The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

It is an ironic sign of the depth of modern-day economic ignorance fomented by Keynesian economics that capitalism—an economic system based on capital accumulation from saving—is blamed for unleashing conspicuous consumption—the exact opposite of capital accumulation. Capitalism is what happens when people drop their time preference, defer immediate gratification, and invest in the future. Debt-fueled mass consumption is as much a normal part of capitalism as asphyxiation is a normal part of respiration.

Debt is the opposite of saving. If saving creates the possibility of capital accumulation and civilizational advance, debt is what can reverse it, through the reduction in capital stocks across generations, reduced productivity, and a decline in living standards. Whether

As the reduction in intergenerational inheritance has reduced the strength of the family as a unit, government's unlimited checkbook has increased its ability to direct and shape the lives of people, allowing it an increasingly important role to play in more aspects of individuals' lives. The family's ability to finance the individual has been eclipsed by the state's largesse, resulting in a declining incentives for maintaining a family.

The well-known phenomenon of the modern breakdown of the family cannot be understood without recognizing the role of unsound money allowing the state to appropriate many of the essential roles that the family has played for millennia, and reducing the incentive of all members of a family to invest in long-term familial relations.

Substituting the family with government largesse has arguably been a losing trade for individuals who have partaken in it. Several studies show that life satisfaction depends to a large degree on establishing intimate long-term familial bonds with a partner and children.14 Many studies also show that rates of depression and psychological diseases are rising over time as the family breaks down, particularly for women.15 Cases of depression and psychological disorders very frequently have family breakdown as a leading cause.

It is no coincidence that the breakdown of the family has come about through the implementation of the economic teachings of a man who never had any interest in the long term. A son of a rich family that had accumulated significant capital over generations, Keynes was a libertine hedonist who wasted most of his adult life engaging in sexual relationships with children, including traveling around the Mediterranean to visit children's brothels.16 Whereas Victorian Britain was a low-time-preference society with a strong sense of morality, low interpersonal conflict, and stable families, Keynes was part of a generation that rose against these traditions and viewed them as a repressive institution to be brought down. It i...

The Baroque, Neoclassical, Romantic, Realistic, and post-Impressionistic schools were all financed by wealthy patrons holding sound money, with a very low time preference and the patience to wait for years, or even decades, for the completion of masterpieces meant to survive for centuries.

Similarly, the musical works of Bach, Mozart, Beethoven, and the composers of the Renaissance, Classical, and Romantic eras put to shame today's animalistic noises recorded in batches of a few minutes, churned out by the ton by studios profiting from selling to man the titillation of his basest instincts. Whereas the music of the golden era spoke to man's soul and awakened him to think of higher callings than the mundane grind of daily life, today's musical noises speak to man's most base animalistic instincts, distracting him from the realities of life by inviting him to indulge in immediate sensory pleasures with no concern for long-term consequences or anything more profound. It was hard money that financed Bach's Brandenburg Concertos while easy money financed Miley Cyrus's twerks.

A stroll through a modern art gallery shows artistic works whose production requires no more effort or talent than can be mustered by a bored 6-year-old. Modern artists have replaced craft and long hours of practice with pretentiousness, shock value, indignation, and existential angst as ways to cow audiences into appreciating their art, and often added some pretense to political ideals, usually of the puerile Marxist variety, to pretend-play profundity. To the extent that anything good can be said about modern “art,” it is that it is clever, in the manner of a prank or practical joke. There is nothing beautiful or admirable about the output or the process of most modern art, because it was produced in a matter of hours by lazy talentless hacks who never bothered to practice their craft. Only cheap pretentiousness, obscenity, and shock value attract attention to the naked emperor of modern art, and only long pretentious diatribes shaming others for not understanding the work give it value.

When government is in charge of deciding winners and losers, the sort of people who have nothing better to do with their life than work as government bureaucrats are the arbiters of taste and beauty.

