For those interested, the practice of debasement actually predates the middle ages by, a lot. By 301 inflation was so bad Diocletian had to put out a price fixing edict. It didn't work. It took Constantine's Solidus (basically solid gold coin - that will stay stable for almost a thousand years) to stabilize the currency. By the early fourth century the denarius that used to have 50% silver contained almost no silver at all (something like 1 to 5%).
Between the years 150 and 100 BC, the Seleucid tetradrachm went from 95% silver to 65%. As the name suggests, it continued to weigh four drachms.
Debasement occurs any time the government runs out of money and can force people to take the debased money. The previous ~150 years of the same government minted tetradrachms that were all silver, probably because their main use of the silver was paying foreign mercenaries.
> By the early fourth century the denarius that used to have 50% silver
This is already a heavily debased coin. Nobody starts by adulterating their coins down to 50% monetary content.
> It took Constantine's Solidus (basically solid gold coin - that will stay stable for almost a thousand years) to stabilize the currency.
This isn't plausible; gold coins barely transact (gold is too rare). Minting coins that nobody uses won't affect the currency that people do use.
Wikipedia notes that, on issuance, Constantine's solidus was worth 275,000 denarii. The denarius was debased, but it was also a coin that people carried around and used to buy things. Think about the number of transactions that might plausibly have involved one or more solidi. If we underestimate the 4th-century denarius as being roughly as valuable as a US penny... how much use would you have for a $2,750 coin?
Why? Of course it wasn't accessible or particularly useful for the majority of people but it was central to the Byzantine economy/financial-system functioned. Soldiers were paid in gold (every 6 or 12 months so that simplified things) and taxes were also collected in gold whenever feasible.
Relying on gold as your primary currnecy of course wasn't ideal since the outcome was a partially demonetisation of the wider economy.
However while it was was basically entirely unavailable in Western Europe and there were almost no gold coins in circulation until the 13th or so it was much more widespread in the Eastern Mediterranean.
> and taxes were also collected in gold whenever feasible
Well, for one thing, most people wouldn't be able to afford a single gold coin. You might collect taxes from a province in gold; you're not going to collect taxes from a person that way.
> the outcome was a partially demonetisation of the wider economy
This is also an odd claim; the number of denarii kept going up.
> it was central to [the way] the Byzantine economy/financial-system functioned.
Any time you have a system that doesn't involve something, that thing that isn't involved also isn't central to the functioning of the system. There is no way for such a rare coin to be central to the functioning of the system - if it disappeared entirely, the system would continue exactly as before, since almost nothing would have changed.
It wasn't even minted by the 300s. There were multiple attempts to replace it with a new stable silver coin but none were very successful.
> Well, for one thing, most people wouldn't be able to afford a single gold coin. You might collect taxes from a province in gold; you're not going to collect taxes from a person that way.
Well yes, that was a significant problem. Often there was no other choice than to collect taxes in-kind and then the tax collectors either had to find local uses for all that stuff or sell it for gold that could be sent to the central treasury in Constantinople.
By the 500s the Empire was mainly only minting gold and bronze coinage which of course was very problematic (as you said gold is much too expensive for most transactions while bronze has the opposite problem). There were no stable, widespread silvers coins that were continuously minted until the 800s or so (Miliaresion) and then its value collapsed again after a few centuries when they went back to debasing during a period of economic crisis.
> There is no way for such a rare coin to be central to the functioning of the system
Well.. I accept that this is your opinion. Regardless, that's simply not how the Roman/Byzantine Empire worked. Gold coinage (or using gold solidus as the primary unit of accounting) was absolutely integral to its functioning. (moreover it was also central to international trade)
What does that have to do with downfall? The value of your money is whatever it is, determined by the productivity of your state and the amount of money it recognizes.
> the weight of the Chinese money necessary for a journey of over three thousand miles was, as the Russian consul thought, one of the greatest of our almost insurmountable obstacles.
The extreme worthlessness of Chinese currency didn't play into any Chinese downfalls.
(Though it's not obvious to me why Sachtleben wanted to transport currency rather than bullion.)
