Explore the concept of money as a ledger and who controls it, the demise of gold as money, issues with the financial system and trade deficits, the role of the Federal Reserve in taming inflation, navigating investment in a weak money environment, Bitcoin's rise and challenges for adoption, and the value of private censorship and alternative monetary systems.
Money is fundamentally a ledger, and the control of the ledger is of utmost importance.
The history of money reveals the significance of who controls the ledger, impacting value and transactions.
Bitcoin offers a decentralized and efficient solution for value transfer, disrupting local currencies and potentially serving as a long-term monetary solution.
Deep dives
Money as a Ledger
Money is fundamentally a ledger, where the control of the ledger becomes crucial. Money can be seen as a physical commodity or a human-controlled ledger. The history of money and its different forms are explored, noting the importance of who controls the ledger and how it impacts value and transactions.
Gold's Unique Properties
Gold's historical prominence as a form of money is attributed to its high stock-to-flow ratio, which ensures a slow dilution of value over time. Unlike other commodities, gold's limited supply and difficult mining process make it resistant to rapid increases in production. Its intrinsic properties have made it a stable and enduring form of money.
The Fall of the Gold Standard
The demise of the gold standard as the global financial system was driven by technological advancements, particularly the rise of telecommunications. The ability to instantly transfer information globally made physical gold as a means of exchange impractical. The move towards centralized, abstracted ledgers and the loss of control over the ledger's parameters ultimately led to the abandonment of the gold standard.
Implications of Reserve Currency Status
The US dollar's reserve currency status has both benefits and drawbacks. While it brings advantages such as a stronger import power and a network effect, it also contributes to a structural trade deficit, hollowing out the industrial base, and concentrated wealth. The reserve currency role brings global responsibilities and can result in geopolitical and economic tensions.
Investment in Scarce Assets in a Debasement Environment
In a debasement environment where money is weak, investment becomes necessary. Holding scarce assets like equities, real estate, gold, or land is essential. However, these assets have various inefficiencies, such as illiquidity or capital gains taxes, making it challenging to hold them. Different countries face different challenges, with some having more volatile or underperforming markets. It is important to hold assets that are not rapidly diluted in a world of constant currency debasement.
Bitcoin's Solution to the Speed Gap and Currency Bubbles
Bitcoin solves the problem of quick value transfer without the need for credit. It allows for final, fast, and efficient settlements across long distances. Bitcoin's decentralized ledger enables peer-to-peer transactions, cutting out intermediaries and eliminating the need for IOUs. It also disrupts currency bubbles, offering a way to send value outside of a country's banking system. Bitcoin's unlimited value density and borderless nature challenge the monopoly of local currencies. While there may be pushback from governments, legal precedent, technological proof, liquidity, and institutional adoption contribute to Bitcoin's potential as a long-term monetary solution.
This is the audio version of The Reason Livestream, which takes place every Thursday at 1 p.m. Eastern.
"At its core, money is a ledger," writes investment analyst Lyn Alden in her new bookBroken Money: Why Our Financial System is Failing Us and How We Can Make it Better.
And if money is a ledger, she says, the most important question to consider is, "Who controls the ledger?"
Zach Weissmueller spoke with Alden about her book, which is a true tour de force that lays out the history of money from its inception to present, takes you deep into the dueling schools of thought around money's fundamental properties, offers a macro analysis of today's global monetary and fiscal situation, and charts a path forward for transitioning the world to better, more sound money in the future. If you care about any of this—and really, who doesn't care about money?—this one is a must-read.
