Winston Churchill never actually said that the best argument against democracy was a five-minute conversation with the average voter. Still, the quote lives on because it so clearly resonates with most people’s experience of others’ ignorance.
Reading Seb Bunney’s The Hidden Cost of Money: How Financial Forces Shape Our Lives & The World Around Us, published in December, it occurs to me that the quote could, and should, be adopted for bitcoin: The best argument against bitcoin is a five-minute conversation with the average Bitcoiner. Few people understand the systems in which they operate or the ones they promote, even when, like with democracy, they may be staunch supporters of it.
In the case of Bunney’s book, its 330-something pages require a little more than five minutes, and we only get a few brief mentions of Bitcoin at the end — intentionally so. Bunney correctly describes how you need to understand the problem of a broken money before you’re amenable to thinking bitcoin solves just about anything.
While the book is uncommonly long for these topics, you can flicker through a lot of it, rolling your eyes in embarrassingly weak analysis of the legacy system. We get a lot of topics that don’t obviously connect to money or the monetary system, like bioenergy use in Europe, climate change, the war on drugs, parenting, COVID-19, the explosion in loneliness and other topics of mental health. In fact, the author’s whole case is that a faulty monetary system has devastating consequences for all those domains and more. Everything is downstream of money.
Even though that basic premise is believable — monetary regimes impact our behavior, money is an expression of what we value, and a broken money makes navigating that economic world harder — it seems a clean-up is needed in my own Bitcoin house. And a suspicious lack of evidence for most of the causal connections makes me skeptical.
Bunney flings around terms as if they’re synonymous. Finance is money. Money creation is a “capital lever” wielded by the central bank, which grants central banks “access to virtually unlimited capital.” In principle, yes, but wielding it results in hyperinflation — and the astonishing money printing they’ve engaged in are nowhere near “unlimited.” But at the same time, “No matter how much governments intervene or central banks print money, they cannot create value, such as energy, food, and commodities, out of thin air.” Jumping between real and nominal effects like this does nothing but confuse the reader. Capital and money are distinct economic/praxeological concepts, and blurring them benefits nobody: one is real, the other is nominal; one builds things, one facilitates trade and conveys economic information; one is the outcome of investment, the other the highest and most liquid form of saving.
To double down on this confusing error, in describing the monetary system Bunney separates money into “real money” (but not the standard use of ‘real’) and financial sector money, completely side-stepping the layered-pyramid money approach that economists have used for a long time. Instead, real money somehow consists of boththe notes in people’s wallets — even though they are anonymous, outside-type bearer instruments and direct liabilities of the Fed — andthe bank money in people’s bank accounts, which are none of those things. The error compounds when the author critiques Quantitative Easing, where the Fed apparently “forces these financial institutions to sell the assets they request.” No, the Fed operates on an open market; they were buying assets from willing sellers.
What’s worse is that if the financial-bank money were so separated from the money that ordinary consumers use, QE and central bank interventions (only operating in this separate monetary sphere) couldn’t possibly place “a growing burden on people’s incomes.” People’s real money is, after all, spent on food and living expenses, not stocks and bonds. Clearly, even in the author’s mind, there must be some (unexplored) mechanism through which the financial money spills over into the consumer money. If added, the framework would probably collapse back down to a layered-money approach.
The errors don’t stop there. Dollar’s purchasing power “stayed relatively intact” when it was pegged to gold (OK, fair), but to illustrate that Bunney graphs the real and nominal minimum wage (strike one: irrelevant metric) since 1938 (strike two: wrong timeline), a nine-decade period of which the dollar was only ephemerally pegged to gold under the Bretton Woods system for only a dozen years.
He incorrectly states that house prices in his hometown of Whistler, British Columbia blew out to 106(!) times average wages. They didn’t: Even using his own scanty sources (prices from a real estate agent and wages from a recruitment website) gives us house price-to-wage ratios during the 2022 ‘rona boom in the high 20s. Still bad, but still wrong.
So many other figures in the book are unreasonable that it casts doubt on much else that the author claims: One in five Americans lost their jobs in the GFC, when the actual number is 7-9 million. The 10-million figure of people losing their homes also seems a little on the high end (an NYU study reports six million; Pew Research in mid-2009 said two million houses foreclosed on). Central banking didn’t start in 1913. The Fed doesn’t have a GDP growth rate goal. The concept of “wage stickiness” is misused. A lower mortgage rate reduces a family’s expenditures, not increasing its incomes. The author states that a government subsidy “exacerbates inequality as prices rise” but also, the very same subsidies “are forcibly lowering prices” — one wonders how. Higher interest rates would reduce our destruction of the Earth and make us more ESG friendly, when any sensible interpretation makes the ESG mania a ZIRP-phenomenon.
At the end of a long chapter on fiscal irresponsibility and public sector expansion, the author states that today’s money “shifts balance of power away from citizens” because “government’s ability to spend is more dependent on financial intervention than on the taxpayers themselves.” This — and not four-year cycles, zero-sum policy mindset, or not having skin in the game — is what explains short-term thinking in government. Many Bitcoiners go overboard with that observation: Saifedean Ammous, author of The Bitcoin Standard, doesn’t understand where money comes from; Jimmy Song, another prolific and influential Bitcoiner, channels his inner Stephanie Kelton when he says taxes are “revenue theater.”
True, issuing the reserve currency gets you cheaper and larger debts, bracket creep allows for larger tax intake, and in ordinary years — when the Fed isn’t broke — the Fed forks over its profits from money issuing to Congress. Those effects look fiscal but are monetary in nature. But for all the flaws in the money and the many misaligned incentives that Bunney explores, it’s nowhere near enough to rival the eye-popping insane amounts of economic value forcibly extracted from Americans every year: In FY2023, the U.S. government spent $6.13 trillion of which $4.4 trillion were raised in taxes.
The best I can say about Bunney’s book is that it’s an unsuccessful attempt at exploring the connections between a monetary system and outcomes in the world. Still, he manages to hit a few home runs. His description of monetary premium and the financial distortions that happen because of a faulty money are on par, and money is a way to communicate economic values. He writes that since the birth of central bank, there’s “a strong case [that] the world isn’t necessarily better off for their interventions.”
In general, Bunney is qualitatively and directionally right even if he’s quantitatively wrong most of the time. Because of that, he does a much better job in his appearance on the Bitcoin podcast What Bitcoin Did with Peter McCormick; skip the book, and go watch that episode instead.
In closing, I buy the premise that many observed macroeconomic phenomena are related to the monetary regime itself rather than being a natural outcome of financial/money life. (That money has real impacts is the reason so many of us study it.) But maybe there are one or two more things that drive the many troubling outcomes we see around us.
I wonder what Winston would have made of all of this.
