Bitcoin Economist Saifedean Ammous on Monetary History – The Bitcoin Knowledge Podcast.

Check out The Bitcoin Knowledge Podcast Show Episode Page & Show Notes.
Notes taken by Bitcoin.arby – More content here.
Key Takeaways:

 History shows people who choose the hardest form of money end up prospering and benefiting
more.
 An increase in demand for money that is not hard will result in people making more of it,
bringing its value down and making it a useless store of value.
 “What gives an asset its monetary status is not just how hard it is to find, but how hard it is to
significantly increase its existing supply.”
 Government’s ability to assign economic value to people based on their political allegiance is
barbarism, masters and slaves.
o “One section of society: government and people in central bank are able to allocate
value and wealth, whereas everybody else has to work for it, and that is essentially a
form of enslavement.”
 “Bitcoin is a response to fiat age and governments having a money printing press.”
 “Bitcoin allows us to get over all the physical characteristics of money and focus on what matters,
the economic characteristics.”
 “Silver is a lesson for those who use digital currencies that are not Bitcoin.”
 “Money is a way of storing information about who created value.”
 In a hard money economy, you can only earn money by creating value for others.
Intro:

 Host - Trace Mayer (@TraceMayer)

 Dr. Saifedean Ammous (@saifedean) is an Austrian economist and the author of The Bitcoin
Standard.
o Part 1 of a 5 part special with Saifedean about Bitcoin and the economics behind it.

Human History and Hard Money:

 Money always proceeds towards whatever is hardest to produce in a particular society, this is shaped
by the society’s technological capabilities.
 The function of money is that it stores value. Anything can be a medium of exchange but good money
stores value.
 Monetary premium of an asset is when someone buys something not for its own sake, but to
exchange it later on for something else.
 An increase in demand for money that is not hard will result in people making more of it, increasing
the supply and bringing its value down, making it a useless store of value.

o In his book, Saifedean calls this: The easy money trap – “for something to assume a monetary role, it
has to be costly to produce, otherwise the temptation to make money on the cheap will destroy the
wealth of the savers, and destroy the incentive anyone has to save in this medium.”

People Gravitate to the Hardest Money:

 When a new harder money is introduced, it drives out easier softer money.
o “This is not a matter of consumer choice. This is economic reality”
o Even if not conscious, this will emerge through market action.
 Eventually capital goes towards whatever is hardest to produce because it resists inflation.
  “History shows people who choose hardest form of money end up prospering and benefiting more,
and more wealth ends there.”

Example - Let’s Take Copper as Money:

 If everyone tomorrow decided to use copper as money, it still will not make copper money, no
matter what people think.
o Copper producers will just continue to flood the market with more copper, bringing its
value down.
o People who use copper as money will end up with massive quantities of copper that
they can’t use and will probably end up rusting.
 End result:
o We overproduced copper, making producers and miners very rich.
o Money continues to be something else.
Physical Properties of Money in the Current Age:

 Physical properties like divisibility, portability, durability, etc. were important in the past but they are
not really an issue today.
o Modern industrialization allows us to make materials with any properties we want.
 Ultimately we continue to make more of everything, least of is Gold.

Stock to Flow Ratio Explained:

 We can understand money’s hardness through understanding two distinct quantities related to the
supply of a good:
o The stock: the existing supply.
o The flow: extra production in the next time period.
 Stock to flow: How much extra is produced compared to existing stockpiles.
 Stock to flow is a key concept in Saifedean’s book.

Why Metals Rarer than Gold (Platinum, Titanium, etc...) Don’t Have Any Monetary Demand:

 The stock of Gold is much larger and widely distributed.

o We have had a 6000 years head start of building up a large stock of gold.
o New flow of production is very small compared to existing stock.
 Other metals may be rare, but new flow is significant compared to stock.
o Mining will produce a high percentage of new supply would likely depress the price.
 Gold has perfected its stock to flow ratio over thousands of years
 “What gives a thing its monetary status is not just how hard it is to find, but how hard it is to increase
the existing supply of significantly.”
 Trace Mayer adds that it is a calculus type function, the rate of change is what matters.
o “Not much how much you have got but the rate of change to how much you have got.”

