Sound money Vs Consumption money

I still remember when my lecturer brought up block chain topics in her finance class. Long story short, I found myself ‘defending’ the bitcoin economics. The point I tried to make was the concept of ‘consumption money’ where money keep inflating (4% average a year) is ridiculous and should not be seen as NORMAL. To make things interesting half of the class are government servants, in fact there are a few of them who works in the Ministry of Finance, so it kind of heat up quickly. Most of them believe that central planning is the key to sustainable economic growth, of course they do.

“ It is difficult to get a man to understand something, when his salary depends on him not understanding it”- Upton Sinclair.

I believe the Keynesian theory that champs our economy is deeply flawed. The premise is simple, to improve the economy, more money need to change hand, the faster the better; high money velocity = good economy, except it is not true. Deficit spending is like charging your money on your credit card, but not having to pay off the principal for 30 years or so. We got to spend today so that the future generation would pay for it. The questions people need to ask “Who makes these decisions to print more money? Who is going to pay for it?”

“Scarce money leads to abundant mind, abundant money leads to scarce mind”- Henry Ford.

Abundant uncapped money might create a society with lack of prudence. Civilized society depends largely on the virtues of its citizens; the general mindset is what defined a society. Without prudence, planning for a shared future becomes impossible as most people simply don’t think much about it. We can see this affecting our daily productivity such as delay of work, lack of creative contribution, drop in staff performance and so on. I’m not going to blame them, why need to work harder when their pay is guaranteed? The ‘system’ only requires them to be present at the designated place and work on a given task. In fact, most of the times they are rewarded by amount of time spent not by how productive they were. On the other hand, sound money encourages prudence and change the incentive structure toward future-orientation. Take example the era(1800–1933) before the fiat based money is popular, so much invention created back then, where money is seen as sound and hard to get. You would think twice to spend your money, because you know it is valuable, and spending on unnecessary thing will be avoided at all cost because it is hard to get, so you will choose to spend it wisely. These resources are limited, and when investing they will make full use of it, people will go to great length to make full use of what they had spent, as a result we can see the emerging of new creative creation.

If we look at the current trend, people can simply spend hundreds if not thousands of dollars for fashions. It is well understood when it come to human affection there’s no limit and values are subjective. But from science and academic point of view it is absurd. Except in a Fiat system it is not, it is completely normal; you spend now, you will get more later, so what’s the fuss? Fiat currency, because of its inflationary property, encourages spending. Spending money now vs. later changes the mentality of people in a particular way. Specifically, they are less motivated to be prudent with their money. Now in of itself, spending money to get some good or service is not a bad thing. That’s how markets work. When inflation enters the picture, however, the motivation to spend increases and thus, the demand for goods increases. This means that in general, goods and services become more expensive. The preferences change so that people are more motivated for things now vs. things later. Since saving is discouraged in a fiat system, there is less planning. In a fiat system, there is a preference for living day-to-day rather than planning a life many years from now. The typical mentality found in people with short-time preferences is YOLO (you only live once) without much regard for tomorrow.

A member of the class spoke“So you discouraged people to spend? Only focus on saving? Did you know what happened in Korea in 1998 when Koreans change all their KRW into gold and stop pouring it into the economy? They need IMF to bail them out!!”- Those were good questions. My answer to those questions is YES. Just take a look at where South Korea is now! How much have they prosper? It is never a bad decision to let the people decide what to do with their own money. Do you really think a sane human will be so dumb to hold on to their gold and die of starvation? Eventually they will have to spend some in order to survive. The law of supply/demand apply in every market; there is no need for a group of people to decide how much money the citizen deserved. The government will try their best to control the currency, eventually the market will decide.

disclaimer: this is not a financial advice. Contents are author’s personal opinions notably influenced by Andreas Antonopoulos and Jimmy song.

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buyer of blood, seller of dream