In their fiat-fueled ever-growing realm of control, almost all modern governments dedicate budgets to finance art and artists in various media. But as time has gone by, bizarre and barely believable stories have emerged about covert government meddling in arts for political agendas. While the Soviets funded and directed communist “art” to achieve political and propaganda goals, it has recently emerged that the CIA retorted by financing and promoting the work of abstract expressionist mattress and cardboard molesters such as Mark Rothko and Jackson Pollock to serve as an American counter.19 Only with unsound money could we have reached this artistic calamity where the two largest economic, military, and political behemoths in the world were actively promoting and funding tasteless trash picked by people whose artistic tastes qualify them for careers in Washington and Moscow spy agencies and bureaucracies.

As the Medicis have been replaced with the artistic equivalents of DMV workers, the result is an art world teeming with visually repulsive garbage produced in a matter of minutes by lazy talentless hacks looking for a quick paycheck by scamming the world's aspirants to artistic class with concocted nonsensical stories about it symbolizing anything more than the utter depravity of the scoundrel pretending to be an artist who made it. Mark Rothko's “art” took mere hours to produce, but was sold to gullible collectors holding millions of today's unsound money, clearly solidifying modern art as the most lucrative get-rich-quick scam of our age. No talent, hard work, or effort is required on the part of a modern artist, just a straight face and a snobby attitude when recounting to the nouveau riche why the splatter of paint on a canvas is anything more than a hideous thoughtless splatter of paint, and how their inability to understand the work of art unexplained can be easily remedied with a fat check.

What is astounding is not just the preponderance of garbage like Rothko's in the modern art world; it is the conspicuous absence of great masterpieces that can compare with the great works of the past. One cannot help but notice that there aren't too many Sistine Chapels being constructed today anywhere; nor are there many masterpieces to compare with the great paintings of Leonardo, Rafael, Rembrandt, Carvaggio, or Vermeer. This is even more astonishing when one realizes that advance...

The Sistine Chapel will leave its viewer in awe, and any further explanation of its content, method, and history will transform the awe into appreciation of the depth of thought, craft, and hard work that went into it. Before they became famous, even the most pretentious of art critics could have passed by a Rothko painting neglected on a sidewalk and not even noticed it, let alone bothered to pick it up and take it home. Only after a circle jerk of critics have spent endless hours pontificating to promote this work will the hangers-on and aspirant nouveau riche begin to pretend there is deeper meaning to it and spend modern unsound money on it.

To understand the significance of this property to an economic system, we do what wise people always do when seeking to understand economic questions: turn to the work of dead Austrian economists.

The point of this exposition is not to argue against the socialist economic system, which no serious adult takes seriously in this day and age, after the catastrophic, bloody and comprehensive failure it has achieved in every society in which it has been tried over the last century.

The central bank's meddling in the capital market is the root of all recessions and all the crises which most politicians, journalists, academics, and leftist activists like to blame on capitalism.

Imagining that central banks can “prevent,” “combat,” or “manage” recessions is as fanciful and misguided as placing pyromaniacs and arsonists in charge of the fire brigade.

The form of failure that capital market central planning takes is the boom-and-bust cycle, as explained in Austrian business cycle theory. It is thus no wonder that this dysfunction is treated as a normal part of market economies, because, after all, in the minds of modern economists a central bank controlling interest rates is a normal part of a modern market economy. The track record of central banks in this area has been quite abject, especially when compared to periods with no central planning and directing of the money supply.

Relieved of the burden of understanding the cause, Friedman and Schwartz can then safely recommend the cause itself as the cure: governments need to step in to aggressively recapitalize the banking system and increase liquidity at the first sign of economic recession. You can begin to see why modern economists loathe understanding logical causality so much; it would debunk almost all their solutions.

Only when a central bank manipulates the money supply and interest rate does it become possible for large-scale failures across entire sectors of the economy to happen at the same time, causing waves of mass layoffs in entire industries, leaving a large number of workers jobless at the same time, with skills that are not easily transferrable to other fields.19 As Hayek put it: “The cause of waves of unemployment is not ‘capitalism’ but governments denying enterprise the right to produce good money.”20

In the era of unsound money, such as in Europe's descent into feudalism or in the modern world's descent into monetary nationalism, trade stops being the prerogative of the transacting individuals and becomes a matter of national importance, requiring the oversight of the feudal lords or governments claiming sovereignty over the trading individuals. So ridiculously complete has this transformation of the nature of trade been that, in the twentieth century, the term free trade came to refer to trade carried out between two individuals across borders, according to terms agreed upon by their respective governments, not by the concerned individuals!

