Detlev schlichter bitcoin

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Hoboken, New Jersey : Wiley, Copyright date. Notes general. Includes index. Language note. Systems of highly elastic and constantly expanding money are not only unnecessary, even for growing economies, they are always extremely destabilizing. Over time, they must lead to substantial imbalances, including excessive levels of debt and distorted asset prices, that will require ever faster money production to sustain.

Ultimately, however, there is no alternative to a complete liquidation of these distortions. Based on insights of many renowned economists and in particular of the Austrian School of Economics, the book explains through rigorous logic and in precise language why our system of flexible fiat money is incompatible with a market economy and therefore unsustainable. Paper money systems have always led to economic disintegration--without exception--throughout history. It will not be different for our system and we may be closer to the endgame than many think.

While it is today generally believed that the transition from 'hard' and inflexible commodity money such as a gold standard to entirely flexible and potentially unlimited fiat money under national central banks allows for superior economic stability, Paper Money Collapse shows that the opposite is true.

The updated second edition incorporates: A new introduction and an extended outlook section that discusses various "endgames" Responses to criticisms, alternative views, and a critical assessment of 'solutions' Comments on recent policy trends, including attempts to exit the 'easy money' policy mode An evaluation of new crypto-currency Bitcoin Paper Money Collapse: The Folly of Elastic Money, Second Edition clarifies the problem of paper money clearly and eloquently, and proposes multiple routes to a solution"-- Provided by publisher.

Electronic books. Paper money. Money supply. Currency question. Mayer, Thomas, author of introduction, etc. Bibliography note. Includes bibliographical references and index. ISBN : Library Catalog. Close Paper money collapse : the folly of elastic money. If we locate this item, at what email address may we contact you?

Good money, according to Williams, is state-controlled money. Here are some of his statements. Nation-state treasuries print currency but the vital role of currency managementпїЅ needed to spur economic growth пїЅ is reserved for central bankers. Williams reveals a striking lack of historical perspective here. Professor Williams seems to not have heard of Zimbabwe, or of any of the other, odd hyperinflations that occurred over the past years, all of which, of course, in state-managed fiat money systems.

Williams stresses what a long standing concept central banking is, citing the Swedish central bank that was founded in , and the Bank of England, Yet, human society has made use of indirect exchange пїЅ of trading with the help of money пїЅ for more than 2, years.

And through most of history пїЅ up to very recently пїЅ money was gold and silver, and the supply of money thus practically outside the control of the sovereign. The early central banks were also very different animals from what their modern namesakes have become in recent years. Their degrees of freedom were strictly limited by a gold or silver standard.

The Bank of England, from its earliest days, was repeatedly given the legal privilege пїЅ given, of course, by its sovereign пїЅ to ignore default on its promise to repay in gold and still remain a going concern, and this occurred precisely whenever the state needed extra money, usually to finance a war. At the time, not only was he a powerful and influential banker, his home country, the United States of America, had become one of the richest and most dynamic countries in the world, yet it had no central bank.

The history of the 19th century US пїЅ even if told by historians such as Milton Friedman and Anna Schwarz who were no gold-bugs but sympathetic to central banking пїЅ illustrates that monetary systems based on a hard monetary commodity in this case gold , the supply of which is outside government control, is no hindrance to vibrant economic growth and rising prosperity. Furthermore, economic theory can show that hard and inelastic money is not only no hindrance to growth but that it is indeed the superior foundation of a market economy.

This is precisely what I try to show with Paper Money Collapse. I do not think that this was even a very contentious notion through most of the history of economics. Money was gold and that meant money was not a tool of politics but an essential constraint on the power of the state. It is clear that on a conceptual level, Bitcoin has much more in common with a gold and silver as monetary assets than with state fiat money.

The supply of gold, silver and Bitcoin, is not under the control of any issuing authority. It is money of no authority пїЅ and this is precisely why such assets were chosen as money for thousands of years.

Under Bitcoin you have to trust the algorithm and the spontaneous market order that employs bitcoins as money if the public so chooses. Under the fiat money system you have to trust Ben Bernanke, Janet Yellen, and their hordes of economics PhDs and statisticians.

