Previously
In the previous article, here, we made the distinction between hard money and soft money, dependable money and fiat currency. We also took a cursory look at the means by which governments use undependable money as a means of subverting the values of the citizenry.
Now, let’s take an objective look at why anyone would advocate for the use of bad money despite its obvious ill effects. As we go through some of the advantages of fiat, we will often refer to a previous post, “Monetary Revolutions, Pt 2.4: What Is Money?“. Specifically, we will refer to the attributes, characteristics, and functions of good money and fiat currencies.
Who Advocates For Inferior Money?
There are some who would argue that there are real advantages to using currencies, soft money, and that those advantages outstrip any of their disadvantages. Unfortunately, those who actively advocate for fiat currencies come in two distinct varieties:
- Those who benefit from it financially and / or politically
- Those who have not actually studied what the differences are between dependable money and soft money
Over the course of many future articles, we will go into deeper dives as to why these two groups exist and the effects of both of them.
What Are The Outcomes Of Soft Money?
Before diving into the advantages of fiat currencies, let’s do a quick review on the emergent functions of any form of money
- Storehouse of Value
- Medium of Exchange
- Unit of Account
In order for any kind of money truly to be useful it must meet these two requirements: 1) meet the attributes and characteristics of good money and 2) be readily available to the people voluntarily.
As it stands now, the only reason why people use fiat currencies is because their respective governments order them to do so (hence the Latin term “fiat” which translates to “authority“, “decree“, or “order“) and because they think there are no viable alternatives. Taken a step further, their respective governments order the citizenry to use inferior forms of money with accompanying coercion and punishments for non-compliance.
As we have consistently seen throughout this opening series, all fiat currencies fail the most important function of money – store of value. In economic terms, we would say that soft money is not “salable over time“. I think we would agree that currencies do not hold their value over time. As an apt analogy, soft money is “an iceberg floating in warm Caribbean waters” (credit to Michael Saylor for the metaphor).
What Are The Advantages Of Fiat?
Due to many inherent disadvantage of using gold as money, soft money has many huge advantages over more traditional payment methods (i.e. gold or silver). In fact, most contemporary soft monies are adequate as a medium of exchange and very good as a unit of account. People and businesses can move U.S. dollars relatively quickly across vast distances. These two functions combined create a good deal of convenience for the vast majority of people to conduct business. We call this “salable over space“. [1]
Let’s dig into those advantages a little.
There are actually a few practical advantages of fiat for both governments and the citizenry. All of these advantages come from inertia of previously existing systems which are a veritable rat’s nest of mismatched systems. [2]
That said, as it stands right now, fiat currencies are the fastest means by which we can transmit value over space and have the transaction settled by both parties. There are hundreds of payment networks and systems globally which can facilitate the movement of payments around the globe. Behind those payment networks are entire currency exchanges which exist in order to trade one country’s currency for another’s (i.e. selling Euro’s and buying Chinese Renminbi at some specific price).
These currency trades offset the net liabilities that one nation incurs due to the previously mentioned payments. One of the largest currency exchange systems is known as “FOREX” (short for “Foreign Exchange”). At each interface of payments systems and currency exchanges, there are teams of people who are responsible for ensuring that currencies flow with minimal errors. [3] [4] [5]
All of this means that soft money has a decent (but not great) ability to fulfill the monetary function of medium of exchange. Said another way, fiat money is able to retain its value over vast differences because it doesn’t require prohibitive costs to do so.
All prices of goods and services globally are priced in some sort of fiat currency. Because of this, fiat currencies have definitely fulfilled the economic function of unit of account quite well. Even when products are not priced in a particular currency, making the conversion is not particularly cumbersome if one is willing to work through existing payment networks or banking systems.
The above mentioned payment networks and currency exchanges have evolved over decades to address deficiencies which were realized over time. In effect, this is a long string of patches and workarounds (a veritable “charlie foxtrot“) which few people in the world truly understand and even fewer could explain from a technical point of view.
Overall, even with all their patchwork quilt of manual processes, antiquated computer systems, and limited technicians, fiat currencies do a fine job of moving the modern global economy.
