The Bitcoin Standard: The Decentralized Alternative to Central Banking

by Saifedean Ammous

Money is more desirable when demonstrably scarce than when liable to being debased.

33,000 tons of gold in their reserves.

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.

ability of the seller to sell her good without the intervention of any third parties that might place restraints on the salability of that money.

And as more of the world heads toward reducing its reliance on cash, more of people's money is being placed in government‐supervised banks, making it vulnerable to confiscation or capital controls. The fact that these procedures generally happen during times of economic crisis, when individuals need that money most, is a major impediment to the salability of government‐issued money.

government control of money has meant a new and very important criterion being added to salability, and that is the salability of money according to the will of its holder and not some other party. Combining these criteria together formulates a complete understanding of the term sound money as the money that is chosen by the market freely and the money completely under the control of the person who earned it legitimately on the free market and not any other third party.

Sound money, then, according to Mises, is what the market freely chooses to be money, and what remains under the control of its owner, safe from coercive meddling and intervention.

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, cooperation, capital accumulation, and trade.

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 apply to governments, which would prosper the more they spent. The

For those who worship government power and take joy in totalitarian control, such as the many totalitarian and mass‐murdering regimes of the twentieth century, this monetary arrangement was a godsend. But for those who valued human liberty, peace, and cooperation among humans, it was a depressing time with the prospects of economic reform receding ever more with time and the prospects of the political process ever returning us to monetary sanity becoming an increasingly fanciful dream. As Friedrich Hayek put it: I don't believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can't take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something that they can't stop.25

Sound money is a prime factor in determining individual time preference, an enormously important and widely neglected aspect of individual decision making. Time preference refers to the ratio at which individuals value the present compared to the future.

investment raises the productivity of the producer.

The security of their basic needs assured, and the dangers of the environment averted, people turn their attention toward more profound aspects of life than material well‐being and the drudgery of work. They cultivate families and social ties; undertake cultural, artistic, and literary projects; and seek to offer lasting contributions to their community and the world. Civilization is not about more capital accumulation per se; rather, it is about what capital accumulation allows humans to achieve, the flourishing and freedom to seek higher meaning in life when their base needs are met and most pressing dangers averted.

Security of people in their person and property is arguably one of the most important. Individuals who live in areas of conflict and crime will have a significant chance of losing their life and are thus likely to more highly discount the future, resulting in a higher time preference than those who live in peaceful societies. Security of property is another major factor influencing individuals' time preference: societies where governments or thieves are likely to expropriate individuals' property

A person who thinks of the long run is less likely to cheat, lie, or steal, because the reward for such activities may be positive in the short run, but can be devastatingly negative in the long run.

The move from money that holds its value or appreciates to money that loses its value is very significant in the long run: society saves less, accumulates less capital, and possibly begins to consume its capital; worker productivity stays constant or declines, resulting in the stagnation of real wages, even if nominal wages can be made to increase through the magical power of printing ever more depreciating pieces of paper money. As people start spending more and saving less, they become more present‐oriented in all their decision making, resulting in moral failings and a likelihood to engage in conflict and destructive and self‐destructive behavior.

because money is the market good with the least diminishing marginal utility.

One of the prime functions of the monetary unit is to serve as the unit of measure for economic goods, whose value is constantly changing. It is thus not possible to satisfactorily measure the price of a monetary good precisely, although over long time horizons, studies similar to Jastram's can be indicative of an overall trend for a medium of exchange to hold its value, particularly when compared to other forms of money.

the U.S. dollar was also gaining value against commodities whenever it was tied to gold, but lost value significantly when its connection to gold was severed, as was the case during the U.S. Civil War and the printing of greenbacks, and in the period after the 1934 devaluation of the dollar and confiscation of citizen gold. Figure 9 Price of commodities in gold and in U.S. dollars, in log scale, 1792–2016.

This does not represent a rise in the market value of gold, but rather a drop in the value of fiat currencies. When

Easy money, on the other hand, because of the ability of its producers to vary its quantity drastically, will engender widely fluctuating demand from holders as the quantity varies and its reliability as a store of value falls and rises.

Central banks' mission of ensuring price stability has them constantly managing the supply of money through their various tools to ensure price stability, making many major currencies appear less volatile in the short run compared to gold. But in the long run, the constant increase in the supply of government money compared to gold's steady and slow increase makes gold's value more predictable.

The fact that central banks continue to hold onto their gold, and have even started increasing their reserves, testifies to the confidence they have in their own currencies in the long term, and in the inescapable monetary role of gold as the value of paper currencies continues to plumb new depths.

Many pretend this is a miraculous modern discovery from Keynes's brilliant insight that spending is all that matters, and that by ensuring spending remains high, debts can continue to grow indefinitely and savings can be eliminated. In reality, there is nothing new in this policy, which was employed by the decadent emperors of Rome during its decline, except that it is being applied with government‐issued paper money. Indeed, paper money allows it to be managed a little more smoothly, and less obviously, than the metallic coins of old. But the results are the same.

