The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

In the absence of gold convertibility and with the ability to disperse the costs of inflation on the rest of the world, the only winning political formula consisted of increasing government spending financed by inflation, and every single presidential term in the postwar era witnessed a growth in government e...

The second problem was that some countries started trying to repatriate their gold reserves from the United States as they started to recognize the diminishing purchasing power of their paper money.

Gold reserves were running low, and

on August 15, 1971, President Richard Nixon announced the end of dollar convertibility to gold, thus letting the gold price float in the market freely.

In effect, the United States had defaulted on its commitment to redeem its dollars in gold. The fixed exchange rates between the world's currencies, which the IMF was tasked with maintaining, had now been let loose to be determined by the movement of goods and capital ...

Everyone and everything was blamed for the rise in prices by the U.S. government and its economists, except for the one actual source of the price rises, the increase in the supply of

the U.S. dollar.

Most other currencies fared even worse, as they were the victim of inflation of the U.S. dollars backing them, as well as the inflati...

This move by President Nixon completed the process begun with World War I, transforming the world economy from a global gold standard to a standard base...

“a system of partial barter.”13 Buying things from people who lived on the other side of imaginary lines in the sand now required utilizing more than one medium of exchange and reignited the age-old problem of lack of coincidence of wants. The seller does not want the currency held by the buyer, and so the buyer must purchase another currency first, and incur

conversion costs.

The market for foreign exchange, at $5 trillion of daily volume, exists purely as a result of this inefficiency of the absence of a single global homogeneous international currency.

The total U.S. M2 measure of the money supply in 1971 was around $600 billion, while today it is in excess of $12 trillion, growing at an average annual rate of 6.7%. Correspondingly, in 1971, 1 ounce of gold was worth $35, and today it is worth more than $1,200.

The relatively stable and strong currencies of the developed countries have usually had growth rates in the single digits, but with a much higher variance, including contractions

of the supply during deflationary recessions.

Developing country currencies have at many times experienced supply growth rates closer to those of consumable commodities, leading to disastrous hyperinflation and the destruction of the wealth of holders.

During hyperinflationary periods, people in developing countries sell their national currency and buy durable items, commodities, gold, and foreign currencies. International reserve currencies, such as the dollar, euro, yen, and

Swiss franc, are available in most of the world, even if in black markets, and meet a significantly high portion of the global demand for a store of value.

Growth at 5% per year may not sound like much, but it will double the money supply of a country in only 15 years.

Hyperinflation is a far more pernicious phenomenon than just the loss of a lot of economic value by a lot of people; it constitutes a complete breakdown of the structure of economic production of a society built up over centuries and millennia. With the collapse of money, it becomes impossible to trade, produce, or engage in anything other than scraping for the bare essentials of life. As the structures of production and trade that societies have developed over centuries break down due to the inability of

consumers, producers, and workers to pay one another, the goods which humans take for granted begin to disappear.

Capital is destroyed and sold off to finance consumption. First go the luxury goods, but soon follow the basic essentials of survival, until humans are brought back to a barbaric state wherein they need to fend for themsel...

this is a process that has occurred fifty-six times since the end of World War I, according to research by Steve Hanke and Charles Bushnell, who define hyperinflation as a 50% increase in the price level over a period of a month.

History has shown that governments will inevitably succumb to the temptation of inflating the

money supply.

government will always find a reason and a way to print more money, expanding government power while reducing the wealth of the currency holders. This is no different from copper producers mining more copper in response to monetary demand for copper; it rewards the producers of the monetary good, but punishes those who choose to put their savings in copper.

Should a currency credibly demonstrate its supply cannot be expanded, it would immediately gain value significantly.

In 2003, when the United States invaded Iraq, aerial bombardment destroyed the Iraqi central bank and with it the capability of the Iraqi government to print new Iraqi dinars. This led to the dinar drastically appreciating overnight as Ir...

bank could print it...

A few reasons keep government money as the prime money of our time. First, governments mandate that taxes are paid in government money, which means individuals are highly likely to accept it, giving it an edge in its salability.

Second, government control and regulation of the banking system means that banks can only open accounts and transact in government-sanctioned money, thus giving government money a much higher degree of salability than any other potential competitor.

Third, legal tender laws make it illegal in many countries to use other forms of money for payment. Fourth, all government moneys are still backed by gold rese...

rese...

According to data from the World Gold Council, central banks currently have around 33,000 tons of gold in their reserves. Central bank gold reserves rose quickly in the early part of the twentieth century as many governments confiscated th...

It is ironic, and very telling, that in the era of government money, governments themselves own far more gold in their official reserves than they did under the international gold standard of 1871–1914. Gold has clearly not lost its monetary role; it remains the only final extinguisher of debt,

Access to its monetary role, however, has been restricted to central banks, while individuals have been directed toward using government money.

Central banks' large reserves of gold can be used as an emergency supply to sell or lease on the gold market to prevent the price of gold from rising during periods of increased demand, to protect the monopoly role of government money. As Alan Greenspan once explained: “Central banks stand ready to lease gold in increasing quantities should the price rise.”

Government control of money has turned money from being the reward for producing value to the reward for obedience to government officials.

Government can confiscate money from the banking monopolies it controls, inflate the currency to devalue holders' wealth and reward it to the most loyal of its subjects, impose draconian taxes and punish those who avoid them, and even confiscate bills.

For as long as the money was controlled by anyone other than the owner, whoever controlled it would always face too strong an incentive to pilfer the value of the money through inflation or confiscation, and to use it as a political tool to achieve their political goals at the expense of the holders. This, in effect, takes wealth away from people who produce it and gives it to people who specialize in the control of money without actually producing things valued by society,

in the same way European traders could pilfer African society by flooding them with cheap beads

No society could prosper when such an avenue for riches remained open, at the cost of impoverishing those who see...

A sound money, on the other hand, makes service valuable to others the only avenue open for prosperity to anyone, thus concentrating society's efforts on production,...

The twentieth century was the century of unsound money and the omnipotent state, as a market choice in money was denied by government diktat, and government-issued paper money was forced on people with the threat of violence. As time passed, governments moved away from sound money ever more as their spending ...

larger share of national income was controlled by...

With government increasing its meddling in all aspects of life, it increasingly controlled the educational system and used it to imprint in people's minds the fanciful notion that the rules of economics did not appl...

This is an important but often underappreciated feature of government money. Because banks create money when they issue loans, the repayment of loans or the bankruptcy of the borrower leads to a reduction in the money supply. Money can have its supply increase or decrease depending on a variety of government and central bank decisions.

Finally, sound money is an essential requirement for individual freedom from despotism and repression, as the ability of a coercive state to create money can give it undue power over its subjects, power which by its very nature will attract the least worthy, and most immoral, to take its reins.

While microeconomics has focused on transactions between individuals, and macroeconomics on the role of government in the economy, the reality is that the most important economic decisions to any individual's well-being are the ones they conduct in their trade-offs with their future self.

Every day, an individual will conduct a few economic transactions with other people, but they will partake in a far larger