What is Money? (Part 6)
Asking yourself "What is Money?" is the 1st step into a philosophical rabbit-hole that could prove to be the most fascinating intellectual journey of your life…
The question “What is Money?” is deceivingly simple. One would expect the answer to be abundantly clear given its prevalence in daily life, but upon further reflection, most find money to be mysterious. Money is an all-pervasive economic ether, an interpenetrating field influencing human perception, thought, and action. Yet despite the “everywhere and nowhere” nature of money, its deepest truths remain hidden in plain sight. Here, we explore yet another answer to this question, money is…
Uncertainty Insurance
“In a system without change in which there is no uncertainty whatever about the future, nobody needs to hold cash. Every individual knows precisely what amount of money he will need at any future date. He is therefore in a position to lend all the funds he receives in such a way that the loans fall due on the date he will need them.”—Mises
“Only money, on account of its instant and unspecific wide-ranging salability, can protect him against uncertainty. Thus, just as insurance premiums are the price paid for protection against risk aversion, so cash holdings are the price paid for protection against uncertainty aversion.”—Hans-Hermann Hoppe
All action occurs in time, and the future is unknowable, yet those paying close attention can at times prognosticate accurately. Entrepreneurship is the art of adapting current production to the anticipated wants of future market actors. In dealing with the ineradicable uncertainty of the future, money offers its users an ideal “insurance policy” by laying claim to all problem-solving factors purveyed on the free market. This means money is a call option on the time, knowledge, and capital of all other market actors. As entrepreneurs set out to solve problems by combining productive factors in a way less costly than the price of the finished good they seek to sell on the market, they inevitably encounter the unexpected. No matter the adversity faced by entrepreneurs, money offers the best chance of solving their problems as money is an instrument that commands the total problem-solving capabilities of all other entrepreneurs. Therefore, money is the ultimate uncertainty insurance policy. Monetary goods exhibiting greater assurances of rendering the relevant services discussed earlier (divisibility, durability, recognizability, portability, and scarcity) make for safer policies. In the sphere of money, certainty (of credible monetary affordances) is the antidote to uncertainty (the endless vicissitudes of the market).
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For 5,000 years, gold has served as humanity’s most effective uncertainty insurance. But since the Genesis Block of Bitcoin in 2009, gold has been facing the uncertainty of digital disruption. Digitization optimizes all five affordances of money. Bitcoin is purely digital money, therefore relative to gold its divisibility is supreme, as information can be infinitely subdivided and recombined at near-zero cost (like numbers); its durability is supreme, as distributed information does not decompose (books like the Bible outlasts empires); its portability is supreme, as information can move at the speed of light (thanks to telecommunications); and its recognizability is supreme, as information is the most objectively discernible substance in the universe (like the written word). Finally, and most critically, since Bitcoin algorithmically and thermodynamically enforces a perfectly inelastic money supply, its scarcity is supreme (as scarce as spacetime, the territorial substance money is intended to tokenize in the first place). Taken in combination, these traits make absolutely scarce digital money seemingly indomitable in the marketplace. Of course, nothing is certain, and gold has a multi-millenia head start in the marketplace, therefore the outcome of this historic monetary transition remains uncertain.
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Although Bitcoin seems to have perfected the affordances market actors seek from money, only time will tell whether it is truly disruptive to gold and all of its derivative geopolitical power structures, including nation-states and central banks. As uncertainty insurance, Bitcoin can hardly be rivaled in terms of the certainties it affords its holders. It is commonly said that there are only two certainties in life: death and taxes; Bitcoin, however, has introduced a third: a fixed supply of 21 million. A monetary system governed by unbreakable rules and characterized by perfect supply inelasticity is the nearest thing to the economic concept of perfect information history has ever known, making Bitcoin the perfect instrument for market actors contending with unknowable futures. Bitcoin offers humans a previously unobtainable level of certainty in the affordances money provides. In a deep philosophical and practical sense: by virtue of being unchangeable, Bitcoin is radically changing the world.
Now we are getting somewhere. Repetition is the father of learning, and iterating this question keeps taking us deeper. Is there a bottom? What is the truth of money? An unanswerable question perhaps, because money is a tool of discovery, and unending questioning is quintessential to discovery. Money is...
In Part 7, we will explain how money is the end of economic inquiry…
Thank you for reading What is Money? (Part 6).
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