The Roman Empire could not pay her troops anymore. Neither could they pay the Chinese for their products.
BTW, when China accumulated a majority of the world silver again and did not buy anything from the world, the British said, we have something you need! The reason for the opium wars....
It's just a way to bypass the cantillion effect and hoard the benefit of debasement for the lord. That's why he exempted the aristocracy, he had to cut them in to maintain his power.
So, suppose the ruler begins a debasement. You have a lot of coins. You take them into the mint and exchange them for debased coins but more coins than you had minus a cut to the king, go buy some asset that can't be debased like salt, wait and then sell it on the market after price inflation occurs. You benefit from the cantillion effect because you got the fresh minted money before prices rose to compensate.
Now with the extortion scheme, you lose that. The revenue goes straight to the king in the form of the tax, the king might make do with the same revenue as before, thus significantly reducing the inflation that occurs, or maybe raises his revenue to the match the cost to the economy before but now the aristocracy get nothing. To compensate, he had to exempt them or they would overthrow him, and now they get benefit in that regular people get directly fleeced, price deflation occurs but regular people don't gain purchasing power because it was their money taken from them out of circulation, but the rich people don't have that problem so their purchasing power increases.
Some democracies in the 20th century have tried a form of cash debasement to fight inflation.
The example I’m familiar with is from Finland in 1946, when the most popular and largest circulating bills were required to be physically cut in half and lost 50% of their upfront value.
The idea was that the left half of the bill remained valid cash (although not for long — you needed to exchange it for a new type of bill within a few months). The right half of the bill became effectively a treasury note with three-year maturation: in 1949 you could present it to a bank and get your money back from the government, but no sooner.
The operation was expected to reduce inflation, but apparently it didn’t work out that way. It did provide the Finnish government with about half of the funds loaned that year, but it was very unpopular among voters and never repeated.
That's just such an interesting idea and approach. It's one of those things you'd never think someone would go from ideation to actual implementation, and yet it happened.
Honestly it feels like a good idea in principle. Of course people are not rational economic actors and ignoring it has bad outcomes.
1. This is actually a politician’s job, to explain. If you don’t explain well you get kicked out and your electorate doesn’t buy your ideas. Don’t complain about the people being stupid, they are real and wishing they were different or demeaning the people is totally useless.
2. The idea of fostering savings in a time of inflation is really cool, and an original way getting people to buy in your policy. That it did not work sounds like a great topic for research, including experiments.
> According to economists, one of the causes of inflation in Brazil was the inertial inflation phenomenon. Prices were adjusted on a daily basis according to changes in price indexes and to the exchange rate of the local currency to the U.S. dollar. Plano Real then created a non-monetary currency, the Unidade Real de Valor ("URV"), whose value was set to approximately 1 US dollar. All prices were quoted in these two currencies, cruzeiro real and URV, but payments had to be made exclusively in cruzeiros reais. Prices quoted in URV did not change over time, while their equivalent in cruzeiros reals increased nominally every day.
> Soon after its introduction, the real unexpectedly gained value against the U.S. dollar, due to large capital inflows in late 1994 and 1995. During that period it attained its maximum dollar value ever, about US$1.20=R$1. Between 1996 and 1998 the exchange rate was tightly controlled by the Central Bank of Brazil, so that the real depreciated slowly and smoothly to the dollar, dropping from near US$1=R$1 to about US$1=R$1.2 by the end of 1998.
Nowadays debasement and the resulting inflation comes from loans creating cash flow out of thin air. The 20% debasement has turned into the functionally zero percent interest rates. The ritual of bringing coins to the mint for exchange has turned into investments. The feudal lord's turbocharged revenue has turned into the profits of billion dollar corporations.
Is that not exactly the same? The feudal lords took 100 coins, made 120 coins out of them (while both keeping the same value and claiming that they can make more coins because they have different value), which is basically exactly printing money.
It's an interesting hack where the value of a coin and the cost of a coin (the amount of silver in it) were decoupled, and they pretended that the amount of silver in it is what mattered (hence they kept the same total amount of silver) but actually the value of the coin mattered (because they created value out of thin air by giving you 20 extra coins that were each still worth one pound (or whatever) each).