For a price…
State Controlled Currency Is Good For… The State
In previous centuries, whenever free markets had the (uncoerced) choice of choosing a form of money that best represented their values, they always used the hardest money that was readily available to them (typically gold and / or silver). Those governments which implemented and maintained a hard money standard were naturally constrained. Thus, the only reason for a state to deviate from this natural constraint is for the express purpose of power acquisition.
Consequently, when we talk about “advantages” of using a fiat currency, considering that governments use them as a ubiquitous means of extracting value out of your wallet (and your savings and checking accounts), the true advantage of soft money lies solely with… the state (and their cohorts).
Corrupted Money = Corrupted Values
A state controlled money always corrupts the money supply, its usage, and, consequently, perverts a population’s values and philosophy. It warps that society’s incentives and bends it towards the state’s preferences and mandates. Of course, that’s the point. As mentioned earlier in this series, it is about one set of humans (government) telling another set of humans (the citizenry) how they should be living their lives.
I realize that it sounds nefarious to think that our own governments are deliberately sabotaging us by using these corrupted monetary systems. At this point, it is difficult to say if the end results were deliberate and invoked or merely evolved emergent properties. Either way, the results are the same.
This leads to a question that has plagued mankind since the beginning of civilization – How do we foster a civilizing force while also promoting individual liberty by preserving the rights of all?
What Enables Bad Government?
A brief review from a previous article, Part 2.4 – “What Is Money?”, let’s revisit my working definition of fiat currency:
Fiat Currency – A credit-based system which acts as a proxy of money yet is incapable of exhibiting all of the qualities, attributes, characteristics, and functions of good money.
Note: Requires a central party and trust.
Since, soft money requires a central party and trust by the citizenry to manage it (and the state regulates it), the people have (unintentionally) offloaded their personal responsibilities for finding dependable money to the state entirely.
If we combine this with the fact that the government can ONLY fund their extra-Constitutional (unethical) activities via currencies and easy debt, then it’s easy to see how any government would use that as a prime opportunity to leverage their position of power for self-serving purposes.
Getting into some specifics, these are the ways by which their self-serving corruption manifests:
- Massive law enforcement
- Global military force
- Leviathan of bureaucracy
- Legions of regulatory agencies
- Governmental “programs”
- Unlimited entitlements
- The “three letter agencies”
- Confiscatory and punitive taxes [6]
Overall, I think that most reasonable people would not have a problem with the above list if they knew that they were extremely limited in size, scope, and activity. But, as most of us have observed, either through history or firsthand experience, that is never the case. Every single agency, department, law, regulation, and program creeps far beyond its initial intent. And, every power that the state takes necessarily comes at the expense of the people’s rights.
Unfortunately, as it stands now, there are simply too many virtual parasites on the system to reverse course voluntarily. These parasites include those inside of government who seek power and wealth as well as those outside of government who are happy to ride the veritable gravy train of state power. Too many people have learned how to “feed at the public trough“.
My study, usage, and promotion of bitcoin has been fueled by my wariness of large and unlimited government. I think all of you can, in principle, agree with my suspicion of unlimited powers of the state. Ultimately, if we boil down the vast majority of the problems that we face in the world we can usually trace them to unrestrained and unlimited government.
Fiat currencies always become the primary means by which government is able to exert so much control over its citizens. Don’t believe me? Try this thought experiment:
- Remove governments’ ability to print more currency out of thin air
- Remove their ability to sell their debts (bonds) on the open market
- Limit funding of governments’ operations entirely to tax revenues (and not debt)
I am fairly certain that no one can point to a single authoritarian or tyrannical government which is able to exert so much control without monetary inflation and foisting of its debts onto the public.
What If…?
Let’s take a moment to consider a set of possibilities pertaining to the nature of the relationship between government and the governed:
- What if we had a passive method of containing the leviathan of government without any active measures needed?
- What if government had to live within its means and budget just like you and me?
- What if government had to create a stack-ranked set of spending priorities just as everyone else does?
- What if government had no means of placing its goals above citizens’ values?
- What if government did not have the means of being self-serving?
- What if, for every governmental program it wanted to enact, it had to deactivate another?
- What if, for every dollar spent in one location, it had to save in another?
- What if the state had to compete for resources the same as everyone else?
- What if governments had to follow their two prime directives – defend individual liberties and defend contracts?
- What if the state were on equal footing as the people?
- What if government were merely a tool for serving the people and not a tool for power, politicking, and scheming?
