The Austrian School of Economics defends that money should always arise on the free market.
Our current acquired view of money is set on it always being controlled by some sort of central entity (top-down via government). That central authority is in charge of managing both inflation and monetary policy.
Bitcoin, however, offers opposite paradigms. It has no central authority and its supply is limited, auditable, and known in advance.
Economies as a whole are complex and adaptive systems that flow from a different degree of top-down decisions (centralized) and bottom-up decisions (decentralized). It has been proved again and again that economies with an excessive top-down approach (centralisation) don’t allocate resources efficiently.
Problems with a Fiat standard
PRICE SIGNALS
All price dynamics in an economy are moved by an infinitely complex mesh of individual knowledge that a centralized entity cannot gather. The biggest problem of constantly manipulating the money supply is that it obscures and distorts price signals. It is impossible to find out whether the aggregate demand is growing naturally or because of the additional money injected into the economy.
When the money supply is constantly manipulated, the pure mathematical objectivity of its measurement cability is distorted.
Price signals, however, should always be just a pure mathematical coordinative force for free-market agents. If you measure a door with a measuring instrument constantly inflating its scale, then you don't know whether you measure the door or the instrument, you cannot distinguish the signal (the height) from the nouse (the changes in the unit of measurement).
With productivity gains, prices should fall naturally -we produce more with the same resources-. Price dynamics should only reflect real free-market dynamics. -economic preferences and real demand and supply dynamics-. However, constantly inflating the money distorts the mathematical purity of price signals. As a result, the precision of economic agents to make rational economic calculations is compromised, deriving inexorably in a less efficient economy.
DISTORTION OF TIME PREFERENCES & CAUSING BUSINESS CYCLES
Trying to plan monetary policy in a centralized top-down fashion also leads to the distortion of the time preferences of individuals. In the free market, a natural interest rate forms with the equilibrium between low and high time preferences, but in the fiat standard, borrowed money doesn’t come from someone else’s savings, it is just debt that gets created.
These dynamics make economic calculations less precise and cause the system to overborrow and misallocate capital. Today, interest rates are artificially lower without a lower time preferences. This according to the Austrian school causes the business cycles of boom and busts.
How does Bitcoin solve all these problems?
With a known, auditable, open-source and absolutely scarce limited monetary supply (mathematically objective), Bitcoin allows for pure pristine price signals, preventing inefficiency costs associated with monetary distortion. All price dynamics just reflect real free-market realities (productivity gains, scarcity, abundance,....) that come in aggregate from each economic agent’s decisions. Prices just reflect economic truth.
Interest rates also fluctuate according to real market demand and time preferences in the economy, smoothing the business cycle as a result.
In conclusion, Bitcoin not only allows for a more efficient economy to flourish as money just represents pure mathematical objectivity, it also takes the monetary power away from politicians, dictators, and bureaucrats back to the individual economic agents.
Autocrats like Erdogan in Turkey can corrupt the monetary policy of the central Bank of Turkey, but they will never be able to influence or alter Bitcoin’s monetary policy.
In this last regard, Bitcoin truly unleashes monetary empowerment for all economic agents.
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