a bevy of neoclassical/Keynesian/monetarist economists who endorsed the supremacy of a small group of individuals over society by snatching its soul from economic science: methodology.
Mathematical modeling is not a survey methodology, but a useful tool to better understand the economic environment. The advantage of the Austrian School of economics, in fact, is that of presenting students with a theoretical sector that starts from the philosophy at the basis of economic science, without the need to resort to unsuccessful and overly simplified constructs such as the proverbial homo oeconomicus. Therefore, a simple and complex truth about human beings is recognized: they act in an environment of scarce means that they use to achieve certain ends. What is more statistically certain than the action of human beings? Metabolizing this concept allows us to understand that the spontaneous order that emerges from the interaction between individuals and their mutually beneficial exchanges is a process that allows us to achieve prosperity and well-being. But it must be as free as possible from artificial interference.
Hayek argues that the price system in a market economy provides information that individual producers merge with local knowledge to decide what to produce and how to produce it. Local knowledge can take many forms, for example, it can be geographic: where is the best land for growing potatoes? Or it can be technological: what is currently the best way to trade without your privacy being violated? Hayek’s work has important implications, especially for determining whether economic decisions should be made by central planners or by the spontaneous order of the free market. The main problem is not that central planners are corrupt or stupid, although sometimes they really are. No, the main problem with central planning is that large numbers of individuals have local knowledge that cannot be collected and processed by even the most noble and intelligent planner.
And this is especially true for a very important field: that of monetary policy. In short, central bankers do not and may not have the knowledge necessary to create macroeconomic stability. This is why central planning fails: it destroys the source of knowledge that enables economic efficiency in markets. Can the central banking system achieve some sort of monetary balance? The answer is no. Central bankers do not have access to a real-time feedback process that conveys the status of the money market. This is the type of information that cannot be exploited from the top down, but can only be generated from the bottom up. Because, remember, money is not the end of the exchange but the means. Through the means, central planning intends to influence the behavior of market players as much as possible.
Models, unconventional tools and financial macro-engineering have all proved to be one failure after another. The most likely outcome is that central banks will be forced to turn their fiat currencies into digital assets. The Fed will almost certainly lose control over the financial markets as it is forced to inflate the dollar. Foreigners will dump the dollar, fixed income assets and stocks. In fact, the latter are inflated by central banks through QE up to out-of-world valuations, a policy destined to fail when interest rates must necessarily rise. And this will lead to a bear market along the lines of that in 1929-32.
This opens the door to the world of cryptocurrencies, especially Bitcoin Cash which keep the promise in Satoshi’s white paper: P2P electronic cash. In fact, Bitcoin Cash is an attempt to preserve wealth by putting it out of the reach of states and central banks, scaling the world in a cheaper and more user-friendly way. The world economy will continue to suffocate until there is a Great Default. When it starts, the establishment will be hindered at all levels and the era of expanding central planning will end. Public spending and taxation will go out of control, and to seek and bypassing the obstacle is placing an enormous debt on the shoulders of taxpayers. This may go on for some time, but its end is certain. Herbert Stein was right.
However, we are not headed for national disintegration. Thanks to crypto we are heading towards a restoration of those foundations that make a nation solid. Some sacred cows will be slaughtered along the way, but not the entire nation. Those who depend financially on the promises of politicians will suffer a severe blow. Younger and more attentive voters have understood that Bitcoin Cash represents a fundamental loophole – a reliable means of achieving their ends and preserving their wealth.