John Nash didn’t hate Keynesians.
The ICPI or consumption index, that John Nash suggests would be the ideal basis for backing a currency, is really a theoretical point only. Hayek’s point about how only the markets can determine the proper prices for commodities becomes relevant here.
On the one hand ideal money is to be printed in relation to an ideal basket of commodities and on the other Adam Smith showed that excess monies printed beyond the value it represents, necessarily returns to the banks.
Nash points out this “return” necessarily effects price.
Thus the quality of a currency is seen in relation to the amount a currency grows or contracts with respect to the underlying value it represents.
There is a suggestion then that in order to reign in the suppliers of each respective currency (Keynesian/central banks), one simply needs to create a market for the currencies so the players can sort out the value.
Because of bitcoin, a decent (but not ideal!) barometer (and especially since it is available in each country), the result of market competition is that any currency wishing to survive must necessarily evolve to better represent it’s respective underlying ICPI.
The solution for “pegging” currency to an ICPI therefore happens without actually ever determining an ICPI or any formula or implementation for it.
There is then an asymptotic approach to global stability-a true monetary standard!
Hayek describes not only the fundamental problem of economics but also a very clever machine we might use to solve it.
The implications being that one can allow monetary policy to exist under proposed the scope of this problem, yet from a larger yet still relevant viewpoint Keynesian style banks can still be enticed (or forced) to enact monetary policy that tends towards a certain favorable type of stability. Exchange rate stability ensues as a product of a superior money in respect to each currency’s underlying basket of commodities it represents (without any persons actually knowing what those baskets consist of!).
Bitcoin is the carefully extrapolated implementation of the philosophical realization from “Idea Money”. Bitcoin is not ideal money but rather the ideal catalyst for change.
Hayek says the only way to most efficiently utilize the economic powers of society is to have an efficient pricing system.
Only the entirety of the markets can properly price commodities for this purpose.
Money is used to invest and grow the extent and value of the market.
Ideal Money is money with a predictable (stable) supply in relation to a properly weighted ICPI (optimal basket of commodities).
Nash says Keynesian inflation targeting policy proves it is possible to affect the quality of a currency.
Since only the markets can properly price commodities, and since ideal money functions in relation to an ideal basket of commodities, then only the markets can determine optimal currency supply.
The solution is to put each currency up on a market and have the “issuers” compete on a market in which the citizens or users of the currency vote with use on the quality of the currency, which in turn effects price.
Money suppliers of each currency are forced to participate because of the introduction of a decent (but not necessarily ideal) currency bitcoin, which is naturally better than all Keynesian currencies of its’ time because it has a stable inflation rate, the cost of production is fairly predictable, and every national currency can be exchanged for it (via internet).
The result is asymptotically ideal money, because the Keynesian bankers of the respective major currencies are forced to print a money that has a closer and closer relation to their respective regions’ ICPIs.
A currency that reflects such an ICPI will be well valued and a currency that does not well reflect its regions’ ICPI will be disfavored for a better one (such as a bitcoin).
The markets naturally determine “ideal-ness” of each currency and simultaneously put pressure on the currency issuers (as if they are producers of a commodity) forcing them to solve the incredible complex problem of creating an ideal money based on supply (and monetary policy).
The solution to a cooperative game attained by reducing it to its non-cooperative parts: use market knowledge and a strong well defined universal barometer (bitcoin) to force major currencies to trend towards stability in relation to the actual value each currency represents.
Ideal Money is the asymptotic result of this change.