I don't understand why they didn't just mint a bunch of silver coins of the lower content and spent them themselves, effectively buying coins for 20% less than they were worth. Maybe they didn't have enough silver, or didn't want to create two kinds of the same coin with different silver content each.
Ah yes, taxes on money holding and land, two of the most evil taxes ever invented.
The average citizen prefers paying income taxes, payroll tax and sales tax and VAT to the government and paying the land tax aka rent to land holders and the money tax aka interest to money holders to maximize the dead weight loss. Then they complain that the government is bankrupt and is doing inflation.
A 100 years from now, someone is going to write an article about the insanity of today's advertising models that is going to be immediately obvious to anyone from that era, while we, much like the feudal vassals, are unable to see it, having experienced no alternative.
When it's even available. But then they start cranking the ratchet, increasing the no-ad price and introducing a with-ads tier at the old no-ad price, or cutting quality, or cutting corners on customer service and security, etc etc. We've seen this play out many many times and it's a fundamental outcome in even the most basic econ 101 models: an oligopoly with high switching costs is more profitable for suppliers than a free market, made all the moreso by tacit collusion. An unregulated free market is essentially doomed to fail whenever an opportunity to establish such an oligopoly arises.
In extreme cases it does start to look like a protection racket, especially when important services like broadband Internet are involved.
The internet is today's TV. Did you complain so much about TV ads back in the day too?
(Surveillance is a different thing, and no, advertising isn't the main driver for surveillance. State actors are, and ad tech is just piggybacking on what state actors want to do anyways.)
An American visiting the Netherlands in the 80's was watching TV and asked if we purchased the (American) movie because of a lack of advertisements. When he learned it was just TV he was furious. It had never occurred to him that it wasn't necessary to constantly interrupt movies.
To be fair when that was the case (before the Internet with ads) many people were not older than 18yo, so of course they wouldn't be complaining about stuff like that.
But yes, I hated adverts with passion as a child too. I didn't complain about the industry as a whole, I just hated their existence.
Although there are other things we can do, like simplify regulations for truly small businesses so people have a chance to start something without needing legal expertise, lots of paperwork, etc.
One of the other factors preventing people from starting small businesses is lack of affordable health insurance. They can buy coverage through state exchanges but those are still more expensive that group health plans offered by large employers.
Starting a small business is hard in some European countries but not others. Here in Sweden it is trivial. In e.g. Malta and I believe Poland it is hard.
Personally I am not sure any of this discussion is relevant to Europe, especially not as a whole.
I think about this a lot. It should be really beneficial to have a progressive legal system for corporations where laws become more strict based on size or revenue.
This is likely a problem of the differences in your and my mental models - so let’s start with Modern Monetary Theory (MMT) which I think has huge explanatory power.
So starting with MMT - money is a token granting allocation of a portion of future productivity. Over COVID the UK printed 1 trillion dollars of extra furlough-like cash, the USA something like 10 trillion, the western world as a whole something like 25 trillion.
This was necessary and a Good Thing, but when the nurse or the waitress took the cash, stayed home and paid her rent the landlord got the cash, then his bank got the cash then their shareholders got the dividend and the trillions worked their way up to the richest wealthiest 0.1%
So now while productivity is still the same as it was 4 years ago, the amount of tokens representing that productivity is up by 25 trillion.
This has lead to enormous inflation pressure especially
In assets.
So ignoring any other fairness / redistribution issues, MMT says take those tokens out of circulation - the tokens represent the future production of factories and farms - unless those factories got more productive, the amount of money in circulation should not chnage.
So tax the wealth to remove about 25 trillion dollars globally.
Weirdly a stock market crash or a world war would have a similar effect.
But wealth tax seems a much better solution
And then We talk about annual wealth taxes, taxing loans as income, CGT chnages or whatever - the goal is to stop money accumulating in one place for too long - blood circulates around the body - having it stop and gather in the kidneys is bad for the body, and eventually bad for the kidneys
"tax the wealth to remove about 25 trillion dollars globally." And what do you think happens once the tax is collected by the government? It is spent. And the money goes back into market, which will earn its returns and will be taxed again. Rarely a government has enough willpower to terminate the money supply collected in the form of taxes...