Governments deciding to dictate the measure of value makes as much sense as governments attempting to dictate the measure of length based on the heights of individuals and buildings in their territories. One can only imagine the sort of confusion that would happen to all engineering projects were the length of the meter to oscillate daily with the pronouncements of a central measurements office.

Keynes was a failed investor and statistician who never studied economics but was so well-connected with the ruling class in Britain that the embarrassing drivel he wrote in his most famous book, The General Theory of Employment, Money, and Interest, was immediately elevated into the status of founding truths of macroeconomics. His theory begins with the (completely unfounded and unwarranted) assumption that the most important metric in determining the state of the economy is the level of aggregate spending across society.

Keynes absolutely detested saving.

In any sane society, Keynes's ideas should have been removed from the economics textbooks and confined to the realm of academic comedy, but in a society where government controls academia to a very large degree, the textbooks continued to preach the Keynesian mantra that justified ever more money printing. Having the ability to print money, literally and figuratively, increases the power of any government, and any government looks for anything that gives it more power.

The real impact of this is the widespread culture of conspicuous consumption, where people live their lives to buy ever-larger quantities of crap they do not need. When the alternative to spending money is witnessing your savings lose value over time, you might as well enjoy spending it before it loses its value. The financial decisions of people also reflect on all other aspects of their personality, engendering a high time preference in all aspects of life: depreciating currency causes less saving, more borrowing, more short-termism in economic production and in artistic and cultural endeavors, and perhaps most damagingly, the depletion of the soil of its nutrients, leading to ever-lower levels of nutrients in food.

Indulging immediate pleasures is the more likely course of action economically, and that will then reflect on culture and society at large.

When the value of money appreciates, people are likely to be far more discerning with their consumption and to save far more of their income for the future. The culture of conspicuous consumption, of shopping as therapy, of always needing to replace cheap plastic crap with newer, flashier cheap plastic crap will not have a place in a society with a money which appreciates in value over time. Such a world would cause people to develop a lower time preference, as their monetary decisions will orient their actions toward the future, teaching them to value the future more and more. We can thus see how such a society would cause people not only to save and invest more, but also to be morally, artistically, and culturally oriented toward the long-term future.

As it stands, a large number of firms in all advanced economies specialize in warfare as a business, and are thus reliant on perpetuating war to continue being in business.

Whereas liberalism held the role of government as allowing individuals to live in liberty and enjoy the benefits, and suffer the consequences, of their actions, liberality was the radical notion that it was government's role to allow individuals to indulge in all their desires while protecting them from the consequences. Socially, economically, and politically, the role of government was recast as the wish-granting genie, and the population merely had to vote for what it wanted to have fulfilled.

“There is only one good thing about Marx, at least he was not a Keynesian.

It is not possible to estimate with any degree of accuracy what percentage of the economic activity in the modern world economy goes toward pursuing government-printed money rather than the production of goods and services useful to society, but it is possible to get an idea by looking at which firms and sectors survive because of succeeding in the test of the free market, and which are only alive thanks to government largesse—be it fiscal or monetary.

Fiscal support is the more straightforward of zombie-creation methods to detect. Any firms that receive direct government support, and the vast majority of firms that are alive thanks to selling their products to the public sector, are effectively zombies. Had these firms been productive to society, free individuals would have willingly parted with their money to pay for their products. That they cannot survive on voluntary payments shows that these firms are a burden and not a productive asset for society.

This simple phenomenon explains much of modern economic reality, such as the large number of industries that make money but produce nothing of value to anyone. Government agencies are the prime example, and the global notoriety they have earned for their employees' incompetence can only be understood as a function of the bezzle funding that finances them being completely detached from economic reality.

