I’m with you on the Blockchain. If you go back and study the First and Second Bishop’s Wars, you’ll see how King Charles I confiscated the gold in the Royal Mint to pay his soldiers. It was a forced loan, and was eventually repaid, but the merchants decided to store their gold with trusted goldsmiths to keep it away from the war-mongering Crown. (After 17 years of war, and with talk of forcing retirees into accounts which invest in U.S. government debt, does this sound vaguely familiar?)

The goldsmiths would issue receipts redeemable for that gold, and those receipts began circulating as a medium of exchange — paper money. But it worked because they were redeemable for gold. The problem of human nature quickly inserted itself as the goldsmiths realized that receipts would not be presented all at once since they were becoming a common medium of exchange. They figured they would create “extras” and lend them out at interest; fractional reserve banking was born. But it was originally done on the sly because no one wants to be next in line when the last of the gold has been redeemed.

Crypto exchanges are becoming the equivalent of the trusted goldsmiths. The ideal is not to have to trust a counterparty, but as a practical matter that will probably never be the case. The online crypto exchanges depend on our trust to a certain extent. The whole idea arose in the wake of the financial crisis because the government/banking special interest group manifestly forfeited our trust.

But here is where I think you’re wrong:

“…by way of the zero sum game of money supply…”

Money arises from the need to have something to measure, exchange, and store value. But value does not just appear; it has to be created. When someone takes the raw materials of nature of makes something useful from them, they create wealth and as a result various forms of new value emerge. (Say you take the things of nature and build a building… Now someone can provide value by maintaining it.)

So as long as we are creating wealth, there will be an expanding need for money… it is not a zero sum proposition. This is what you are missing when you look at a gold standard. (There is no such thing as “the” Gold Standard; one can be implemented in various ways, some better and others worse.)

Gold and silver have not been used as money because of their scarcity but because they do not rust. If a metal is valued by its weight, and it loses weight over time to oxidation, it is not a good store of value. Noble metals do not lose their weight over time, which is why gold and silver work well as money.

The key is understanding that wealth is created in only one way: taking otherwise useless raw materials and making them useful. The reason a gold standard is, in fact, better for wealth creation is it enforces productive allocation of money.

The money supply goes in one of three directions: political (government spending); speculative (more and more so on Wall Street); and productive. Our problem is productive uses are last in line with political use and speculative uses sucking the money supply dry. This should be causing interest rates to rise because of the inordinate demand being placed on the supply. When when money can be arbitrarily added to the supply (QE in fiat units), that essential feedback loop is interrupted.

Forcing some form of restraint, be it a natural restraint like Noble metals or a political rule (e.g. Congress imposing the Taylor Rule on the Fed) will enforce a discipline which will prefer productive, wealth creating uses of money. That will, in turn, open up the realization of entirely new forms of value, which will then create growth in the volume and value of transactions in the economy.

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I am a charter member of the pocket-protector set, but old enough to make fun of them and otherwise have a healthy skepticism of tech. https://goo.gl/2z5Snr

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