It is factually incorrect. Bitcoin пїЅ just like a proper gold standard пїЅ does not allow for discretionary manipulation of the monetary base. That is precisely the strength of these concepts, and this is why they will ultimately succeed, and replace fiat money.

Williams would, of course, be correct if he stated that sovereigns had always tried to control money and manipulate it for their own ends. And that history is a legacy of failure.

The first paper money systems date back to 11th century China. All of those ended in inflation and currency disaster. Only the Ming Dynasty survived an experiment with paper money пїЅ by voluntarily ending it and returning to hard commodity money.

The first experiments with full paper money systems in the West date back to the 17th century, and all of those failed, too. The outcome пїЅ through all of history пїЅ has always been the same: either the paper money system collapsed in hyperinflation, or, before that happened, the system was returned to hard commodity money.

We presently live with the most ambitious experiment with unconstrained fiat money ever, as the entire world is now on a paper standard пїЅ or, as James Grant put it, a PhD-standard пїЅ and money production has been made entirely flexible everywhere. The new system пїЅ or non-system пїЅ has brought us persistent inflation and budget deficits, ever more bizarre asset bubbles, bloated and unstable banking systems, rising mountains of debt that will never be repaid, stagnating real incomes and rising income disparities.

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On my travels in Africa last year, I found that internet access was usually more ubiquitous than bank branches. These countries could easily make the transition to smartphone-based payment systems without ever making the detour through clunky bank branch networks. On the issue of tying down capital, Bitcoin wins hands-down against any other financial system, including a gold standard.

Bitcoin does not require any physical storage, which naturally is always expensive. Bitcoin is monetary raw material and payment system in one. Although, fascinatingly, the free market has already created physical Bitcoins. Money requires trust. We presently do not live under a gold standard but, as Jim Grant has observed so astutely, a PhD-standard, a system of flexible, state-sponsored money, managed by people like Ben Bernanke and his team at the Fed, who enjoy the privilege of implementing policies based on their own faulty monetary theories and hair-raising interpretations of economic history, while a cheap-money-addicted class of speculators plays them like a fiddle and laughs all the way to the bank.

With Bitcoin you only have to trust the algorithm, and as this is open software, there cannot even be a hidden agenda. Bitcoin, just like a proper gold standard, is hard, capitalist money with no politics, no Federal Open Market Committee meetings, no monetary policy, no central banking bureaucracy. It is free market money. Given its free market and ultra-hard-currency credentials, the scepticism towards Bitcoin in parts of the Austro-Libertarian community is somewhat surprising.

I think some of the objections are easily refuted. There is, first of all, the idea that Bitcoin could have many imitators, which would undermine its uniqueness and reduce its attractiveness. If Bitcoin itself cannot be inflated, what about the concept of crypto-currencies, could it be inflated by too many different currencies on offer? This argument strikes me as weak. It is not as if any hacker of medium talent could pull off something similar tomorrow.

But even if he could, the argument completely underestimates first-mover advantage in the area of goods and services with substantial network effects. How many people have launched a second Facebook or a second Twitter since these inventions kicked-off the social media craze, although technologically, these inventions are much simpler than crypto-currency?

The network effects of these goods are immense. Once they have a certain acceptance it is hard, if not impossible, for late-comers to break in. These goods and services have value for their users predominantly because others use them too, and the more people use them, the more valuable they get. There is no good for which this is truer than money пїЅ the general medium of exchange.

Customized money is an oxymoron. Consequently, once a form of money is accepted, it is very difficult to take business away from it. This feature of money is obviously a problem for Bitcoin in its fight against established state paper monies but is equally a big plus when it comes to keeping potential new entrants into the crypto-currency arena at bay. Bitcoin now dominates the market for crypto-currencies it pretty much IS the market for crypto-currencies, in my view and I believe that only the discovery of major flaws in Bitcoin пїЅ none seem to have surfaced in its four-year life up to now, and every day they are less likely to appear -, or if some vastly superior crypto-currency came along but I am hard-pressed to see in which aspect it could outperform Bitcoin.

