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Money

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Money

Tags: monetary-theory, economics, Austrian-school

What Money Is

Money is any good that functions as:

  1. Medium of exchange — accepted in trade
  2. Store of value — holds value over time
  3. Unit of account — used to price other goods

The sources draw heavily on Austrian economics: money did not originate from state decree but emerged spontaneously from trade. Nick Szabo’s “Shelling Out” traces the emergence of money from collectibles — shells, beads, rare stones — that served as unforgeable stores of value long before coinage.

Sources: raw/Theory/economics/chto-takoe-dengi.md, raw/Theory/economics/how-money-works.md

Properties of Good Money

PropertyDescriptionGoldFiatBitcoin
ScarceLimited supply✓✗✓
DurableDoesn’t decay✓~✓
PortableEasy to carry~✓✓
DivisibleSplits cleanly~✓✓
FungibleUnits are interchangeable✓✓~
VerifiableEasy to authenticate~~✓
DecentralizedNo issuer control✓✗✓
Hard capFixed supply~✗✓

Gold’s annual inflation is ~1.5%; Bitcoin’s approaches 0% after 2140

The Fiat Era (Post-1971)

Nixon Shock (Aug 15, 1971): The US severed the USD-gold link. From that point, the dollar — and every other major currency — became pure fiat: money by decree, with no backing other than trust in the government.

Consequences:

  • Governments can inflate money supply at will
  • Inflation redistributes wealth from savers to debtors (and to the state)
  • Economic calculation becomes distorted
  • Short-term thinking is incentivized across the economy

Petrodollar system (1974): The US-Saudi deal tied oil pricing to USD, giving the dollar reserve currency status. This forced all oil-importing nations into USD dependency. See timeline] and raw/Theory/economics/petrodollar-negative-effects.md.

Sound Money vs. Hard Money

Sound money = money that cannot be easily inflated by any party. The key test: the stock-to-flow ratio. Gold has high stock-to-flow (~60x); this is why it has been money for millennia. Bitcoin’s stock-to-flow exceeds gold’s after each halving.

Sources: raw/Books/fiatniy-standart/, raw/Books/Suverenitet-posredstvom-matematiki/

Money as Claim on Human Time

Robert Breedlove’s framing (Masters and Slaves of Money): all money is ultimately a store of human time and energy. When a central bank inflates the money supply, it is literally confiscating the stored time of savers and transferring it to whoever receives the new money first (the Cantillon effect). This is also why time preference matters: fiat money discourages long-term saving by eroding value.

Historical analogy: European glass beads were cheap to produce but used as money in Africa, debasing local aggri beads. This mechanism enabled wealth extraction. The fiat system does the same globally.

Source: raw/Theory/economics/masters-and-slaves-of-money.md

The Deflation Argument

Mainstream economics fears deflation. The Austrian response (Philip Bagus, In Defense of Deflation):

  • Growth deflation (prices fall due to productivity gains) — good, has characterized most of economic history
  • Credit deflation (credit contraction) — bad, but caused by prior credit expansion, not by sound money

Bitcoin is deflationary by design. This is a feature, not a bug.

Source: raw/Theory/economics/in-defense-of-deflation.md

Social Scalability

Nick Szabo’s key insight: money is an institutional technology that lets humans cooperate beyond Dunbar’s number (~150). Bitcoin is not trying to be computationally efficient. It trades computational waste for the elimination of trusted third parties — making economic cooperation possible at global scale without requiring trust.

Source: raw/Theory/economics/money-blockchains-and-social-scalability.md

Sources

Glossary | scarcity | Bitcoin | Proof of Work | Cantillon Effect | Nick Szabo | The Fiat Standard | Gradually, Then Suddenly

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