The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

It is first important to understand the distinction between loanable funds and actual capital goods. In a free market economy with sound money, savers have to defer consumption in order to save. Money that is deposited in a bank as savings is money taken away from consumption by people who are delaying the gratification that consumption could give them in order to gain more gratification in the future. The exact amount of savings becomes the exact amount of loanable funds available for producers to borrow. The availability of capital goods is inextricably linked to the reduction of consumption: actual physical resources, labor, land, and capital goods will move from being employed in the provision of final consumption goods to the production of capital goods. The marginal worker is directed away from car sales and toward a job in the car factory; the proverbial corn seed will go into the ground instead of being eaten.