On Markets
hic abundant leones
You should make great things, not promising great things. - Pythagoras
As America looks to build back better (this implies much of what was built, was done so in a poor manner) and on shore many economic activities that have been off-shored in recent decades the devaluation of the USD will play an integral role. But its all transitory, right? No. The rate in which things become more expensive may slow down, but that Big Mac will never return to $0.75.
Cheap exports allow money to flow into the exporter while expensive exports do the opposite. This has been the set up of the American economy since the 1990’s. Great for the white collar salaried managerial class, but very difficult for many wage earners. In order for exports to be cheap to export out, wages need to be low to keep the cost of production low.
So, what does a country do when its wage working work force demands higher wages to continue working? I thought we would all be replaced by robots by now? The most likely and most used tool is to manipulate the currency - devalue it in this case. Inflate away the near term strife to cause undo tyranny long term.
To devalue a currency, like the dollar, means that the value of the currency decreases. In the case of the dollar, we call this dollar devaluation. The value of a currency is also referred to as purchasing power. The more a currency is devalued, the less you can buy with it because the purchasing power decreases.
It gives the wage worker the feeling that they are making more money. Ie a wage earner is now making $15 instead of $10 per hour, but due to devaluation their $15 no longer possesses the same purchasing power. This is not transitory and one should not fall for the schtick.
The US dollar has lost over 96% of its value since 1913. That means today’s dollar would be worth less than 4 cents back in 1913. How much longer will the dollar maintain its reserve-currency status at this rate?
Devaluation
How does devaluation occur? By the Federal Reserve “printing” more money.
Creating more money causes monetary inflation. That means there are more dollars in circulation, but just because there is more fiat money floating around, that doesn’t mean value has been created. One should also study the Cantillon effect, as the money being created is not distributed equally. Great for wealthy asset owners, terrible for
All one really gets is price inflation. Here’s an example: The Federal Reserve just gave everyone in the United States $1 million dollars. Wouldn’t that be great if everyone in America became a millionaire overnight? No. Unfortunately, nothing would change, except prices would increase inline with the distribution. Think about it. How much would one have to pay the landscaper to come to ones house, if he’s already a millionaire?
Inflation
Unlike fiat money dollars, which can be created out of thin air, bitcoin does not lose value. In fact, bitcoin doesn’t really go up or down. When bitcoin goes up, it really means the dollar is going down and when bitcoin goes down, it’s actually the dollar getting stronger (increasing its purchasing power). So, if one keeps a portion of ones saving in bitcoin, one can offset the losses in purchasing power. When one buys bitcoin, gold or other commodities that resist inflation, it’s called a hedge against inflation.
Arms and Autarky
Autarky is the term used to describe a country or economy that operates independently. Autarky, in its most basic sense, means “self-sufficient,” though it’s almost always used in correlation with a political or economic system, meaning that the entity – whatever it is – can operate and exist free of outside influence, support, or trade.
In most cases, a country and its economy are linked together when described as an autarky. It means that the country and its economy are able to function independently from involvement – especially financial involvement – with other countries and their economies. If an autarky flatly refuses to trade with other countries, it becomes known as a closed economy.
When looking at the idea of an autarky from a political standpoint, it simply means that the rules and governments ruling over an entity don’t require assistance from outside. Consider, for example, the United States and its military. In most cases, the U.S. military groups – Army, Navy, Marines, etc. – function perfectly well without help from outside influence. And in many cases, the U.S. military groups assist other countries. In times of war, however, help from other countries and their military groups is necessary for survival and success.
The most striking geopolitical feature of the past four years has not been bipolarity or multipolarity—or even great-power conflict. It has been the spectacle of major economies pursuing self-sufficiency and a partial retreat from globalization in order to ensure their security, innovative capacity, domestic stability, and economic prospects. The United States, China, and India are each now engaged in what seems like a paradoxical enterprise: the quest to increase their global status while also turning inward to become more self-sufficient.
After the Cold War, the conventional wisdom held that a global economic convergence was inevitable—that countries would only grow more economically interdependent. In hindsight, it is clear this was not the case. Yet few would have predicted even a few years ago that three of globalization’s leading beneficiaries would turn to variations of autarky—or that a global trend toward self-sufficiency would come to dominate geopolitics.
The US, China, and India all want to be more independent and less reliant on one another. Americans want higher wages and cheap goods. Thats the rub, typically those two things cannot go hand in hand. Eat you cake and have it too. Increasing wages and cheaper goods are inversely related in the current model of globalism. Globalism allows for countries and large corporations to operate without bounds, there is no reason to pay a domestic worker more if one can find cheaper labor elsewhere. This appeases the shareholders of course… Though, the implications of autarky may seem diametrically opposed to free trade principles, many things can be optimized domestically and then integrated into the global framework.