This is one of the main points of MMT - with modern economies (and possibly ancient) there is no need to tax in order to spend. The US gov is the only one able to create more US dollars. And they can do so without taxing - they just press buttons on the Fed’s laptop and they have a billion to spend.
Of course that can easily get out of hand so, lots of controls, but those controls should, IMO, be based around how money is created and flows not around some medieval ideas about taxation.
Anyhow, the point is money should equal production capacity else it creates inflation (or stifles demand) - it eventually balances out but the pain in eventually is real.
And is governments with poor willpower a problem - yes of course. But that’s like the manager blaming their employees - they work for us you know.
> And what do you think happens once the tax is collected by the government? It is spent
Well yeah, I kind of thought that was the whole goal? If we assume/believe that governments generally are capable of spending that money in a more equitable way that would benefit a larger proportion of the society (while also resulting in higher productivity growth) than allowing it to be (effectively) hoarded by the wealthy.
(#) ok, that’s a fairly low value comment that I frankly should have not clicked send on, but I just spent ages getting that one blasted word past my own spell checker, user friendly piece of shit, and realising not for the first time that typing anything on a textbox on a mobile is its own piece of hell. Sysiphus I am with you. And yeah Musisippians is probably the wrong collective noun but at this point I don’t care. Kamala and Trump will both just avoid campaigning there because their speech writers simply won’t let them.
Mississippi has been a reliable Republican voting block since the parties switched platforms in the 60-70’s.
So republicans don’t need to spend money there to get votes.
And even if democrats spent all that money there to ‘buy’ the vote - would it be enough to work, considering the socio-political aspects?
An argument could be made vis-a-vis gdp improvements. But are good roads good enough to drive major GDP improvements in Mississippi, considering other factors? Probably not.
> Mississippi has been a reliable Republican voting block since the parties switched platforms in the 60-70’s.
In presidential elections? Yes. On the local level the Democrats controlled the Mississippi House of Representatives every single year until 2011 (almost the same for the Senate).
Even federally, the Democrats usually won most of the house seats (occasionally all 5 of them like in 90, 92) until 1998. Last time they won the majority was in 2010.
> So republicans don’t need to spend money there to get votes.
Only over the last ~10 or so years (and the Democrats still have 1 mostly safe seat there).
The party "switch" wasn't really a switch to such a huge extent on the local/state level. The Southern Democrats lost most of their relevance on the national level but locally the it didn't really happen until the generation that held offices in the 60s retired/died out
IMHO even nationally it wasn't even that obvious, the Democrats "abandoned" the South but the Republicans more or less just stuck to the same positions that were mostly mainstream in the party for the last 20-30 years outside of the progressive wing. On the whole even Nixon was relatively progressive and liberal by modern Republican standards (probably much too progressive considering his stances on healthcare reform and the environment).
Bitcoin fixes this for the first time in human history. I’m excited about a future without monetary debasement. How many wars have been started by the “print more money until it is worthless, oops I have to start a war to fix it” spiral?
It doesn't in any way fix things. The underlying point of debasement and other schemes outlined in the article was to generate revenue for the government. Now governments use taxes to generate revenue and inflation to encourage circulation.
While taxes and inflation are generally unpopular they are also vital to the functioning of society and the economy. BTC and many other token schemes implicitly or explicitly stand in the way of that.
Breaking a system you don't like doesn't automatically get you a system that's better.
> Now governments use taxes to generate revenue and inflation to encourage circulation.
They always used taxes primarily whenever they could. Significant debasement was almost exclusively an outcome of extreme desperation when you had no other options left. If anything expanding the monetary supply is much easier now than when specie money was used. Debasement of course never worked longterm anyway but it was really only feasibly useful when you had the monopoly on issuing currency (e.g. the Roman Empire). In medieval Europe you’d just stop accepting the coins issued by the the city/lord/king who did that, which would be pretty easy when they put both their stamp and the year of issue on it.
