Libertarians who are critics of bitcoin like to own a currency that is backed by something that is tangible and physical, such as gold and silver bullion. This is one of the premises behind the Austrian School of Economics, the economic theory supported by most libertarians today.
Kentucky Republican Senator Rand Paul, who claims to be a student of the Austrian School, spoke with Fortune this week to talk about technology, including the peer-to-peer decentralized digital currency bitcoin. Paul, who is considered to be a top 2016 presidential contender, said bitcoin is missing an important element: being backed by something that maintains 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 Paul, who cited Friedrich Hayek, an economist that lectured regarding a basket of commodities, but opposed by Murray Rothbard.
“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 remains to be seen if his political campaign will accept contributions in bitcoin. Paul noted that he has asked his staff to research the matter to determine if it’s feasible and legitimiate to allow supporters to donate in the digital currency.
For some libertarians, it’s an interesting premise what Paul is proposing. Some bitcoiners, meanwhile, say that it’s a terrible concept and it would have ruined the entire foundation of the cryptocurrency in the first place.
Kyle Torpey of Cyrptocoin News opined that bitcoin already has value of its own because it resists censorship and is not subject to counterparty risk. He added that it would be more prudent to back other currencies with bitcoins themselves.
“Attempting to back Bitcoin with gold would be like trying to back gold with silver,” wrote Torpey. “The bitcoin doesn’t need any help in the value department. It’s the first censorship resistant digital asset to exist. Bitcoin is the one who knocks.”
Patrick Brennan of the National Review, meanwhile, argued that Paul’s idea “would have ruined bitcoin.” He added that bitcoin is already fine as it is and if the proposal was instituted then it would establish an array of regulations from the United States Securities and Exchange Commission (SEC).
“If Rand Paul had been in charge of starting Bitcoin and followed this idea, in other words, it probably wouldn’t be where it is today. That doesn’t make his idea impossible, though, of course,” explained Brennan.
Economic Policy Journal’s Robert Wenzel, an Austrian Economics blog, labeled Paul as being “clueless” in relation to monetary theory and bitcoins. Wenzel noted that backing the virtual currency with a basket of stocks would incite a middleman and then counterparty risk.
“While Hayek did advance the idea of a basket of commodities as the basis for a currency, Murray Rothbard vehemently objected,” stated Wenzel. “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.”
Obviously Paul garnered some debate regarding his comments.