But just launching another crypto-currency пїЅ a Bitcoin clone пїЅ is certainly not going to put a dent into Bitcoin. Mises was correct when he stated that something could only become money if it had previously, that is, before it was used by somebody as a medium of exchange in its own right for the first time, established some value in trade. For if that had not been the case, how could the first person to employ the commodity as money have any point of reference by which to assess its value and determined its exchange value for the first monetary transaction?

However, this theorem, which remains unrefuted in my view, does not apply to Bitcoin. Bitcoin can simply piggyback on established forms of money that already have exchange-value and derive its original value from them before it does, over time, establish its own value.

The same has, in fact, happened in the case of paper money. The paper notes that are used as money today did not start their ascent to widely used and generally accepted monetary assets from humble beginnings as commodities пїЅ that is, as mere paper пїЅ but started out as paper-claims on physical gold.

Gold was money and the paper tickets simply a technology to transfer ownership of gold. When the first banknote was used it did not derive its exchange value from its paper content but from the fact that it could be exchanged for a fixed amount of gold. Paper money started as payment technology and as the public got used to paying with paper rather than with gold coins and gold bars, the underlying gold content could be reduced over time and ultimately the link to gold completely severed.

What gives value to these paper tickets today? That is all. And in fact, it is all that is needed. However, this challenge is not of a conceptual nature. The concept of Bitcoin as money is, as I have tried to show above, extremely compelling. But Bitcoin has to offer something to the average money-user that state paper money cannot offer. The fact that fiat money is suboptimal in terms of its inflation characteristics and its disruptive effects on the broader economy is not something that bothers the average money user at the moment he desires to engage in monetary transactions, and do so as conveniently, securely and easily as possible.

Why switch to Bitcoin? How could Bitcoin attract a broader base of money-consumers beyond these groups? One powerful aspect is cost. Bitcoin transactions are free, so Bitcoin could become пїЅ or maybe it is already пїЅ the Skype of payment systems. Another attraction could simply be the usually reasonable, and with some effort potentially considerable, anonymity and untraceability that Bitcoin offers. This seems to be a hotly debated topic.

On the one hand, Bitcoin is incredibly transparent. All transactions are literally in the open domain. One could use a new address for each transaction. Additionally, it is possible to acquire Bitcoin for cash пїЅ rather than via the established and already regulated exchanges пїЅ and thus anonymously. This means Bitcoin could be used, as is a frequent charge against it already, for illegal transactions involving drugs and guns.

But people do not have to be drug or arms dealers, or even ordinary tax cheats, to appreciate a certain degree of financial privacy. It would be fitting if countermoves to these trends emanated from the same technology.

An additional boost to Bitcoin may come straight from the crumbling state paper money infrastructure itself.

As the overstretched paper money economy staggers towards its inevitable demise, more of these instances will occur providing an additional opening for Bitcoin.

To the best of my knowledge, Bitcoins cannot be confiscated and Bitcoin accounts cannot be frozen. I agree with Jon Matonis that nobody can give a reasonable answer but that the outcome is probably binary: Either Bitcoin ultimately fails and the individual Bitcoins end up worthless.

Or Bitcoin takes off and Bitcoins are worth hundreds of thousands of paper dollars, paper yen, paper euros, or paper pounds. Maybe more. Those who buy Bitcoin as a speculative investment should consider it an option on the future success of the crypto-currency.

As I explained on numerous occasions , I consider gold to be the essential self-defense asset in the ongoing paper money crisis. Gold is not being used presently by the wider public as a medium of exchange either but its two-thousand-plus year history as global money means that it retains monetary asset status and that its historic function as a liquid and lasting store of value пїЅ a function that fiat money cannot fulfil пїЅ remains unrivalled.

That is why I view Bitcoin very differently from gold, although the attraction of both has its origin in the demise of entirely elastic, politicized state fiat money. I will certainly continue to follow the Bitcoin revolution with interest and sympathy. Skip to main content. Could Bitcoin Be the Money of the Future? By Detlev S Schlichter.