Mises
What role did autarky play in this? Mises wrote in his 1944 book Omnipotent Government as follows:
The international division of labor is a more efficient system of production than is the economic autarky of every nation. The same amount of labor and of material factors of production yields a higher output. This surplus production benefits everyone concerned. Protectionism and autarky always result in shifting production from the centers where conditions are more favorable — i.e., from where the output for the same amount of physical input is higher — to centers where they are less favorable. The more productive resources remain unused while the less productive are utilized. The effect is a general drop in the productivity of human effort, and thereby a lowering of the standard of living all over the world.
The economic consequences of protectionist policies and of the trend toward autarky are the same for all countries…. Germany does not aim at autarky because it is eager to wage war. It aims at war because it wants autarky — because it wants to live in economic self-sufficiency.
Mises could not have been clearer and more resounding in his conclusion:
Our civilization is based on the international division of labor. It cannot survive under autarky. The United States and Canada would suffer less than other countries but even with them economic insulation would result in a tremendous drop in prosperity. Europe, whether itself united or divided, would be doomed in a world where each country was economically self-sufficient.
Following the Second World War, Mises’s view prevailed. The drive toward free trade became a consensus for most of the world. The views of the Right Hegelians, List, Keynes, and the others were swept aside with the General Agreement on Tariffs and Trade and a trend extending over many decades toward ever freer trade. It was never perfect, and it all required too much state management and too many treaties, but it was happening. It was largely unquestioned, and the world grew incredibly prosperous as a result.
But we live in times when the notion of autarky as a productive force for a nation has made a forceful comeback, for the same reason it has always ascended. It is not about economic flourishing per se. It is about political control by the centralized nation state, the well-being of the citizen be damned. Every tariff (a tax against the citizens), every non-tariff barrier (rising prices paid by citizens), exchange control, and regulatory demand for at-home production means a reduction in wealth and opportunity for everyone. Contrary to claims, autarky (for a nation, city, family, or individual) is not a plan for prosperity but for impoverishment. A nation should be self sufficient, but not oppressive through means of control and restriction to greater opportunities.
Vendito
John Locke highlights free markets and their power in a brief yet sophisticated manner in his essay Vendito. It peers into the rational of market prices and morality.
Upon demand what is the measure that ought to regulate the price for which anyone sells so as to keep it within the bounds of equity and justice, I suppose it in short to be this: the market price at the place where he sells. Whosoever keeps to that in whatever he sells I think is free from cheat, extortion and oppression, or any guilt in whatever he sells, supposing no fallacy in his wares. - John Locke
Most of the world has abandoned free market ideology for a more soft vanilla market that is controlled by regulation and monopoly. For the risk adverse, at least in the short term, this is great. Volatility is surpassed and prices never truly correct to levels that the market decides upon. It’s a smooth ride, until it isn’t. Instead of enduring price corrections and minor shocks the stock markets and global economies experience crashes. Limit down!
This is not the case in crypto, the price is the price. If the market feels that something is overvalued the asset is shorted. Most people plan for this and do not over-leverage themselves. It is better to stay in the market as long as possible and not be liquidated. Survivors reap the rewards. So, no one blow up can overly impact the rest of the market. This is not true in traditional markets - one exchange failure or peg loss or fund nuke creates ripple effects across markets that can be crippling. Manipulation and suppression in all forms leads to inefficiency and fragility.
To explain this a little: A man will not sell the same wheat this year under 10 S(hillings) per bushel which the last year he sold for 5S. This is no extortion by the above said rule, because it is this year the market price, and if he should sell under that rate he would not do a beneficial thing to the consumers, because others then would buy up his corn at this low rate and sell it again to others at the market rate, and so they make profit off his weakness and share a part of his money. If to prevent this he will sell his wheat only to the poor at this under rate, this indeed is charity, but not what strict justice requires. For that only requires that we should sell to all buyers at the same market rate, for if it be unjust to sell it to a poor man at 10S per bushel it is also unjust to sell it to the rich for 10S, for justice has but one measure for all men. If you think him bound to sell it to the rich too, who is the consumer, under the market rate, but not to a jobber or engrosser, to this I answer he cannot know whether the rich buyer will not sell it again and so gain the money which he loses. But if it be said ’tis unlawful to sell the same corn for 10S this week which I sold the last year for week for 5s because it is worth no more now than it was then, having no new qualities put into it to make it better, I answer it is worth no more, ’tis true, in its natural value, because it will not feed more men nor better feed them than it did last year, but yet it is worth more in its political or marchand value, as I may so call it which lies in the proportion of the quantity of wheat to the proportion of money in that place and the need of one and the other.