Whether it is housing debt, Social Security obligations, or government debt that will require ever‐higher taxes and debt monetization to refinance, the current generations may be the first in the western world since the demise of the Roman Empire (or, at least, the Industrial Revolution) to come into the world with less capital than their parents.

“Every election is an advanced auction on stolen goods.”

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.

It is impossible to understand the economics of Keynes without understanding the kind of morality he wanted to see in a society he increasingly believed he could shape according to his will.

The History of Science and Technology, Bunch and Hellemans compile a list of the 8,583 most important innovations and inventions in the history of science and technology. Physicist Jonathan Huebner17 analyzed all these events along with the years in which they happened and global population at that year, and measured the rate of occurrence of these events per year per capita since the Dark Ages. Huebner found that while the total number of innovations rose in the twentieth century, the number of innovations per capita peaked in the nineteenth century. A

The wonders of the twentieth century's improvements make it easy to forget that the actual inventions—the transformative world‐changing innovations—almost all came in the golden era.

Those of us who are enamored with the concept of progress might find it hard to swallow the fact that the world of sound money pre‐1914 was the world of zero to one, whereas the post‐1914 world of government‐produced money is the world of moving from one to many. There is nothing wrong with the move from one to many, but it certainly gives us plenty of food for thought to consider why we do not have many more zero‐to‐one transformations under our modern monetary system.

This is why Florence's Medicis are perhaps better remembered for their patronage of the arts than for their innovations in banking and finance, though the latter may be far more consequential.

was hard money that financed Bach's Brandenburg Concertos while easy money financed Miley Cyrus's twerks.

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.

neither beauty nor longevity matters anymore, replaced with political prattling and the ability to impress bureaucrats who control the major funding sources to the large galleries and museums, which have become a government‐protected monopoly on artistic taste and standards for artistic education. Free competition between artists and donors is now replaced with central planning by unaccountable bureaucrats, with predictably disastrous results.

the winners are always the ones who provide the goods deemed best by the public. 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. Instead of art's success being determined by the people who have succeeded in attaining wealth through several generations of intelligence and low time preference, it is instead determined by the people with the opportunism to rise in the political and bureaucratic system best.

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.

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.

A case can be made for ignoring all this worthless scribbling as just a government‐funded embarrassment to our era and looking beyond it for what is worthwhile. Nobody,

“All that the 20C has contributed and created since is refinement by ANALYSIS or criticism by pastiche and parody.”

the same way the Roman subjects of Diocletian, living off his inflationary spending and drunk on the barbaric spectacles of the Colosseum, could not hold a candle to the great Romans of Caesar's era, who had to earn their aureus coins with sober hard work.

The fatal flaw of socialism that Mises exposed was that without a price mechanism emerging on a free market, socialism would fail at economic calculation, most crucially in the allocation of capital goods3

“Those who confuse entrepreneurship and management close their eyes to the economic problem…. The capitalist system is not a managerial system; it is an entrepreneurial system.” —Ludwig von Mises

A free market is understood as one in which the buyers and sellers are free to transact on terms determined by them solely, and where entry and exit into the market are free:

Another Austrian economist, Eugen von Böhm‐Bawerk, even argued that the interest rate in a nation reflected its cultural level: the higher a people's intelligence and moral strength, the more they save and the lower the rate of interest.

A fundamental fact to understand about the modern financial system is that banks create money whenever they engage in lending. In a fractional reserve banking system similar to the one present all over the world today, banks not only lend the savings of their customers, but also their demand deposits. In other words, the depositor can call on the money at any time while a large percentage of that money has been issued as a loan to a borrower. By giving the money to the borrower while keeping it available to the depositor, the bank effectively creates new money and that results in an increase in the money supply. This underlies the relationship between money supply and interest rates: when interest rates drop, there is an increase in lending, which leads to an increase in money creation and a rise in the money supply. On the other hand, a rise in interest rates causes a reduction in lending and contraction in the money supply, or at least a reduction in the rate of its growth.

As an economy advances and becomes increasingly sophisticated, the connection between physical capital and the loanable funds market does not change in reality, but it does get obfuscated in the minds of people. A modern economy with a central bank is built on ignoring this fundamental trade‐off and assuming that banks can finance investment with new money without consumers having to forgo consumption. The link between savings and loanable funds is severed to the point where it is not even taught in the economics textbooks any more,7 let alone the disastrous consequences of ignoring it.

Unsound money makes such manipulation possible, but only for a short while, of course, as reality cannot be deceived forever.

The suspension of these projects at the same time causes a rise in unemployment across the economy. This economy‐wide simultaneous failure of overextended businesses is what is referred to as a recession.

Economic logic clearly shows how recessions are the inevitable outcome of interest rate manipulation