In a globalized world, the bezzle is not restricted to national governmental organizations, but has grown to include international governmental organizations, a globally renowned drain of time and effort of no conceivable benefit to anyone but those employed in them. Being located away from the taxpayers that fund them, these organizations face even less scrutiny than national governmental organizations, and as such function with even less accountability and a more relaxed approach toward budgets, deadlines, and work.

Academia is another good example, where students pay ever-more-exorbitant fees to enter universities only to be taught by professors who spend very little time and effort on the teaching and mentoring of students, focusing most their time on publishing unreadable research to get government grants and climb the corporate academic ladder. In a free market, academics would have to contribute value by teaching or writing things people actually read and benefit from. But the average academic paper is rarely ever read by anyone except the small circle of academics in each discipline who approve each other's grants and enforce the standards of groupthink and politically motivated conclusions masquerading as academic rigor.

Any student who learned economics in the postwar period in a university following an American curriculum (the majority of the world's students) learned that the Soviet model is a more efficient way of organizing economic activity. Even after the collapse and utter failure of the Soviet Union, the same textbooks continued to be taught in the same universities, with the newer editions removing the grandiose proclamations about Soviet success, without questioning the rest of their economic worldview and methodological tools.

How is it that such patently failed textbooks continue to be taught, and how is the Keynesian worldview, so brutally assaulted beyond repair by reality over the past seven decades—from the boom after World War II, to the stagflation of the seventies, to the collapse of the Soviet Union—still taught in universities?

In a free market economic system, no self-respecting university would want to teach its students things that are so patently wrong and absurd, as it strives to arm its students with the most useful knowledge. But in an academic system completely corrupted by government money, the curriculum is not determined through its accordance with reality, but through its accordance with the political agenda of the governments funding it. And governments, universally, love Keynesian economics today for the same reason they loved it in the 1930s: it offers them the sophistry and justification for acquiring ever more power and money.

The debates of academia are almost entirely irrelevant to the real world, and its journals' articles are almost never read by anyone except the people who write them for job promotion purposes, but the government bezzle indefinitely rolls on because there is no mechanism by which government funding can ever be reduced when it does not benefit anybody.

But the presence of a central bank able to bail out the banks creates a major problem of moral hazard for these banks. They can now take excessive risks knowing that the central bank will be inclined to bail them out to avert a systemic crisis. From this we see how banking has evolved into a business that generates returns without risks to bankers and simultaneously creates risks without returns for everyone else.

As telecommunications have advanced, one would expect that more and more of the financial industry's work can be automated and done mechanistically, leading to the industry shrinking in size over time. But in reality it continues to mushroom, not because of any fundamental demand, but because it is protected from losses by government and allowed to thrive.

Money being handed out to unproductive people will attract a lot of people who want to do these jobs, driving up the cost of doing these jobs in time and dignity. Hiring, firing, promotion, and punishment all happen at the discretion of layer upon layer of bureaucrats. No work is valuable to the firm, everyone is dispensable, and the only way anyone maintains a job is by proving valuable to the layer above him. A job in these firms is a full-time game of office politics. Such jobs are only appealing to shallow materialistic people who enjoy having power over others, and years of being maltreated are endured for the paycheck and the hope of being able to inflict this maltreatment on others.

Further, the move from gold, which is money that nobody can print, toward fiat currencies whose supply is controlled by central banks further reduced people's sovereignty over their wealth and left them helpless in the face of the slow erosion of the value of their money as central banks inflated the money supply to fund government operation. It became increasingly impractical to accumulate capital and wealth without the permission of the government issuing that money.

Larger populations will thus produce more technologies and ideas than smaller populations, and because the benefit accrues to everyone, it is better to live in a world with a larger population. The more humans exist on earth, the more technologies and productive ideas are thought of, and the more humans can benefit from these ideas and copy them from one another, leading to higher productivity of human time and improving standards of living.

In practice, however, the possibility of a global return to sound money and liberal government is extremely unlikely as these concepts are largely alien to the vast majority of politicians and voters worldwide, who have been reared for generations to understand government control of money and morality as necessary for the functioning of any society.