- What if we had a way of completely neutering the state?
- What if the state were disincentivized to engage in interference of our lives?
- What if the state had to serve the citizenry and not the other way around?
Going Forward
Going forward, in future posts, I will continue to make the case that governments are inherently corrupted and incapable of self-regulation since they don’t actually exist and are, instead, actually comprised solely of fallible people (like you and me). Consequently, the best that we can (and ought to) do is to limit the deleterious effects of the state on the citizenry.
I believe the absolute optimal means of doing just that is to use a hard money standard which naturally and passively curtails all activities of the state. Thus, even if the state becomes corrupted, it is severely limited in its ability to spread that corruption because it simply doesn’t have the funds to spread its nefarious or ill-conceived goals.
Next Steps
Part 2 of this opening series, “Monetary Revolutions” comes to a close. We now move on to the meat of this opening series and the reason why we’re all here – “Part 3: Bitcoin, The Ultimate Freedom Accelerator“. In Part 3, starting here, we’ll examine what bitcoin is, its demonstrable characteristics and attributes, those of note who own bitcoin, and why it’s hard money.
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End Notes, References, & Citations
[1] Designing multiple fiat systems from the ground up
No one would ever design a system like this from the ground up. In other words, all fiat systems are far from optimal. In fact, they are a downright mess. If you are ever interested in experiencing just how poorly our financial systems are designed and operated, try sending a bank wire transfer to another country. You will encounter intrusive paperwork, questions from a banker, an elongated process, and limited hours within the week where you can actually send and receive these wire transfers.
Here is an example of how difficult and cumbersome the bank wire process is: try sending $1,000 from the U.S. to a recipient in Japan via bank wire. Then, at the very same time, send $1,000 in physical bills to the same recipient via FedEx International Priority Mail. Your physical $1,000 will arrive before the bank wire is available, and the recipient will never even need to leave the house (versus going to their bank).
[2] Systems and processes necessary to send a bank wire
In order to conduct a domestic bank wire transfer, three major phases must be executed:
- Setup and execution of the wire transfer from the sending bank
- Inter-bank transfer
- Acknowledgement and receipt by the receiving bank
Regardless of the presumed image of computer systems executing each phase with lightning speed and automation, each of the above phases require a bevy of manual steps and human cross-checks. It’s even worse for international wires.
[3] How much currency flows through the FOREX systems?
Monica.AI query (using ChatGPT-4o): “What is the total annual trade volume of currencies in the FOREX markets (valued in USD)?“
Monica.AI response:
“As of my last knowledge update in June 2023, the total daily trading volume in the Forex (foreign exchange) market is estimated to be around $6 trillion. This figure can vary, but it is widely accepted as a general benchmark.
To calculate the total annual trade volume, you can use the following formula:
- Annual Trade Volume=Daily Trade Volume×Number of Trading DaysAnnual Trade Volume=Daily Trade Volume×Number of Trading Days
- Assuming there are about 252 trading days in a year (accounting for weekends and holidays), the calculation would be:
- Annual Trade Volume=6 trillion USD×252≈1.512 quadrillion USDAnnual Trade Volume=6 trillion USD×252≈1.512 quadrillion USD
Summary:
- Estimated Daily Trade Volume: $6 trillion
- Estimated Annual Trade Volume: Approximately $1.512 quadrillion USD
For the most current figures, I recommend checking reputable financial news sources or Forex market reports, as these numbers can fluctuate with market conditions. If you need real-time data, I can assist with a web search for the latest information.“
[4] Gold’s saleability over space
This is in comparison to gold, which often lost its value over large distances due to the inconvenience and costs associated with moving and paying debts with it. These costs might include security personnel to keep it from being stolen, transportation, and verification.
[5] Popular retail payment apps
There are some common retail payment systems which are very fast at clearing transactions, such as Venmo, CashApp, and Zelle. As long as the currency stays within those virtual ecologies, then transactions can be cleared in less than one second. The real trick, though, is moving currency out of those ecologies into another system, such as a bank, requires more effort and time and regulatory compliance (such as “anti-money laundering, know-your-customer“, “AML KYC”)
[6] Confiscatory and punitive taxes
For reference, USDebtClock has high-level numbers which show the amount of tax revenues that the federal and state governments collect.