“You don’t want an honest dollar...you want a scarce dollar”
I’ve been getting thoroughly indoctrinated via the Twittersphere and Podcastosphere about the inevitable rise of bitcoin to $1,000,000 per coin as it supplants the US dollar, Chinese Yuan, and gold, destroys Trumpism, castrates the Fed, gives birth to Marx and Keynes’ love child, makes Hilary Clinton likeable, resurrects Elvis, and, I think, cures coronavirus.
As much as I’d love to buy into the hype, I live amongst Dave Chapelle’s “poor whites” in the Midwest and know firsthand their questionable leaps of logic. In these parts, my folk told me to grow up to be a garbageman because “they make more money than you think” and “get great benefits.” Yesterday, my mom told me she’s been using her Kindle to browse the web and send emails for two months because she accidentally unplugged the router and can’t figure out how to plug it back in.
Unfortunately for bitcoin HODLers, you’re going to need to convince these lively slack-jawed salt-of-the-earth folk to adopt your stupid elitist Chinese conspiracy coin for it to attain the $10 trillion market cap that will lead to the roughly $1 million per coin metric. If you’d like to start by calling my mother and teaching her how to store her entire life savings in a multisig blockchain wallet, I’d be happy to oblige.
I think bitcoin will have a place as some sort of scarce digital asset with many pragmatic use cases. I do not think it ever becomes the world’s reserve currency. A key driver in my argument is the primordial American suspicion of centralized power, whether it concentrates in the Federal government, the central reserve, or a digital asset. I understand Bitcoin is actually decentralized. However, it exists solely on the internet, which is itself a nebulous form of centralization fraught with partisan mistrust. Moreover, to prove to people like my mom that Bitcoin is decentralized and secure, you’d need them to understand computer science (she doesn’t) or at least trust that Bill Gates isn’t spying on her through her computer’s camera (she doesn’t).
Before I begin, I’d like to beg forgiveness from the Bitcoin community: I read lots of books, I didn’t drop out of college, and I didn’t appropriate Ray Dalio. Please ignore these Scarlet Letters and approach my ideas with an open mind.
Historical Fault Lines and Empty American Space
Let’s start with what the disappointed Washington Post called “The least misleading map of the 2016 election”:
The poor whites occupy most of that red that the Washington Post claims is empty space. I grant their point: cities are certainly more dense than rural America, and the coasts are dominated by cities. An issue I have with the “bitcoin is following the internet’s adoption curve” argument involves the red map above and certain details from this article: HODLers are young, rich, male, and, importantly, live in cities. I’d argue that many live in San Francisco or wish that they did.
These young, rich, male HODLers belong to an exclusive Twitter club that admits only people with laser beam eyes. Many of them bought bitcoin when it was $500 or cheaper. Many of them are now millionaires. With their bitcoin wealth, they hold bitcoin conferences, write bitcoin blogs, start bitcoin companies, have bitcoin podcasts, and sound really bitcoin smart because they now have free time to create bitcoin content all week. Thanks to serendipitous purchases of cheap bitcoin, we now have a Bitcoin Podcast Industrial Complex through which this lucky group of (now wealthy) “thought leaders” can tout bitcoin hegemony and convince the rest of us that it will eat the dollar.
The information disseminated by the BPIC is laden with indecipherable tech jargon and seems to have Che Guevara undertones of liberating the world. In the BTC Manifesto, however, the central banks, not the bourgeoisie, enslave the proletariat. Interestingly, the inhabitants of the red space above aren’t fans of anything that can be misconstrued as Communism, they harbor a deep suspicion of technology, and they are equally distrustful of centralized authority.
Satoshi Nakamoto and the Ghost of J.P. Morgan
I began this article with a quotation from Pennsylvania representative Joseph Sibley, taken from a lengthy oration he gave in Congress in favor of minting silver coins to debase the gold standard to assist struggling farmers. Sibley levied his accusation against his Republican opponents, and, more pointedly, the Wall Street fat cats who bankrolled them, claiming “you don’t want an honest dollar…you want a scarce dollar.” Scarcity is certainly different than honesty. Scarcity is also a key buzzword favored by laser-eyed BTC fans as they retweet gifs of money printers. According to BTC ideology, the Fed causes every problem humanity faces, and BTC solves every problem the Fed creates. Why? Scarcity. The Fed can never print more bitcoin.
Interestingly, J.P. Morgan and his cadre of power hungry, colluding, capital hoarding, monopolists also favored a scarce dollar. They unequivocally backed the gold standard. Morgan understood that an expanding money supply backed by gold and silver would erode his margins via inflation. To add a bit more nuance, and to Morgan’s credit, he also understood that the power of the British empire was in large part due to confidence in its strong, stable currency, which was tied to gold. For the United States to achieve similar preeminence, we would need to play by similar rules.
