This material is a review of the book by economist Seifedin Ammus “A Brief History of Money, or Everything You Need to Know About Bitcoin”.
After reading the title of the book “A Brief History of Money, or Everything You Need to Know About Bitcoin,” you might think that it will deal with Bitcoin . A person who is alien to the topic of cryptocurrency and who knows only that the price of Bitcoin has fallen from $ 20,000 to $ 4,000 is unlikely to consider this work worthy of his attention and would prefer to buy a volume of Tony Robbins in order to “wake the giant in himself”. And it is in vain.
Seyfedin Ammus decided not just to tell the story of Bitcoin and describe the ideology of the people who stood at its source, but to follow the development of money from primitive societies to this day and answer the question of how and why we came to Bitcoin.
Many representatives of the academic community in the economic sector are usually very distant from objective reality, creating theories for theories and fitting facts to hypotheses, and not vice versa.
This is explained as follows :
- They really do not understand that the basic tenets of their science in practice lead to the most dire consequences [incompetence].
- They depend on government budgets and are forced to defend the Keynesian economic model, which in practice is contrary to common sense [self-interest].
However, academics have an undeniable advantage: they know how to structure large amounts of data and build them into a logical chain (even if the data is false). Ammus demonstrated this virtue in all its glory and abandoned the traditional pomp of scientists, which is expressed in the complexity of the wording.
Money is a medium of exchange, a means of accumulation and a unit of account. If these things seem obvious to you, then you will probably be surprised when you realize that the advocates of the current economic model pervert this extremely simple paradigm.
There are two types of means of payment or money: hard and soft. The ratio of two simple indicators helps to determine the hardness and softness of any means of payment:
- reserve [how many units there are],
- inflow [how much will be manufactured].
And it so happened that the whole history of money revolves around this simple formula.
Most modern economists refuse to understand a very simple fact: the state can oblige all citizens to use a certain means of payment, but cannot make it a firm decree of parliament. For thousands of years, mankind has determined the best means of payment, whose inflow is low enough so as not to depreciate savings. And so it happened that a long search by trial and error led society to the answer that it was gold.
All beads, stones, shells, coins from other metals and pieces of paper lost the monetary battle to gold. Silver held the longest, but it eventually fell. The period when Europe moved to the gold standard was characterized by unprecedented economic prosperity, the rapid development of new technologies and art. Currencies were backed up by reserves of gold, which simplified the conversion and favored free trade.
Society accumulated capital to invest in the future, because the higher the standard of living, the lower the temporal preference: people are willing to limit themselves to something in order to get more in the future. This is possible only when hard currency is in use.
Unfortunately, even a prosperous society is not immune from unforeseen events. Until now, historians [one more theorists] cannot thoroughly explain why the conflict between Austria-Hungary and Serbian nationalists turned into a world war, but this is no longer so important.
It was then that the very clever people who decided to reshape the economic system for themselves and their beliefs appeared, which naturally led to the catastrophe. When gold in the form of money was in the hands of the population, the government could wage war only at the expense of its own treasury and additional taxes. But the abandonment of the gold standard, the creation of central banks and the transition to monetary nationalism allowed the powers that be to print money, up to the complete impoverishment of the population to maintain their aggressive adventures. And now we are not talking about history, but about the current state of things, since the theater of the absurd has been going on for more than a century.
More than a hundred years ago, the government turned on the printing press, Europe found itself in ruins, the population lost almost all the savings in a war that did not have any clear reason. But instead of recognizing the rejection of the gold standard as a mistake, the authorities blamed the economic collapse on this standard, and the British economist John Maynard Keynes managed to turn this insanity into a science that is being taught at universities around the world today.
Keynes quickly realized that politicians and bureaucrats wanted to hear, and he developed a doctrine that said that the state of the economy was determined by the level of total expenditures. The more expenses the better. If you spend nothing, then you need to print more money. Thus, in the hands of the states turned out to be the apparatus that made them virtually omnipotent – the printing press. The fact that real life has repeatedly proved the inconsistency of this doctrine still does not bother anyone.
Modern educational programs claim that the cause of economic crises lies in the late or improper intervention of states in the life of the market, but they overlook one simple axiom: it is government intervention in market relations that is the cause of any crisis, the root of all problems.
“Seriously to believe that the central bank can overcome or curb the recession is as naive and dangerous as putting the pyromaniac at the head of the fire brigade ,” writes Ammous.
In the West, the communist planned economy was constantly ridiculed as untenable, but all central banks are planning on the most important market — the capital market. Thus, the interest rate is not determined by the natural balance between supply and demand in the investment market, but imposed by a group of bureaucrats and academics who think that they should know better how the market should work.
Now, instead of producing goods and engaging in productive economic activity, enterprises are forced to follow fluctuations in floating rates and analyze possible actions by governments and central banks. Thus, a small group of people took from society a solid means of payment, which is necessary for prosperity, and created a system where banks make a profit, but do not bear any risks.
The emergence of Bitcoin in this context, Ammus believes, was a turning point. Despite the frank hostility of the traditional system, he managed to survive because he was chosen by society and not imposed from above. This is the first and only asset whose ratio of reserve and inflow exceeds gold due to strictly limited emissions and dynamic changes in the complexity of mining. The latter does not increase the supply with a sharp increase in demand, which indicates the phenomenal hardness of the first cryptocurrency.
At the same time, Bitcoin is a real scarce resource, the first after time. The lack of other resources is relative, because you can always get and produce more if you invest more man-hours. In this sense, Bitcoin once again proved its uniqueness.
Bitcoin is a distributed system, no one can manage the offer or withdraw it from use, as was the case with gold. If you join a network, you voluntarily agree with its rules. It’s like the rotation of the Earth, since you can only agree with that.
The rules can be changed only if the nodes supporting the functioning of the network that are interested in its prosperity agree with this. Thus, all changes are aimed only at its strengthening. Arranging attacks on the network is unprofitable for the attackers, since the loot will immediately lose its value, which guarantees the safety of the savings.
Thus, Bitcoin not only has all the advantages of gold, but also offers previously inaccessible options to society – a completely new standard of value that can fundamentally change the economy of the world, currently working in accordance with the insane doctrine of John Maynard Keynes, who claims that politicians and bureaucrats have magical abilities.
Seifedin Ammous is a professor of economics at the Adnan Cassar Business School at the American University of Beirut. He is also a foreign representative at the Center for Capitalism and Society at Columbia University.
Ammus has a doctoral degree in sustainability from Columbia University in New York and a master's degree in management systems from the London School of Economics.
Publication date 15/04/2019
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