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# Hayek and the Regression Theorem

Summary:
Hayek had a controversial plan for privately issued, competing fiat currencies. (I talk about it here.) But uh oh, here’s a giant in Austrian economics who might be throwing cold water on the proposal: It is probably impossible for pieces of paper or other tokens of a material itself of no significant market value to come to be gradually accepted and held as money unless they represent a claim on some valuable object. To be accepted as money they must at first derive their value from another source, such as their convertibility into another kind of money. In consequence, gold and silver, or claims for them, remained for a long time the only kinds of money between which there could be any competition… Bad news for Hayek and his privately issued “ducats,” huh?

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Don Boudreaux writes Quotation of the Day…

Hayek had a controversial plan for privately issued, competing fiat currencies. (I talk about it here.) But uh oh, here’s a giant in Austrian economics who might be throwing cold water on the proposal:

It is probably impossible for pieces of paper or other tokens of a material itself of no significant market value to come to be gradually accepted and held as money unless they represent a claim on some valuable object. To be accepted as money they must at first derive their value from another source, such as their convertibility into another kind of money. In consequence, gold and silver, or claims for them, remained for a long time the only kinds of money between which there could be any competition…

Bad news for Hayek and his privately issued “ducats,” huh?

Exceeeeeeeept, the above quotation is from Hayek himself, in his “The Denationalization of Money,” just 15 pages before he unveils his plan for ducats.

So what’s happening here is that Hayek was fully aware of (what we call) Mises’ regression theorem, and in fact apparently believed it himself. His proposal for “ducats” included a redemption pledge to get the private token money off the ground, so that the public would have a non-arbitrary way of initially valuing the notes:

Christian, Austrian economist, and libertarian theorist. Research Prof at Texas Tech and author of *Choice*. Paul Krugman's worst nightmare.