The Decline and Fall of Capitalist Money The 20th century was, broadly speaking, a period of almost constant monetary decay. Bitcoin Is Cryptographic Gold By now most readers will probably have heard of Bitcoin and have some notion of what it is.

Inelastic Money can Satisfy and Demand As I have explained in Paper Money Collapse no society not even a healthily growing one needs a constantly expanding supply of money.

Truly International As Bitcoin has no issuing authority it has no country of residence or origin. Common Objections to Bitcoin Given its free market and ultra-hard-currency credentials, the scepticism towards Bitcoin in parts of the Austro-Libertarian community is somewhat surprising. What are Bitcoins Worth? In the meantime, the debasement of paper money continues. Source: Paper Money Collapse. The history of the 19 th century US пїЅ even if told by historians such as Milton Friedman and Anna Schwarz who were no gold-bugs but sympathetic to central banking пїЅ illustrates that monetary systems based on a hard monetary commodity in this case gold , the supply of which is outside government control, is no hindrance to vibrant economic growth and rising prosperity.

Furthermore, economic theory can show that hard and inelastic money is not only no hindrance to growth but that it is indeed the superior foundation of a market economy. This is precisely what I try to show with Paper Money Collapse. I do not think that this was even a very contentious notion through most of the history of economics. Money was gold and that meant money was not a tool of politics but an essential constraint on the power of the state. It is clear that on a conceptual level, Bitcoin has much more in common with a gold and silver as monetary assets than with state fiat money.

The supply of gold, silver and Bitcoin, is not under the control of any issuing authority. It is money of no authority пїЅ and this is precisely why such assets were chosen as money for thousands of years.

Under Bitcoin you have to trust the algorithm and the spontaneous market order that employs bitcoins as money if the public so chooses. Under the fiat money system you have to trust Ben Bernanke, Janet Yellen, and their hordes of economics PhDs and statisticians.

It is factually incorrect. Bitcoin пїЅ just like a proper gold standard пїЅ does not allow for discretionary manipulation of the monetary base.

That is precisely the strength of these concepts, and this is why they will ultimately succeed, and replace fiat money. Williams would, of course, be correct if he stated that sovereigns had always tried to control money and manipulate it for their own ends. And that history is a legacy of failure. The first paper money systems date back to 11 th century China. All of those ended in inflation and currency disaster.

Only the Ming Dynasty survived an experiment with paper money пїЅ by voluntarily ending it and returning to hard commodity money. The first experiments with full paper money systems in the West date back to the 17 th century, and all of those failed, too.

The outcome пїЅ through all of history пїЅ has always been the same: either the paper money system collapsed in hyperinflation, or, before that happened, the system was returned to hard commodity money. We presently live with the most ambitious experiment with unconstrained fiat money ever, as the entire world is now on a paper standard пїЅ or, as James Grant put it, a PhD-standard пїЅ and money production has been made entirely flexible everywhere.

The new system пїЅ or non-system пїЅ has brought us persistent inflation and budget deficits, ever more bizarre asset bubbles, bloated and unstable banking systems, rising mountains of debt that will never be repaid, stagnating real incomes and rising income disparities.

This system is now in its endgame. Detlev had a year career in international financial markets as a trader and portfolio manager, Detlev had a year career in international financial markets as a trader and portfolio manager, including stints at J.

By Detlev Schlichter of DetlevSchlichter. Hey, give me the algorithm any day! Disclosure: None of the above is to be considered investment advice. How did you like this article? Let us know so we can better customize your reading experience.

Leave a comment to automatically be entered into our contest to win a free Echo Show. Sign Up Sign In. Or Sign in with. Sort by: Newest Oldest Top comments. The comment was deleted! About The Author. Follow Unfollow. Remove Request. Unblock Connection. Send Message. Detlev Schlichter. Economist, Blogger, Author. Detlev Schlichter is an independent economist, market commentator and investment strategist.

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