This same market rate governs too in things sold in shops or private houses, and is known by this, that a man sells not dearer to one than he would to another. He that makes use of another’s ignorance, fancy, or necessity to sell ribbon or cloth, etc. dearer to him than to another man at the same time, cheats him. But in things that a man does not set to sale, this market price is not regulated by that of the next market, but by the value that the owner puts on it himself: v.g. α has an horse that pleases him and is for his turn; this β would buy of him; α tells him he has no mind to sell; β presses him to set him a price, and thereupon α demands and takes £4o for his horse, which in a market or fair would not yield above twenty. But supposing β refusing to give £40, γ comes the next day and desires to buy this horse, having such a necessity to have it that if he should fail of it, it would make him lose a business of much greater consequence, and thus necessity α knows. If in this case he make γ pay £50 for the horse which he would have sold to β for £40, he oppresses him and is guilty of extortion whereby he robs him of £10, because he does not sell the horse to him, as he would to another, at his own market rate, which was£40, but makes use of γ‘s necessity to extort £10 from him above what in his own account was the just value, the one man’s money being as good as the other’s. But yet he had done no injury to β in taking his £40 for an horse which at the next market would not have yielded above £20 because he sold it at the market rate of the place where the horse was sold, viz. his own house, where he would not have sold it to any other at a cheaper rate than he did to β. For if by any artifice he had raised β’s longing for that horse, or because of his great fancy sold it dearer to him than he would to another man, he had cheated him too. But what anyone has he may value at what rate he will, and transgresses not against justice if he sells it at any price, provided he makes no distinction of buyers, but parts with it as cheap to this as he would to any other buyer. I say he transgresses not against justice. What he may do against charity is another case.
Everyone wants the ability to transact freely void of suppression, discrimination, and extortion. Free open markets allow for this. Markets that are decentralized and lack formal authority. In short, there are no gate keepers or discriminatory third parties dictating what can be bought and sold and at what price. Decentralization is counterintuitive in the sense, it is vastly inclusive even though no one person is trusting in a third party. The trust is in the numbers, the immutability of many blockchains.
Trust has been distributed to the many rather than to the one. Open markets lead to prosperity for those willing to engage with it. Crypto allows countries to be both domestic and internationally focused. Autarkic and Global. No one is shouting down free trade or the beauty of the invisible hand. Rather crypto networks allow for globalism to take hold in its true form. No one agent can control the fate of others. This is a fractal phenomenon as it extends to each individual. One is now able to control their own future through distributed technologies and extend that to those most important to them - their families, their friends, and their communities.
Bitcoin as legal tender
Bitcoin fixes this. This is a trope that is thrown around by the crypto community, a saying that highlights the importance money and wealth play in everyones lives. Cant afford a house - bitcoin fixes this, unhappy with your job - bitcoin fixes this, dissatisfied with the IMF - bitcoin fixes this. El Salvador has just begun one of the most fascinating experiments of my lifetime. On September 7th 2021 El Salvador has officially adopted bitcoin as legal tender. This marks the first official adoption by a nation state of the crypto currency, which at time of writing has a 1 trillion dollar market cap (gold currently has an 11.6 trillion dollar market cap).
The El Salvadorian president announced on the 6th of September that the country had purchased its first 200 bitcoins At the current price of Bitcoin (~ $52,000), a 200 BTC purchase is around $10 million. At such bulk numbers, it isn’t unheard of for the transaction to have been done OTC, so some discount is plausible.
With companies like MicroStrategy buying up hundreds of thousands of coins, by comparison, doesn’t seem very impactful. But the implications of a country buying Bitcoin for the first time for use as legal tender has far more power.
A country is officially adopting BTC as legal tender, making it the first to do so, but definitely not the last. The entire movement could have a domino effect where other nations rapidly adopt the cryptocurrency.
At first, other smaller countries will could follow suit. But what happens if a global superpower with a much larger population follows such lead? An arm’s race for the first ever cryptocurrency could play out between such global superpowers.
The future of Bitcoin adoption starts now with this 200 BTC buy from a country. Let that sink in. The free markets are striving to regain ground in the new world. Participation is encouraged as it is one of the last ways for one to remove the shackles of centralization and reap the rewards of innovation and discovery.