One of the biggest criticisms that libertarians and many students of the Austrian Economics persuasion have is that bitcoins and other cryptocurrencies like it are not backed by anything tangible or real, such as gold and silver. Therefore, a lot of them dismiss bitcoins because it does not maintain a store of value.
What’s the solution? Well, Kentucky Republican Senator and possible 2016 presidential candidate Rand Paul says a basket of stocks – an updated version of the gold standard and Friedrich Hayek’s premise of a basket of commodities to back a currency.
Speaking in an interview with Fortune this week, Paul said that bitcoin should be backed by something that has a store of value.
“I was looking more at it until that recent thing [sic]. And actually my theory, if I were setting it up, I’d make it exchangeable for stock. And then it’d have real value. And I’d have it pegged, and I’d have a basket of 10 big retailers,” said the Tea Party favorite. “You could have a basket of stocks, and have some exchangeability, because it’s hard for people like me who are a bit tangible. But you could have an average of stocks, I’m wondering if that’s the next permutation.”
It is unclear if he will use bitcoins as a campaign fundraising tool in his potential bid for the White House in 2016. Paul confirmed that he has requested his staff to study the matter and come up with a sensible conclusion.
As was reported soon after the interview was published, many bitcoiners were befuddled by Paul’s recommendation. Cryptocoin News’s Kyle Torpey argued that bitcoins already have a store of value (censorship resistance and lack of counterparty risk), National Review’s Patrick Brennan said Paul’s proposal would have destroyed the foundation of bitcoin and Economic Policy Journal’s Robert Wenzel wrote that Paul is absolutely “clueless” about monetary policy and bitcoins.
“While Hayek did advance the idea of a basket of commodities as the basis for a currency, Murray Rothbard vehemently objected,” Wenzel wrote. “Though, it is unlikely that even Hayek would have been in favor of a basket of stocks, that is, a basket of liquid capital goods as a medium of exchange. It’s really kind of nuts to be walking around with a volatile vehicle such as the Dow Jones Industrial Average as your money.”
His father, meanwhile, says that he supports the concept behind a market of competing currencies, but he ultimately decided that bitcoin is not real money, unlike precious metals. This generated considerable heat for the three-time presidential candidate.
“Though I don’t personally believe that Bitcoin is true money, it should be perfectly legal and there should be no restrictions on it, there should be no taxes on it,” Ron Paul stated. “The people who operate Bitcoin would, of course, be prohibited from committing fraud but the people should be able to have competition whether it is a basket of commodities or crypto-currencies – it should be perfectly legal.”
Akin to what Wenzel noted, Hayek did indeed support a currency being backed by a basket of commodities, but Rothbard did not. However, Hayek did endorse the idea behind currency competition, a proposal that became the subject of debate throughout the 1960s, 1970s and 1980s was shot down by Milton Friedman.
At the time of this writing, bitcoin is trading at just under $450.