Why Silver Lost its Monetary Role:

 “Silver is a lesson for those who use digital currencies that are not Bitcoin.”
 Silver played an important monetary role when physical metals were money.
o Silver was a smaller denomination of Gold.
 As technology advanced, people started using the gold standard, monetary and credit instruments
backed by physical gold to clear payments.
o Recall: “The society’s choice of money is shaped by its technological capabilities.”
 After 1871 Franco-Prussian war, Germany switched from a silver standard to a gold standard.
o This was a turning point, most of Europe was now on a gold standard.
  “Everybody started dumping their silver and moving towards gold. The earlier you get rid of your
silver, the better off you were.”
 Historical price between gold and silver was always 1:14, prices crashed since then reaching 1:40-70
in recent years.

Bitcoin as Money:

 Money is a way of storing information about who performed value.

o A way for you to keep score of value you have produced and want to store for future
spending.
 Over time, we have found metals that have been particularly good at carrying this information
because of their physical characteristics.
 Bitcoin allows us to get over the physical characteristics of money and focus on what matters, the
economic characteristics, which Bitcoin does better than anything physical.

Polymaths Have Always Been Interested in Money:

 The way in which economics of money affect society and human life are amazing.
 Some of the most important people were interested in Alchemy and money.
o Isaac Newton developed the gold standard and worked on Alchemy.
o Nicolaus Copernicus derived the Quantity theory of money and formulated what is now
known as Gresham’s law.

Nation State and Hard Money:

 Bitcoin is a response to fiat age and governments having a money printing press.
 Many believe that governments never face any constraint on resources and are able to fulfill people’s
wishes on anything.
o All that’s needed is people voting and politicians having courage and leadership.
 “Many schools of thought, if you call this thought, are built on this
thoughtlessness.”

Is Gold Really a Barbarous Relic like Keynes said?

 Saifedean thinks Keynesianism is the barbarous relic and not gold.

 In a hard money society, you can earn money only by providing real value to others, who give you
value back in its static form – gold.
o “This is something Keynes wasn’t capable of understanding because he never studied
economics”
 The alternative is an easy money society where central banks provide value.
o Creation of money stops being a process that takes economic value (mining or producing)
and becomes a political issue.

Fiat Government Easy Money is Slavery:

 Government’s ability to assign economic value to people based on their political allegiance is
barbarism, masters and slaves.
 One section of society, government and people in the central bank, are able to allocate value and
wealth, whereas everybody else has to work for it.
 You can create value and you can take value from others, banking systems can confiscate someone’s
value completely. – “This is essentially a form of enslavement.”
 This is usually sold as government using inflation for improving the economy, which is fictitious
economic nonsense.
  Trace Mayer adds:
o How can they have the knowledge to know what people actually want?
o They are interfering with the tool that performs economic calculation (money).

Economic Calculation and Austrian School of Economics:

 You need prices and price mechanism for economic calculation to function
o Prices act as information that allows individual decision making on what to produce and
what to consume.
o Prices shape decisions and decisions influence price.
 This is a constant dynamic interactive process that is constantly taking place and
that is how markets function.
 For this to work, people need to perform calculation using one unit, which is money.
o This unit is least likely to be subject to fluctuations of industrial supply and demand.
 Its demand and supply are about its role as money.
o This increases efficiency and reduces mistakes.

Money and industrial uses:

 Ludwig Von Mises discussed how gold is not ideal money because it has industrial uses which affect
its price and demand on the market.
o But... Gold’s liquidity and monetary demand have gotten so large that non-monetary uses
are insignificant in its value determination.
 The amazing thing about Bitcoin is that the demand for it is nearly purely monetary.
 Government money is the worst.
o It is subject to the fluctuations of politics and inflationary/ deflationary crisis and it is not
limited.
 Ideal money is used purely as a monetary asset.

Industrial uses for Bitcoin?

 Other alt-coins can anchor their blockchains to the Bitcoin blockchain, locking up satoshis in the
process, to potentially help harden databases or other information systems.
 Saifedean thinks this is widely over promised.
o The main use for Bitcoin’s blockchain is a censorship resistant final settlement layer of
payments.
o As Bitcoin becomes more valuable, the transaction fee for using the limited block space
becomes more expensive.
o Time will tell if non-monetary uses are an economically valuable enough use of block space.