http://mengercenter.org/?p=306
While the U.S. government and other governments around the world certainly have Bitcoin in their sights, one of the greatest dangers to the success of that digital currency will be from some of its early adopters and advocates.
Bitcoin news website CoinDesk recently posted an article discussing a video created by the Dutch bank ING, in which one of their economists proposed an “improvement” to the Bitcoin protocol consisting of an algorithm to match money supply with money demand.
There is no algorithm that can match the supply of money with the demand for money. The demand for money consists of the individual demands of millions and billions of people, each one of whom is constantly reevaluating his demand in response to changing economic conditions.
To think that anyone could mathematically calculate the demand for money is a fool’s errand. Friedrich von Hayek dubbed this belief in reducing human action to an easily calculable scientific formula the “pretense of knowledge” in his 1974 Nobel Prize lecture. Market participants, according to Hayek, possess “a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain.” In other words, an algorithm to match supply and demand would require nothing less than omniscience, an absolute impossibility in this world.
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