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In _Denationalisation of Money_, Hayek supposed that competing private fiat-like monies would vie for market share by demonstrating their stable purchasing power. But, as I observed many years ago, Hayek overlooked something of fundamental importance. https://twitter.com/GeorgeSelgin/status/1390339358125928451">https://twitter.com/GeorgeSel...
He assumed that private individuals, in deciding which monies to prefer, would judge them by their _macroeconomic_ merits. In that case, the macroeconomically best would win. Hayek assumed this would mean those with the most stable purchasing power.
Granting Hayek& #39;s assumption for the sake of argument, his conclusion was a non-sequitur. In choosing what money to prefer, why would people act differently than they do in choosing other goods or assets? Why not pick the fiat-like money promising the greatest _private_ gains?
That could mean preferring not stable purchasing-power products but ones that could appreciate. And of course, if enough did so, the expected appreciation would become a self-fulfilling prophesy, with consequences quite unlike those predicted by Hayek& #39;s theory.
First, if the chosen product did indeed become "money," that is, the dominant medium of exchange and unit of account, it would bring deflation, and possibly very severe deflation--a potentially serious problem in the presence of downward nominal price and wage-rate rigidities.
But the second and more fundamental problem was that, precisely because it offered such high returns, the chosen medium would be held (or, in today& #39;s vernacular, HODLed), rather than routinely exchanged for goods and services.
That is, the very qualities that made it more popular that rival products would also prevent it from every becoming "money," meaning a widely-used medium of exchange and account. Instead, it would serve only or overwhelmingly as a pure "store of value" or investment medium.
Nor are these the only problems with Hayek& #39;s theory. As @lawrencehwhite1 and others have shown, even if an issuer of a stable purchasing power "private fiat money" succeeded in gaining a large market share, it might then profit by breaking its promise and issuing oodles of it.
It& #39;s partly for this reason that monies freely convertible into commodities "won out" in historic currency competitions.
Whether any modern cryptocurrency can succeed in overcoming these problems remains to be seen.
