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What do people think of the thesis expressed in The Bitcoin Standard that the replacement of the gold standard by fiat currency led to a short-termist mindset a

What do people think of the thesis expressed in The Bitcoin Standard that the replacement of the gold standard by fiat currency led to a short-termist mindset among people? In other words, we now have artificially high "time preference" as a result of our currency inflating and the resulting disincentive to save money. The book also argues that fiat currency encourages people to get into debt and risk bankruptcy as a result. In doing so, it increases demand, drives prices up, thereby further incentivising people to borrow money, creating a vicious spiral of debt and increasing prices. While the former sounds strange to me, I find the latter to be interesting. But I'm not an economist, so I don't know whether my summary is accurate.

rat87 5y ago
Seems pretty off Fiat currency encourages growth and stability
imtringued 5y ago
You got that backwards. Gold leads to extreme short-termist mindsets. Just read up on the Great Depression. During a recession people hold onto money to isolate themselves from losses in the real economy. People would rather speculate on currency than do real work that may be unprofitable today but highly profitable in 5 years. If you have a company that is losing money, then simply holding onto interest bearing money nets a superior return. The strange part is, what do you spend the money on, now that the company is gone? Even stranger, that company might not be needed today but it certainly will be needed in 5 years when the economy has recovered. If your money goes up in value you would burn down the rain forest today to earn as much money as quickly as possible. You would sell your company and fire everyone to get your hands on money that goes up in value or at least doesn't lose value in a recession. Unfortunately, reality doesn't work that way. You cannot wash this year's dishes in January. You cannot grow all the food you will ever eat in your 20s and then preserve it until you are 90 years old. So your money is going up in value and you stop working. Who's making the damn food? Who's washing the dishes? Either the young or nobody. If your money goes down in value you want to burn down the rain forest as late as possible because burning it down today will leave you with money that decreases in value. Burning it down tomorrow lets you avoid your money going down in value. Inflation raises the expected value of future cash flows. It encourages you to exchange decaying money for durable goods that decay at a slower rate. This is important because the real world decays through aging (living organisms and materials like steel). If money decays at a slower rate than the world then people will pretend that the world doesn't decay and perhaps accelerate its decay. If money decays at a faster rate than the world then people will try to minimize decay in the real world. So if anything, extremely low inflation is bad.

rat87 5y ago

Seems pretty off Fiat currency encourages growth and stability

imtringued 5y ago

You got that backwards. Gold leads to extreme short-termist mindsets. Just read up on the Great Depression. During a recession people hold onto money to isolate themselves from losses in the real economy. People would rather speculate on currency than do real work that may be unprofitable today but highly profitable in 5 years. If you have a company that is losing money, then simply holding onto interest bearing money nets a superior return. The strange part is, what do you spend the money on, now that the company is gone? Even stranger, that company might not be needed today but it certainly will be needed in 5 years when the economy has recovered. If your money goes up in value you would burn down the rain forest today to earn as much money as quickly as possible. You would sell your company and fire everyone to get your hands on money that goes up in value or at least doesn't lose value in a recession. Unfortunately, reality doesn't work that way. You cannot wash this year's dishes in January. You cannot grow all the food you will ever eat in your 20s and then preserve it until you are 90 years old. So your money is going up in value and you stop working. Who's making the damn food? Who's washing the dishes? Either the young or nobody. If your money goes down in value you want to burn down the rain forest as late as possible because burning it down today will leave you with money that decreases in value. Burning it down tomorrow lets you avoid your money going down in value. Inflation raises the expected value of future cash flows. It encourages you to exchange decaying money for durable goods that decay at a slower rate. This is important because the real world decays through aging (living organisms and materials like steel). If money decays at a slower rate than the world then people will pretend that the world doesn't decay and perhaps accelerate its decay. If money decays at a faster rate than the world then people will try to minimize decay in the real world. So if anything, extremely low inflation is bad.