Coincidentally, inflation (effectively a hidden tax) is also a way for governments to ignore democratic society and divert wealth into pet projects such as unpopular global wars.
There is a reason war bonds aren't sold any more to fund them.
Pointing to a national debt without context does not make a point, much less prove the system is breaking.
Global inflation has very little to do with any one governments choice in economic policy. However it should be said that the current state of inflation would make the problems caused by the widespread adoption of a inflation "proof" currency significantly worse.
Tax rates and distribution are an incredibly subjective and political issue. Given any tax policy there will always be a healthy split of experts and laypersons who think it is woefully low and those who think it is grossly high.
> Pointing to a national debt without context does not make a point, much less prove the system is breaking.
Belief in magic is why the system will peacefully continue until it breaks. While it dollar enjoys the status of the least ugly girl in the room, it too will eventually follow the same pattern of all fiat.
Bitcoin has debasement, it's called altcoins and hard forks.
More generally, Bitcoin solves the wrong problem, because Austrian economics got the history of money wrong. Money wasn't invented to track scarce resources, money was invented to track who had paid taxes to the correct military invaders. The traditional / pre-money form of economic system (in the sense of it being a system to track the usage of scarce goods) is the gift economy. This is the system humans are built to work in. But gift economies are backed by strong promises of identity in close-knit groups. A bunch of rapacious murderers extracting food out of the fifth town they've sacked this week aren't going to be able to tell the difference between John, son of John, John, son of the brother of John, and John, son of the cousin of John.
What money does is separate a person's identity from their ability to access scarce resources. This 'paraidentity' of money is rendered in the most extreme in crypto. Your identity means nothing, just the size of your wallet, to the point where even voting in cryptocurrency is proudly for sale. The thing is, separating access to resources from personal identity also centralizes control of those resources. Printing money to fund war is not a bug, it is a feature.
In fact, it's not even something Bitcoin fixes. The primary source of liquidity in the Bitcoin ecosystem is businesses buying it to pay data ransoms. Bitcoin, in the name of opposing statism, invented a new kind of state whose military consists of hackers penetrating and encrypting systems to force you to buy Bitcoin to decrypt them.
The way you debase Bitcoin is by inventing new kinds of Bitcoin. Because, remember, the scarcity isn't the thing bringing liquidity into the system. If the ransomware people decide they're only taking Ethereum this week, then people are buying Ethereum, not Bitcoin. All money exists to pay taxes, and if the tax collector wants a different kind of money, then they've successfully debased the old money.
> The primary source of liquidity in the Bitcoin ecosystem is businesses buying it to pay data ransoms.
Well, maybe you can explain then why most of the crypto liquidity is not in crypto itself, but in derivative products (mostly perpetual swaps and ETFs), which have no use to pay on-chain ransoms?
Almost. Because Bitcoin is highly energetic compared to currency, it isn't all the way there. And novel attacks exist for digital currency that are not present in physical currency. Currency has to be tradeable with marginal cost nearly zero (will never be exactly zero), and in my view digital currency has this as an issue. The analogue for digital currency, when appropriately crafted and not a sh*tcoin, is gold. Hard to get, limited in volume, costly to secure and appropriately manage. Gold can be used for currency, but it is awfully insecure to hoarding and banditry.
Fiat currency solves a _lot_ of problems while also having limitations broadly railed against by digital currency advocates.
You don't need Bitcoin to save you from the inevitable war that's caused by an inflating money supply and printing money out of thin air because the opposite of this is happening!
The money printer has been replaced by a money shredder!
The end of war is a pretty big deal, how will you celebrate?
Bitcoin is basically the worst kind of currency I could imagine (well actually I couldn’t, if I didn’t know anything about it and someone told me to design the worst currency I can think of that would still be practically usable I wouldn’t be able to come up with something as bad…)
If due to some episode of mass psychosis everyone collectively decided to make bitcoin the default global currency it would result in the biggest economic/financial catastrophe in human history..
Extreme deflation, unlimited price volatility etc. but most importantly it destroys any reason for investing your money into anything potentially productive.
Why take any risk when you can just become richer and richer by hoarding cash?
