Bitcoin to transform humanity’s understanding of economics

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Many revolutionary technologies have profoundly affected humanity’s understanding of the world.

The success of the first computers in the early 20th century forced people to understand that the world was computable. The first steam engines in the 18th century forced people to understand the dynamics of work and heat.

Bitcoin will play a similar role with respect to humanity’s understanding of economics.

For example, there are many schools of economic thought that claim that stateless money is impossible. Such schools also tend to argue that it is beneficial for the economy to create new money out of thin air.

Understanding Bitcoin necessarily involves understanding the nature of money itself and what its actual role is in the economy. The emergence of a Bitcoin (BTC) standard will lead to a revolution in humanity’s understanding of economics.

Impossible economy

At the beginning of the 20th century, the economist John Maynard Keynes developed a macroeconomic theory we now call ‘Keynesianism.’

The infamous stock market crash of 1929 dissuaded Keynes that free market capitalism could not prevent such economic disasters, and he began to rethink the nature of the economy, arguing that demand – rather than deliver – is the engine of economic growth.

Keynes said that if aggregate demand determines supply, then it follows that aggregate expenditure determines both the production of goods and the rate of employment.

Since, according to Keynes, demand drives supply, it follows that governments can lift an economy out of recession by propping up demand. They can do this through deficit spending and/or lowering interest rates.

There are a number of problems with both Keynes’s economic theory as well as his prescriptions, but the mechanics of Bitcoin contradict Keynes’ principle that demand drives supply.

In science, a single contradictory example is enough to disprove a theory – po it is with Bitcoin and Keynesian economics.

Bitcoin’s supply schedule is not driven by demand. On the contrary, the number of Bitcoins in circulation is predetermined by mathematics and code. A new block is added to Bitcoin’s blockchain approximately every 10 minutes.

For each new block, a fixed number of Bitcoins are added to the supply. For every 210,000 blocks, this allowance is reduced by a factor of two. For example, right now, the ‘block reward’ is 6.25 BTC.

On or about March 18, 2024, the next “halving event” will occur, and each new block will come with just 6.25 BTC divided by 2, which equals 3.125 BTC. This entire cycle will continue until there are 21,000,000 Bitcoins in circulation.

It doesn’t matter how much people demand Bitcoin. The cycle described above continues, completely indifferent to our relationship with the digital resource.

It is no coincidence that Paul Krugman, one of today’s leading Keynesian economists, describes crypto (read: Bitcoin) as having “no backstop, no tie to reality” and that “Bitcoin plays into a fantasy of self-sufficient individualism … untainted by institutions like governments or banks.”

It is understandable why Krugman and other Keynesians dislike Bitcoin – its success would deal a fatal blow to their entire economic theory. Not only that, but Bitcoin also makes their political prescriptions that much harder to implement.

Governments cannot print Bitcoin to add liquidity to the market. Thus, Bitcoin threatens the livelihood of Keynesians.

MMT (Modern Monetary Theory) is best understood as a more advanced cousin of Keynesianism. MMT has recently gained prominence, as governments sought a justification for increased spending during the global Covid-19 pandemic.

At its core, MMT asserts that “there is no economic constraint on government spending as long as a country is a sovereign issuer of currency and does not peg the value of its currency to another currency.”

In today’s political order, MMT gives the US the right to print new money into existence without limits. Once again, a Bitcoin standard would make this completely impossible. Those still advocating MMT on a Bitcoin standard will seem like flat earthers telling us we can’t sail around the world.

Putting aside particular economic theories, the idea that the government must decide which currency people can use is widely accepted. The more popular Bitcoin becomes, the more its very existence serves as a critique of that idea.

The cognitive dissonance will reach the breaking point at different moments for each individual. One by one, Bitcoin’s trajectory towards the next global reserved asset will shatter people’s false economic assumptions.

The economic awakening

When people realize the flaws in their worldview, many will not stop at money. They may be thinking, “If I got it wrong that the government must control money, what other assumptions did I get wrong? Is government necessary to provide health care, charity and even courts?”

They will seek economic theories that are consistent with their new discoveries.

They will no longer succumb to what they now see as propaganda – those who have a vested interest in making you think that we cannot have functional money without government intervention.

These curious souls may stumble upon Austrian economics, a theory of how people act purposefully in a world of scarce resources. They will discover Mises’ regression theorem – a perfectly reasonable explanation of how money can appear in the absence of top-down control.

Before Bitcoin, they might have scoffed at such an explanation. But now that Bitcoin has demonstrated the plausibility of stateless money, they are not so quick to dismiss such explanations for the rise of money.

And if they accept the regression theorem, there is no reason for them to stop there. They may be wondering how the prices generally arise. They may discover that prices are not arbitrary, according to the same economic theory that gave them the regression theorem.

Price gouging is not a bad thing after all – when demand increases, prices necessarily rise in response. Likewise, corporations are no more greedy than any other entity. In a free market, they only make a profit by supplying goods and services that customers want to buy.

They may realize that interest rates are not arbitrary either, but rather the price of borrowing money. And this leads to the most significant realization of all – that the forced lowering of interest rates is the cause of the boom-and-bust cycle.

Contrary to the ideas of the Keynesians, government intervention in interest rates does not pull us out of a recession, but rather creates the conditions for a new one.

Such an economic awakening is happening every day, all over the world. Bitcoin is more than an imperishable global asset. It is an economic teacher – one that will pull us from the Keynesian Dark Ages into an Austrian Golden Age.

Kent Halliburton is the President and COO of Sazmining, the world’s first Bitcoin mining platform designed to connect individual retail miners with carbon neutral/negative Bitcoin mining facilities. Halliburton is a business operator with deep expertise in Bitcoin mining and solar energy.

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