The classic challenge for petty cash is gold. Populations wary of printing money from government or bank accounts—or taxes and regulations—are piling into precious metals, leaving fiat with no willing users and high and dry. This has been the way of the world for centuries, millennia. In the United States, in the early 1930s, the American people, tired of income tax increases taking rates absurdly higher than ever in peacetime, the property tax increased far, far above the highest in the nation’s history, and extraordinary tariffs making everything more expensive, said forget it and pushed for gold, selling United States notes for it, at the official price of $20. The president, FDR, found this so unacceptable that he banned private ownership of gold. A better solution would be to go easy on tax rate levels. It would be enough to stave off the Great Depression while still maintaining classical money.
Today people still do this. Therefore, gold zooms above $4,250. It was at $275 in 2000. Microsoft stock sure did well in 21St century. Not as good as gold, though.
But today people also do something else. They are going to a new alternative to gold, which is therefore a new alternative, Bitcoin in a word although it also includes the universe of cryptocurrencies. By the 2000s, the fiat-gold competition had become long in the tooth. After 1971, gold had no official monetary role for the first time basically ever in the world. For forty years we have been lectured about how cranky gold is – its proponents are “gold diggers” – and how professional fiat money is, through the ministries of reliable, credentialed personnel at the Federal Reserve and the financial establishment at large.
The nature of this elimination of gold was social. The demonetization of gold maintained from 1971 to about 2011 used attitudes of social superiority to enforce the new regime. Mention gold, and you’re out of polite conversation. Say go back to a gold standard, be labeled a crank. No economist in the top thirty departments says a gold standard can work. Nowhere in the peer-reviewed literature, etc.
What was going up in 2011 was, of course, a remarkable attempt to emulate gold that would cut the snobbery in the bud. Bitcoin, which began trading in fractions of a minute in 2009, was cutting edge computer science. Could economists and Federal Reserve officials snub this? What, not sophisticated enough? Not only was it intellectually sophisticated, but it was a culmination—albeit still in its infancy, making it all the more frightening and impressive—of the most remarkable intellectual and technical development of the modern age, the computer revolution.
Is Bitcoin For Dummies? It came from apparently extraordinary intelligence. Are finance departments and central banks more intellectually sophisticated than Bitcoin, the old anti-gold variant? Cut off in passing, the money institution was, in the inherent complexity of Bitcoin.
To get started our book Free Moneyabout Bitcoin and its relevance to the long American monetary tradition through the centuries, we mention how in the early days of Bitcoin’s public exposure, around 2013, the establishment tried to use its old tool, social snobbery, to pack Bitcoin for good. Its users lived in their parents’ basement. People who played video games all day were his base. It was male. Important people like monetary officials paid no attention to it. All sorts of snobbish spaghetti, thrown against the wall. Did it get stuck? Has the price gone up?
In 2020 or so, it became impossible to continue the snobbery. Blockchain technology and peer-to-peer Internet transactions, it was becoming abundantly clear, amounted to another major entry into the inexorable IT revolution. It was interesting how Bitcoin realized, early in 2009, that it needed to bring a different kind of weapon to bear in the fight against fiat money. He had to bring overwhelming mental superiority to the fight.
No self-respecting monetarist can scoff at the computer science revolution. Computers—the people who make them are 100 percent dumb. To say such a thing is to be escorted out of the room. However, just yesterday (before 2009), to say that your gold escorted you out of the room. How clever it was for Bitcoin to form an intellectual frontier far beyond the scope and capabilities of the proponents and maintainers of the fiat money regime. The fiat people had chosen social snobbery to chase gold, and so they had settled, they showed where their vulnerability lay. What if an alternative to gold started from a premise of intellectual superiority that the monetary establishment could never touch?
Now we hear that Bitcoin is very sophisticated. People don’t get it. Buffett: I don’t get it. Bernanke: said the same thing about gold (actually a fireable offense for a Federal Reserve seat). This is where the beauty lies. If Bitcoin is too sophisticated, there is an alternative that is familiar and comfortable and as simple as an old shoe, gold.
What a wonderful pair of scissors fiat money has found itself in. Trash gold because it’s old fashioned? Here is Bitcoin, so new it will blow your mind. Wipe it because you are away? Oops, we’re back to having to deal with gold. It’s perfectly understandable that gold and Bitcoin have recently been riding high largely together. Each alternative pits the aging money consensus against the aging prejudices of that consensus. Obviously we will have monetary reform, possibly of the biological variety, globally, perhaps in the short term. An excellent possibility is a grand alliance between Bitcoin and gold.
