Great article F0xr, i found my way here from your Nostr post. This is very easy to read and a resource for people starting to find their way down the "what is money" rabbit hole. Keep writing..
If only working hard and being frugal was automatically rewarding🤭 I like your article it's simple enough for this carpenter to follow. And I will follow for more content. Eating the seed corn is a saying that I will try to incorporate into conversations in the future..
Carpentry is my day job as well. It tends to be repetitive at times, which leaves plenty of opportunity for my mind to wander and explore different concepts and ideas.
I am a welder and fabricator and most days at work I find myself also thinking or listening to something I find interesting as at some point you will get good enough at your job that you don’t have to think too hard about it to still do it well.
Hey great article! I came here from your Nostr “ad campaign” so message me back here on Nostr and let me know how it goes! I’m a small business as well!
I like the swimming naked in the tide quote reference haha. Who was that again? Munger or Buffet right?
I like what you said about money just being a ledger for deferred consumption. I recently listened to a pidcast that described it great too, but more abstract in a way than you did, but i think helps to lend some understanding to money and how it works as well. He described it as both a vessel like a cup, and the value that the cup has. The value is actually the space in which YOU CAN FILL the cup. The money is the vessel that you store your value like bitcoin does (especially in the equity sense you talk about!) but also, your money is what you trade your energy and time for and put IN that cup as well, to later be used to pour out at a different time and place for something else you like, and even pour into somebody elses cup. In a way, this new form of money in BTC, because of the tech element, is both the Cup AND the liquid in a way! So interesting to think about…
Also, i 100% agree with your implications. The shifts that can happen from these major foundational changes is basically incomprehensible, because try as we might, nobody can know the damn future haha or how irrational or rational us as a DUNCE human race can be haha. The same podcast i listened to compared the change Bitcoin can have for money that the discovery of the number “0” had for math. Love that kind of stuff! Bitcoin possibilities are INFINITE! 😉
But i like how you toy and play with the concepts and project out your thoughts of the future. The more people do that, the possibilities that will become apparent, i think. So keep on writing! A definite follow from me!
That's a very interesting analogy. Money is so closely tied to the concept of value. And value is really a human concept, so the value of different things is essentially determined by how we humans act. Fascinating to think about.
Very compelling thought experiment about deflation (if I'm calling that correctly).
We all know that the main argument for 'stable inflation' is to "incentivise investing". It does sound like a sensible argument, notwithstanding the fact that as you've described inflation itself creates many other problems. However, do you not think that deflation would cause the economy to stagnate?
Perhaps we should aim for a middle ground, where despite saving being a free and sensible way for most people to secure a future, anyone feeling frisky is free to invest instead if they think they can do better (than e.g. 2% deflation).
From what I observe, however, very few people dare to invest as is. Especially in a post-communist country like Poland. Then again there are ways to incentivise startups like they do in Georgia (საქართველო), where if I recall correctly you pay 1% tax over the first 10k dollars profit per year. My Georgian lawyer friend told me that currently plans are in the works to raise the almost tax free amount to 50k. (I forget the exact numbers, I can ask him if you are super curious).
To leave you with a thought: I heard about this place called Huaxi village, that came up with a weird hybrid socialist/capitalist system. It propelled its inhabitants into insane wealth (albeit limited, because, well, socialism). Are you familiar with this story?
I wasn't familiar with Huaxi village until now. Just did a little research, and from what I can find it's an interesting situation but didn't seem particularly good all things considered. It sounded like a family that set up essentially a private corporation in communist China, but got away with it by cutting in the villagers as "shareholders". But the original family ended up controlling the vast majority of the wealth, and the villagers that got dividends were only less than 5% of the actual residents, since the migrant workers and villagers from surrounding areas didn't get paid well or collect any dividends or benefits from the village.
On deflation: first we need to clarify the difference between deflation in a credit based system and deflation in a hard money system. Across-the-board deflation in a credit based system is a disaster. It happens because of the growth and collapse of credit bubbles that inevitably occur, and due to the structure of fractional reserve banking, credit bubble deflation leads to large-scale banking system collapse and disaster. Since we live in a credit based system, this is the scenario critics of hard money use, although it makes no logical sense to apply a result of credit bubbles to a system that shouldn't have credit bubbles.
