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Many revolutionary technologies have profoundly impacted humanity’s understanding of the world.
The success of the first computers in the early 20th century forced people to understand that the world was computable. The first steam engines in the 18th century forced people to understand the dynamics of work and heat.
Bitcoin will play a similar role with respect to humanity’s understanding of economics.
For example, there are many schools of economic thought that assert that stateless money is impossible. Such schools also tend to assert that creating new money out of thin air is beneficial to the economy.
Understanding Bitcoin necessarily entails understanding the very nature of money itself and what its actual role is in the economy. The rise of a Bitcoin (BTC) standard will bring about a revolution in humanity’s understanding of economics.
In the early 20th century, economist John Maynard Keynes developed a macroeconomic theory we now call, ‘Keynesianism.’
The infamous 1929 stock market crash dissuaded Keynes that free market capitalism could not prevent such economic catastrophes, and he set about reimagining the nature of economics, asserting that demand – rather than supply – is the engine of economic growth.
Keynes put forth that if aggregate demand determines supply, then it follows that aggregate spending determines both the production of goods and the rate of employment.
Since, according to Keynes, demand drives supply, it follows that governments could lift an economy out of a recession by propping up demand. They could do this through deficit spending and/or lowering interest rates.
There are a number of problems with both Keynes’ economic theory as well as his prescriptions, but the mechanics of Bitcoin contradict Keynes’ principle that demand drives supply.
In science, a single contradictory example is enough to refute a theory – so it is with Bitcoin and Keynesian economics.
Bitcoin’s supply schedule is not driven by demand. On the contrary, the number of Bitcoin in circulation has been predetermined by math and code. A new block is added to Bitcoin’s blockchain approximately every 10 minutes.
With each new block, a fixed number of Bitcoins are added to the supply. For every 210,000 blocks, this addition is decreased by a factor of two. For example, right now, the ‘block reward’ is 6.25 BTC.
By about March 18, 2024, the next ‘halving event’ will occur, and each new block will come with only 6.25 BTC divided by 2, which equals 3.125 BTC. This entire cycle will continue until there are 21,000,000 Bitcoins in circulation.
It does not matter how much people demand Bitcoin. The cycle described above carries on, utterly indifferent to our relationship with the digital asset.
It is not an accident that Paul Krugman, one of today’s foremost Keynesian economists, describes crypto (read: Bitcoin) as having “no backstop, no tether to reality” and that “Bitcoin plays into a fantasy of self-sufficient individualism … untainted by institutions like governments or banks.”
It is understandable why Krugman and other Keynesians dislike Bitcoin – its success would strike a deadly blow to their entire economic theory. Not only that but also Bitcoin makes their political prescriptions that much more difficult to implement.
Governments cannot print Bitcoin into existence in order to inject liquidity into the market. Thus, Bitcoin threatens the livelihoods of Keynesians.
MMT (modern monetary theory) is best understood as a fancier cousin of Keynesianism. MMT has recently risen to prominence, as governments sought a justification for increased spending during the global Covid-19 pandemic.
At its core, MMT asserts that “there is no financial constraint on government spending as long as a country is a sovereign issuer of currency and does not tie the value of its currency to another currency.”
In today’s political order, MMT grants the United States the right to print new money into existence without limit. Once again, a Bitcoin standard will make this utterly impossible. Those still advocating for MMT on a Bitcoin standard will seem like flat-earthers telling us we can’t sail around the world.
Putting particular economic theories aside, the idea that government must determine which currency people may use is widely accepted. The more popular Bitcoin becomes, the more its very existence serves as a criticism of that idea.
The cognitive dissonance will reach its breaking point at different moments for each individual. One by one, Bitcoin’s trajectory toward the next global reserved asset will shatter people’s false economic presuppositions.
The economic awakening
As people realize the errors in their worldview, many will not stop at money. They might think, “If I was wrong that the government must control money, what other assumptions was I wrong about? Is the government necessary to provide healthcare, charity and even courts?”
They will seek economic theories that are consistent with their new discoveries.
No longer will they succumb to what they now see as propaganda – those who have a vested interest in making you think that we cannot have functional money without government intervention.
These curious souls may stumble across Austrian economics, a theory of how people act purposefully in a world of scarce resources. They will discover Mises’ Regression Theorem – a perfectly sensible explanation of how money can emerge in the absence of top-down control.
Before Bitcoin, they may have scoffed at such an explanation. But now that Bitcoin has demonstrated the plausibility of stateless money, they are not so quick to dismiss such explanations for the emergence of money.
And if they accept the Regression Theorem, there is no reason they’d stop there. They might wonder how prices, in general, emerge. They may discover that, according to the same economic theory that gave them the Regression Theorem, prices are not arbitrary.
Price gouging is not a bad thing, after all – when demand spikes, prices necessarily rise in response. Similarly, companies are not any greedier than any other entity. In a free market, they only earn profit by delivering goods and services that customers want to buy.
They may realize that interest rates, too, are not arbitrary but rather are the price of borrowing money. And this leads to the most momentous realization of all – that forcibly lowering interest rates is the cause of the boom-and-bust cycle.
Thus, contrary to Keynesians’ ideas, government intervention in interest rates does not pull us out of a recession but rather creates the conditions for a new one.
Such economic awakening is happening every day, all over the world. Bitcoin is more than an incorruptible global asset. It is an economic teacher – one that will pull us from the Keynesian Dark Ages to an Austrian Golden Age.
Kent Halliburton is the president and COO of Sazmining, the world’s first Bitcoin mining platform created to connect individual retail miners with carbon neutral/negative Bitcoin mining facilities. Halliburton is a business operator with deep expertise in Bitcoin mining and solar energy.
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