On the other side of J.P. Morgan politically was representative Sibley from above, and William Jennings Bryan. Bryan was a three-time presidential nominee, a populist hero of the masses, and scarce money opponent, perhaps most famous for his cross of gold speech. In the speech, Bryan equates hard money with banking, and equates bankers with the dirty Romans who crucified our Lord and Savior. Bryan’s anti-banker platform was largely built on bimetallism: expand the money supply and create inflation by adopting a currency backed by both gold and silver. For your consideration, I present the electoral map of 1896, in which the blue states voted for bimetallism and currency debasement. It’s not a perfect match, but I think I’ve seen this map before.
Bryan carried the blue. Confusing, I know, because the blue is now overwhelmingly red. Bryan led in the polls until some very wealthy men collected large sums of money to support William McKinley. Bryan ultimately lost the election 47% to McKinley’s 51% in an election with 80% turnout. Suffice it to say that debasing the currency was a popular idea in 1896.
Bitcoin Didn’t Fix That, and Bitcoin Won’t Fix This
While HODLers venerate deflation as a source of abundantly cheap everything, they rarely mention the brutal period of sustained deflation that occurred at the end of the 19th century. Roger Lowenstein explains it thus in America’s Bank: “Over the course of three decades…prices in America steadily declined. No American born after the Great Depression has ever experienced even two consecutive years of deflation but, astonishingly, from 1867 to 1897 prices skidded relentlessly lower, and over the whole of that period they tumbled well more than 50 percent. In 1867, when [Congressman Carter Glass] was nine years old, a bushel of winter what fetched $2.84; thirty years later it was selling for a mere 90 cents” (18).
So if the Fed wasn’t around debasing everybody’s fiat, how could there have been any economic problems? Farmers had to take out loans to operate their farms. According to David Whitten, “the advancing checkerboard of tilled fields in the nation’s heartland represented a vast indebtedness. Nationwide about 29% of farmers were encumbered by mortgages. One contemporary observer estimated 2.3 million farm mortgages nationwide in 1890 worth over $2.2 billion.” As crop prices were falling, the gold-backed hard money dollar stayed strong, and the debts denominated in gold-backed hard money stayed the same. Imagine if your salary decreased every year while your mortgage payment and student loan payments stayed the same. Hence 47% of Americans feeling as if they were being crucified on a cross of gold by J.P. Morgan and other hard money HODLers.
This deflationary downtrend culminated in the Depression of 1893. From 1894-1898, unemployment averaged higher than 10%. Add this high unemployment to the aforementioned debt loads and you get political repercussions like Progressivism and maybe a Capitol Riot or two. Few understand this.
This Time is Different
Given that the Panic of 1893 and election of 1896 were more than 100 years ago, they clearly aren’t perfectly correlated with outcomes that we might see today. However, bitcoiners demand deflation, and this period marks a singular period of deflation in our country’s history. Considering that widespread indebtedness of American farmers in the period led Americans to support a populist money debaser, I wonder why the average indebted American in 2021 would demand the opposite solution now. Mortgage debt is approximately 16 trillion and student debt is approximately 1.5 trillion. Most of it being long-term, the American debtor stands to benefit from money printer go brrrr and I don’t think any amount of Jay Powell memes will change this economic fact.
In The House of Morgan, Ron Chernow describes popular reaction to nonadjustable debts denominated in the gold standard currency: “[Farmers’] discontent made bankers the favorite bogeymen in rural political demonology. So venomous was the mood that several western states outlawed bankers, with Texas banning them altogether until 1904. This pervasive anger crystallized around the House of Morgan, which was seen as a mouthpiece for European finance” (72). Need I remind everybody that the root of this anger was based on a scarce and inflexible money supply? What, then, does it mean for bitcoiners to be philosophically aligned with one of the most vilified figures of the late 19th and early 20th centuries?
Recall that William Jennings Bryan’s trilogy of Presidential attempts was brought to you by antipathy towards eastern bankers. Today we have a similar political overlay, with Wall Street being the Vampire Squid responsible for the 2008 crash and the Fed being a collusive and complicit “mouthpiece” of the bankers. In the last decade, moreover, coastal Western Elites have summoned a bogeyman perhaps more sinister than either Wall Street or the Fed: Big Tech. Bryan’s constituents are now being crucified on a cross of gold while Silicon Valley stabs them in the gut.
Now imagine if somebody on reddit posts the following Bitcoin origin story. A cabal of Wall Street bankers, joined by Zuckerberg, Dorsey, Gates, Bezos and the ghost of Steve Jobs, all traveled in an unmarked Blue Origin rocket ship to a secret country club on Mars called Hyde Island. There they hatched a plot to create a scarce digital money that can only be accessed via the internet. Zuck gave it a dumb name and the others agreed to credit an anonymous Asian pseudonym (he’s Chinese, right?) with its creation by publishing a white paper that claims the currency will create freedom everywhere.
Implausible and impossible enough to seem like a completely rational conspiracy.
The invitation from earlier is still open: convince my mother that bitcoin is real. This is a woman who barely uses a credit card and writes a lot of checks at Marc’s for groceries. If you can get over that small hurdle, then prove to this Mark Zuckerberg critic that the conspiracy theory I just invented is not real. If you can do that, it’s all aboard to a $20 trillion market cap.