In a hard money system, deflation isn't caused by credit bubbles collapsing and shrinking the money supply, since the money supply is stable. It's caused by increasing efficiency and more abundant goods and services. So if deflation is happening, that's proof that enough investment is occurring to increase efficiency. It's really a self-defeating question under a hard money system. If deflation is occurring, then we already know the economy is not stagnating because the falling prices are proof that the economy is becoming more efficient and living standards are rising.
To look at it another way: if inflation is 4% due to money supply growth in a credit based system, and you invest in an enterprise that gives a 3% return, you can avoid some of the inflation, and therefore it becomes a "good investment." But in reality, it's not a good investment, it's a mal-investment. The enterprise doesn't provide enough value to the economy to outperform the increase in the money supply. It's not creating economic value, it's destroying economic value. That's a zombie company, that doesn't make enough revenue to cover the interest on its debt and must constantly borrow more to stay afloat. Those economic vampires can only exist in our economy because inflation makes it better to invest in a losing enterprise than to absorb the full loss in purchasing power of inflation.
But the bottom line is that this is a deceptive argument based on a misconception about the nature of fractional reserve banking. In a fractional reserve system, the credit businesses use to operate and grow doesn't depend on individuals "investing" their money. The credit depends on people NOT investing their money and being content to hold it as a bank deposit balance and carry the full burden of inflation. The banks don't "loan out" money people deposit to them. Instead, they create new money by the act of making the loan. As long as individuals are willing to hold that new money in a bank account, the system continues to function. And it must be that way, because you can't "invest" the money out of a bank account. If you "invest" the money, it merely travels from your bank account to someone else's bank account, where they then have to accept debasement through inflation. Or "invest" in a different asset, which just sends the money to someone else's bank account, ad infinitum. This is the mechanism that drives asset price bubbles, which are very beneficial to the fractional reserve banking system by driving up the nominal price of their collateral and keeping their books solvent. And it operates constantly, because the only way to actually remove that new money from a bank account balance somewhere is through loan repayment.
I believe you're right that under a deflationary system people would be free to invest if they chose to. The difference is that mal-investment would drop dramatically because the hurdle rate is higher (instead of just having to beat the rate of inflation, you have to outperform the deflation of just saving money). I don't see that as a problem, because any investment that can't beat that hurdle rate is a mal-investment and just a form of wealth redistribution anyway. We'd be better of without them.
Great article F0xr, i found my way here from your Nostr post. This is very easy to read and a resource for people starting to find their way down the "what is money" rabbit hole. Keep writing..
If only working hard and being frugal was automatically rewarding🤭 I like your article it's simple enough for this carpenter to follow. And I will follow for more content. Eating the seed corn is a saying that I will try to incorporate into conversations in the future..
Thanks for the kind words Michael!
Carpentry is my day job as well. It tends to be repetitive at times, which leaves plenty of opportunity for my mind to wander and explore different concepts and ideas.
Appreciate the follow!
I am a welder and fabricator and most days at work I find myself also thinking or listening to something I find interesting as at some point you will get good enough at your job that you don’t have to think too hard about it to still do it well.
Hey great article! I came here from your Nostr “ad campaign” so message me back here on Nostr and let me know how it goes! I’m a small business as well!
I like the swimming naked in the tide quote reference haha. Who was that again? Munger or Buffet right?
I like what you said about money just being a ledger for deferred consumption. I recently listened to a pidcast that described it great too, but more abstract in a way than you did, but i think helps to lend some understanding to money and how it works as well. He described it as both a vessel like a cup, and the value that the cup has. The value is actually the space in which YOU CAN FILL the cup. The money is the vessel that you store your value like bitcoin does (especially in the equity sense you talk about!) but also, your money is what you trade your energy and time for and put IN that cup as well, to later be used to pour out at a different time and place for something else you like, and even pour into somebody elses cup. In a way, this new form of money in BTC, because of the tech element, is both the Cup AND the liquid in a way! So interesting to think about…
Also, i 100% agree with your implications. The shifts that can happen from these major foundational changes is basically incomprehensible, because try as we might, nobody can know the damn future haha or how irrational or rational us as a DUNCE human race can be haha. The same podcast i listened to compared the change Bitcoin can have for money that the discovery of the number “0” had for math. Love that kind of stuff! Bitcoin possibilities are INFINITE! 😉
But i like how you toy and play with the concepts and project out your thoughts of the future. The more people do that, the possibilities that will become apparent, i think. So keep on writing! A definite follow from me!
Thanks for the kind words!
That's a very interesting analogy. Money is so closely tied to the concept of value. And value is really a human concept, so the value of different things is essentially determined by how we humans act. Fascinating to think about.
