Governments Persist After Hyperbitcoinization – Bitcoin Magazine
This is an opinion editorial by Will Szamosszegi, founder and CEO of bitcoin mining hosting service Sazmining.
Money and energy are two of the most fundamental aspects of an economy because both are universal. Energy is necessary to transform raw materials into final consumer goods and services. Money is required to store wealth, calculate income and losses, and trade for goods and services that you could not obtain through barter.
Even if Bitcoin drastically improves humanity’s relationship with both energy and money, the problems plaguing both energy and money will likely survive a Bitcoin standard, even if they become less severe. When it comes to energy, government regulations, subsidies and bans will continue to be influential. As for money, governments will in all likelihood continue to use second-tier fiat money that citizens are forced to use.
State interference in energy
The US government has attempted to centrally plan the energy sector since 1789, well before fiat currency reached its “final form” in the fateful year of 1971. In extensive research on the topic of the US government’s history of subsidizing the energy sector, DBL Investors managing partner Nancy Pfund and economics student Ben Healey made several sobering discoveries (although they prefer government intervention in the energy sector, to be sure):
Although not a direct subsidy, the US government raised a tariff on the sale of British coal in 1789 to benefit the American coal industry. This was only two years after the delegates to the Constitutional Convention explicitly fought to include the “Gold and Silver Clause” in the US Constitution. This clause found its way into Article 1 of the founding document, where it lives on as certain states were not allowed to “make other things than gold and silver coins a tender in payment of debts.” In other words, the political apparatus of the time, although far more monetarily constrained than our current Leviathan state, was still able to exert its will over the energy sector.
To be fair, tariffs are easier for a government to adopt than subsidies, since only the latter requires the government to have money to spare. But history shows that subsidies also existed before the fiat standard went into full effect in 1971. For example, the Price-Anderson Act of 1957 forced the federal government to subsidize nuclear power by paying for the damage caused by a nuclear disaster.
Hydropower has also been federally subsidized since at least the 1890s, although quantifying the size of these subsidies is challenging. Earth Track, a think tank that works to standardize data on energy subsidies, estimates that the US federal government has given about $2.7 billion (in 2010 dollars) to hydropower from the country’s inception to 2010. Naturally, this time period covers a variety of different monetary regimes .
The state interferes with money
As much certainty as many in the Bitcoin community have that bitcoin will be the next global reserve asset, governments are unique institutions and can damage our relationship with money, even after bitcoin becomes the new gold.
Governments also exercise the threat of violence and imprisonment via the military-industrial complex to retain economic power.
For example, imagine that the US government/central bank accepts the new bitcoin monetary regime and even keeps it on the balance sheet. By this time, the global economic order will have changed significantly for the better – but if governments are still around, they will probably still use the threat of violence and/or imprisonment to collect taxes. To keep someone Layer 2 fiat currency alive, all they need to do is mandate that taxes be paid in said fiat currency. People will then have no choice but to acquire this currency to hand it over to the tax man.
There are probably several reasons why such an arrangement might not work. First, “competition” between governments could push them to ease up on forcing fiat currencies on citizens who use Bitcoin and Bitcoin-based Layer 2 technologies in their daily lives. Second, ideological pressure from citizens may push politicians to give up creating their own fiat currencies for fear of suicide. And finally, governments themselves may see such an arrangement as more trouble than it’s worth, since a Bitcoin-based economy has the potential to grow at a much greater rate than a Bitcoin-fiat hybrid economy would.
We must be vigilant
With regards to both energy and money, the government can still intervene after bitcoin has become the next global reserve asset and after Bitcoin mining has forever improved our relationship with money. In this sense, Bitcoin’s inevitable victory is only the beginning – we may still have to fend off meddling bureaucrats. To be sure, freedom-loving Bitcoiners will be in a much better position to do so then than we are now. Nevertheless, we must not rest on our laurels.
What can we do to really drive the state out of money and energy? The same as we do now: explain our ideas.
We want a free market for energy so that the most cost-effective forms of energy are discovered and made profitable rather than inefficient alternatives. Furthermore, subsidies, tariffs and regulations in the energy sector inhibit innovation. For all we know, absent so much intervention over the centuries, our world would be powered by cold fusion, oceans and nuclear energy by now.
And government-imposed money, even if somehow backed by bitcoin, would throw sand into the gears of capital accumulation and economic calculation. The cost of raising capital will rise, as we need to have some junk money in our back pocket for tax season. In other words, the production of all kinds of goods and services would never happen, since they would no longer be affordable. And the ability of entrepreneurs to calculate profit or loss becomes more difficult, since there is no longer a single immutable yardstick (bitcoin), but also an unpredictable fiat currency that still trades with Satoshi Nakamoto’s creation.
Our job will not be done even after Bitcoin wins the money game and Bitcoin mining wins the energy game, which governments won’t stop. But our ideas will be so much easier to sell at that point, that I look forward to the games ahead.
This is a guest post by Will Szamosszegi. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