Literally freeloading with zero effort whatsoever because you get a cut from anything that anyone does that might result in any economic growth (i.e. productivity increases -> prices constantly get lower -> if you’re an early “adopter” you just stay permanently rich with zero risk or effort). It’s basically if we just took some of the biggest flaws in our current economic/financial system and multiplied them by 10-100x for some insane reason).
Of course that whole problem is mostly hypothetical since there would be no real growth anymore and we’d just be permanently stuck in a severe economic depression…
It’s even much worse than gold/silver that was a compromise because no trustworthy and stable governments could exist in the premodern world and because economies were mostly static over multi-decade periods (of course there was still a huge amount or volatility year to year)
Bitcoin would make an awful legal tender, because by its design supply decreases while demand for it increases. An ideal, 0% inflation currency (assuming that is ideal) would expand and contract automatically with economic conditions. Satoshi considered this problem but decided it was too complicated to implement, which is why he went with the fixed supply route.
Still, it's worth remembering that a fixed supply currency will inevitably fail just as the metallic standards (which were semi fixed supply) did, and for the same reasons: politics. Metal backed currencies fell because the political will required to coordinate the system fell apart. Newly-enfranchised workers didn't find the message "suck it up, the gold standard requires it" very appealing politically, so they voted for other things that entailed fiscal and monetary policy. Central Banks, seeing the writing on the wall, abandoned gold en masse, with the US retaining it only for other central banks.
Bitcoin would have the same problem. It would be inevitably deflationary - halvenings, for example, are tied to computational power. Presumably, more demand for Bitcoin means more computational power, so its supply decreases just as demand increases.
Deflation is even worse than inflation for working people. Investment dries up, because why would somebody take a gamble on a business if they can keep their cash in their closet and make money, risk free? Employment therefore drops, while people decrease spending - why spend $100 on something today, if you can buy it for $85 in a year? Additionally, loans get more expensive in real terms, wages decline, and a whole host of other bad things happen.
That's why central banks target +2% inflation, in part. Inflation is preferable because it encourages investment, discourages nominal (and only nominal) wage decreases, decreases the real value of loans to the benefit of the debtor class, and other benefits. Central Banks also have a pretty successful record dealing with runaway inflation - hike rates, cause a recession, wait - whereas they lack tools to deal with deflation. At its simplest, the solution to deflation is for everyone to get a check from the government, but this whole field is considered weirdo experimental land and has only barely been tested.
All that is to say: Bitcoin is fundamentally ignorant of history and is incapable of becoming anything other than digital gold. It has a floor value which it cannot sink beneath: online gambling, illegal things, and privacy advocates (in that order) guarantee it will never truly hit $0.00. But it would be an absolute catastrophe for any country to adopt as its actual currency.
Now that I think of it, Bitcoin is perhaps one of the earliest examples of technophiles assuming society should work according to computer code, thereby "cleaning" these imperfect human systems by replacing them with the inevitable future: A philosophically-driven (rather than pragmatically or empirically, for example) system, with clear and inviolable rules, limited to no exceptions, and a happy ignorance of why existing systems came to be. After all, why study the past when we're creating the inevitable future?
> people decrease spending - why spend $100 on something today, if you can buy it for $85 in a year?
Imagine if everything suddenly was infected with the Osborn Effect.
Otoh, certain products like TVs do seem to get better and cheaper as time goes on, yet people don’t seem to delay purchases. It’ll be interesting to see if conventional wisdom about deflation holds, should it come to pass.
>Otoh, certain products like TVs do seem to get better and cheaper as time goes on, yet people don’t seem to delay purchases. It’ll be interesting to see if conventional wisdom about deflation holds, should it come to pass.
The problem isn't just the osborne effect, it's that deflation rewards a non-productive investment (money hoarding) that crowds out productive investments, which makes the economy less efficient.
Buying a TV comes out of spending money rather than savings/investment, and is harder to evaluate because if TVs are getting better and cheaper in the future, they're getting better and cheaper now and so people have more reason to upgrade in the first place - which offsets the incentive to delay the upgrade for future benefits.