Very compelling thought experiment about deflation (if I'm calling that correctly).
We all know that the main argument for 'stable inflation' is to "incentivise investing". It does sound like a sensible argument, notwithstanding the fact that as you've described inflation itself creates many other problems. However, do you not think that deflation would cause the economy to stagnate?
Perhaps we should aim for a middle ground, where despite saving being a free and sensible way for most people to secure a future, anyone feeling frisky is free to invest instead if they think they can do better (than e.g. 2% deflation).
From what I observe, however, very few people dare to invest as is. Especially in a post-communist country like Poland. Then again there are ways to incentivise startups like they do in Georgia (საქართველო), where if I recall correctly you pay 1% tax over the first 10k dollars profit per year. My Georgian lawyer friend told me that currently plans are in the works to raise the almost tax free amount to 50k. (I forget the exact numbers, I can ask him if you are super curious).
To leave you with a thought: I heard about this place called Huaxi village, that came up with a weird hybrid socialist/capitalist system. It propelled its inhabitants into insane wealth (albeit limited, because, well, socialism). Are you familiar with this story?
I wasn't familiar with Huaxi village until now. Just did a little research, and from what I can find it's an interesting situation but didn't seem particularly good all things considered. It sounded like a family that set up essentially a private corporation in communist China, but got away with it by cutting in the villagers as "shareholders". But the original family ended up controlling the vast majority of the wealth, and the villagers that got dividends were only less than 5% of the actual residents, since the migrant workers and villagers from surrounding areas didn't get paid well or collect any dividends or benefits from the village.
On deflation: first we need to clarify the difference between deflation in a credit based system and deflation in a hard money system. Across-the-board deflation in a credit based system is a disaster. It happens because of the growth and collapse of credit bubbles that inevitably occur, and due to the structure of fractional reserve banking, credit bubble deflation leads to large-scale banking system collapse and disaster. Since we live in a credit based system, this is the scenario critics of hard money use, although it makes no logical sense to apply a result of credit bubbles to a system that shouldn't have credit bubbles.
In a hard money system, deflation isn't caused by credit bubbles collapsing and shrinking the money supply, since the money supply is stable. It's caused by increasing efficiency and more abundant goods and services. So if deflation is happening, that's proof that enough investment is occurring to increase efficiency. It's really a self-defeating question under a hard money system. If deflation is occurring, then we already know the economy is not stagnating because the falling prices are proof that the economy is becoming more efficient and living standards are rising.
To look at it another way: if inflation is 4% due to money supply growth in a credit based system, and you invest in an enterprise that gives a 3% return, you can avoid some of the inflation, and therefore it becomes a "good investment." But in reality, it's not a good investment, it's a mal-investment. The enterprise doesn't provide enough value to the economy to outperform the increase in the money supply. It's not creating economic value, it's destroying economic value. That's a zombie company, that doesn't make enough revenue to cover the interest on its debt and must constantly borrow more to stay afloat. Those economic vampires can only exist in our economy because inflation makes it better to invest in a losing enterprise than to absorb the full loss in purchasing power of inflation.
But the bottom line is that this is a deceptive argument based on a misconception about the nature of fractional reserve banking. In a fractional reserve system, the credit businesses use to operate and grow doesn't depend on individuals "investing" their money. The credit depends on people NOT investing their money and being content to hold it as a bank deposit balance and carry the full burden of inflation. The banks don't "loan out" money people deposit to them. Instead, they create new money by the act of making the loan. As long as individuals are willing to hold that new money in a bank account, the system continues to function. And it must be that way, because you can't "invest" the money out of a bank account. If you "invest" the money, it merely travels from your bank account to someone else's bank account, where they then have to accept debasement through inflation. Or "invest" in a different asset, which just sends the money to someone else's bank account, ad infinitum. This is the mechanism that drives asset price bubbles, which are very beneficial to the fractional reserve banking system by driving up the nominal price of their collateral and keeping their books solvent. And it operates constantly, because the only way to actually remove that new money from a bank account balance somewhere is through loan repayment.
I believe you're right that under a deflationary system people would be free to invest if they chose to. The difference is that mal-investment would drop dramatically because the hurdle rate is higher (instead of just having to beat the rate of inflation, you have to outperform the deflation of just saving money). I don't see that as a problem, because any investment that can't beat that hurdle rate is a mal-investment and just a form of wealth redistribution anyway. We'd be better of without them.