I apologize, and if some of you are in contact with JL, you may forward this note to him.
I criticized him for supporting the idea that the Fed should print money to buy bitcoin (see picture). I’ll explain why below.
I also fell in the same trap as I sometimes criticize others for, because I questioned his motives for writing the book. That was just plainly stupid of me, and I have deleted the tweet.
JL seems to believe that the Fed can do good, and that today’s monetary system was created because «physics» dictated that a system with central banks had to be adopted. (The What is Money? Podcast, The Jason Lowery Series, ep. 5, 46:42 – 47:15).
This argument seems to be founded on the same understanding of our current system as his argument that the Fed should print money to buy bitcoin.
But seeing central banks as a potential force for good runs contrary to our experience of why central banks were created, what they do and why.
It’s also contrary to my personal understanding of why we ended up with a global fiat standard.
In my view it happened because monopolizing and manipulation of the money supply, with inflation, deflation and channelization of money, is and has always been a policy, for approximately 2,500 years.
This policy has IMO always aimed at benefitting the few at the cost of the rest of humanity. Which is exactly what it does too. As time goes, it results in most people owning nothing and being miserable.
If physics (low transport speed, the need for physical storage) played a role in the demise of gold as money, it was IMO because it was used as a rhetorical argument in the political discussion.
The fundamental objective was always to ensure more government control of money, not to make the monetary system more efficient.
The «physics argument» is the same argument that I often hear people come up with, as they say that «gold lost the competition against fiat», because fiat moves faster than gold, and money needs to move fast in the modern age.
The problem with this argument is that gold became centralized in central banks as part of a deliberate policy that also included mandatory fractional reserve banking, setting up obligatory banking cartels, public licensing of banks and a regulatory regime fully captured by the financial sector.
In other words, it wasn’t an issue of «competition» or «physics». It was all about politics and coercion.
Without political intervention, gold would most likely have been decentralized and stored by private entities such as banks and warehouses scattered across the globe.
Paper receipts, digital receipts, and IOUs would have circulated as currencies, and today at speed of light.
Before aviation, gold would in a private monetary system probably have been transported by ships as an add-on service to their standard freight services and exchanged at the high seas and in harbors.
A lot of gold would probably have spent most of its time on the oceans and in harbors instead of onshore. In the aviation age airplanes and airports would have performed the same service.
The natural limitation of gold would have meant that small amounts of gold would have become extremely valuable over time, driving down transport, storage and settlement costs immensely.
Technological innovation in transport and security services would have had the same effect. In short, settlement costs and other transaction costs would have become lower and lower over time relative to any given amount of gold.
Such a decentralized system, combined with IOU’s could have been quite efficient, although not nearly as efficient as a system based on Bitcoin.
It would probably have been more resilient against competition from new forms of money, but also more accomodative to Bitcoin, compared to today’s monetary system.
It might be that JL believes holding bitcoin will transform central banks’ incentives, that it will make them do more good and less evil. Although the idea is enticing, I am somewhat skeptical.
The reason is that I think such a policy likely would go hand in hand with a regulatory war against ownership and mining of bitcoin. Although it wouldn’t be successful in the long run, it could seriously delay private adoption of bitcoin.
In the meantime, the governments and the financial elites would also take the opportunity to use money printing to acquire as big a share of the real economy as possible, which was what happened during the COVID-19 pandemic.
The result is that one percent of the population today control half of global wealth. This control acts as a “claim on bitcoin” and other forms of money, just as much as money is a claim on economic goods and services.
Therefore, I fear that even though JL may have the best of intentions, his proposals might produce a very different outcome than the one he wishes for.
I started this tweet apologizing to JL for the wording in my criticism and that I attacked his motives. And I’ve explained why I have questions and why I disagree with him.
I don’t expect that the two of us ever are going to have a discussion on these topics. Regardless of this, I must nonetheless consider reading his book book. As an intelligent guy wrote in a group chat today:
«It’s nonetheless useful to understand other peoples’ understanding of what Bitcoin is. Everybody has had different life experiences. And having a broad framework to describe Bitcoin to beginners is positive».
Wise words. I will try not to forget them.
