Fiat Breaks Capitalism Bitcoin Fixes It – Bitcoin Magazine
This is an opinion editorial by Hannah Wolfman-Jones, author of “System Override: How Bitcoin, Blockchain, Free Speech, & Free Tech Can Change Everything” and founder of We The Web.
Capitalism is controversial these days. Many people look at social problems today and lay the blame squarely at the feet of capitalism. What these crusaders who proudly label themselves “anti-capitalists” fail to realize is that the global fiat system we have today is not really capitalism.
Under capitalism in its purest form, people with capital invest in businesses and ventures that they believe are profitable and thus likely to generate returns. Investors must make difficult sound judgments and take on the risk of losing big. Their capital – when invested in a successful business – enables the creation of services, goods and jobs that are wanted by people, making the profits awarded to successful investors fair. Through investors in a free market, worthy enterprises can obtain the capital they need to start or expand a successful business, increasing the prosperity of society in a meritocratic manner.
Unfortunately, this system has been greatly disrupted as the decentralized judgments of millions of independent actors in a free marketplace have been replaced by the unilateral judgments of a few bureaucrats. Under the fiat money system, the money itself is controlled by a small cabal of unelected economists and bankers. Capitalism is about free markets. When it comes to our money itself, the currencies used, their supply and interest rates are not market determined, but rather calibrated by bureaucrats. This is not capitalism.
So, instead of spending all their considerable analytical effort looking at possible business ventures and market needs, savvy capital allocators must follow and predict the actions of central banks, whose dictates can tip entire economies into bear or bull runs. “Don’t fight the Fed,” is an old Wall Street mantra that refers to the idea that investments must be in line with the current monetary policy of the Federal Reserve to succeed. Investors must therefore follow and theorize the actions of unelected, unaccountable, powerful centralized actors such as Federal Reserve Chairman Jerome Powell. This creates wasted effort and a huge misallocation of resources as the capital available to value-creating businesses fluctuates wildly at the words of a man—Powell—whose actions these businesses do not control. For example, on August 26, 2022, Powell’s speech triggered a drop in the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite of 3.03%, 3.37%, and 3.94%, respectively—a staggering drop in just one day. This greatly hinders capitalism’s meritocratic value creation: Knowledgeable investors must make decisions based on Powell’s words rather than a company’s value.
Also, under the fiat system, designated legal tender like the US dollar is in a perpetual state of inflation. This inflation forces ordinary people who want to save money to risk their capital on investments or watch their purchasing power continue to be eaten away. Thus, non-investors, who lack the skill and desire to risk their capital on business ventures, are forced to do so. Without a bet they believe in for investment, hardworking normal people put their money into indexes and mutual funds. “Zombie companies,” – financially unviable companies that survive through investment while failing to deliver sufficient products and services to the market to cover their costs – can persist for many years due to their inclusion in these indices and funds. These “zombie companies” receive passive investments from ordinary people who do not know the company’s fundamentals, but are forced to invest in indices and mutual funds to preserve their savings in the face of constant fiat inflation.
If Bitcoin were adopted globally, it would provide hard money that does not fall in value in the long term. Thus, ordinary people can save in Bitcoin rather than risking retirement on companies they themselves have not evaluated through mutual funds and indices. Also, the monetary policy of Bitcoin is transparently baked into the code rather than being controlled by powerful central bankers. In a world where Bitcoin dominated fiat, investors could once again turn all their attention to finding profitable ventures instead of hanging on the Fed’s every word. This would largely restore the wealth-creating engine of capitalism – the least terrible economic system we have.
This is a guest post by Hannah Wolfman-Jones. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc Bitcoin Magazine.
