This paper tries to explain that Cantillon effect and how the natural injustice of all past monies has always created a world in which the privileged few could take advantage of the unprivileged. We examine how Bitcoin, as the fairest money in the world, mitigates the spread of the Cantillon Effect and creates a more just, just and successful world for all.
What is the Cantillon Effect?
“The Cantillon Effect refers to the change in relative prices as a result of a change in the money supply. The change in relative prices occurs because the change in money supply has a specific injection point and thus a specific flow path through the economy. The first recipient of the new offer of money will be able to spend additional dollars before prices go up. But whoever comes last gets their share of new dollars after prices go up. “
Nicolás Cachanosky, American Institute for Economic Research (AIER)
We saw the Cantillon Effect in 2008 and 2020 when banks and other companies received bailouts to avoid bankruptcy. These are hands-on case studies that demonstrate the effectiveness of direct links with Wall Street and the Federal Reserve. Only those closest to the people who controlled the money supply could benefit greatly from any recession, while many in the middle and lower classes did not.
This can easily be seen today in the recent stimulus package being discussed in the US. While senators argued for months over the amount of money citizens would get, there is nothing but a bipartisan, tacit consensus on the billions of dollars in fresh money that will support massive organizations and interests outside of the bill’s directly stated purposes.
The Cantillon Effect rules the world.
Money has never been fair
Non-neutrality of money means that money is not created and distributed evenly or fairly among a population. Money creation is inherently unfair, and the easier it is to create money, the more unfair it is to those without authority and access to certain connections.
To be honest, progress in life can be catalyzed by approaching the money printer. When they talk about institutionalization, they are really referring to the rules to get closer to the money printer today.
To the untrained eye, America looks like the land of prosperity, but once the blinders are lifted, the reality shows that it’s just the land closest to the money printer.
If you zoom out even further, it becomes clear that anyone living in the United States who receives US dollars directly is inherently in a privileged position compared to everyone else in a similar position but not directly receiving US dollars. This affects the elites, who are really close to the printer, and the poor.
The Cantillon effect applies not only to Fiat, but also to precious metals.
Precious metals (mainly gold and silver) have historically been the best available monetary goods that humanity could use. Unfortunately, the mining, custody, and validation processes required for a properly functioning precious metals economy have created a weakness for opportunistic central operators to benefit from a privileged position.
The Spanish price revolution, caused by the mining of newly found gold and silver in America, wreaked havoc across Europe and arguably ended the unprecedented growth of the Renaissance. Spanish kings benefited from the newly found species while people across Europe found the purchasing power of their gold and silver erosion.
History is peppered with cases of devaluation, coin cutting and other violations of the fairness of a precious metal system. Ultimately, precious metals’ failure to scale to a digital global world, as well as the inability to defend themselves against centralization, seizure and newly discovered supplies, have led to the adoption of the far more unfair fiat currency systems we live with today.
On January 3, 2009, Satoshi Nakomoto dismantled the first block of the Bitcoin blockchain with the message “The Times 03 / Jan / 2009 Chancellor on the verge of the second bailout for banks” – the headline of The times London newspaper this morning. Not only was this a message from Nakamoto of their intentions to create fairer money, but it was also a timestamp and evidence of the fair introduction of the bitcoin currency.
Due to the deliberate actions of Nakamoto and the permissionless, free, and open source nature of Bitcoin, Bitcoin is the first truly neutral money. Bitcoin removes the inherent injustice associated with all previous funds, as well as the need to trust a third party in order to be able to use Bitcoin.
Bitcoin provides incentives
The Cantillon Effect 2.0 is introduced to the world by Bitcoin. In a Bitcoin world, only those closer to the truth can reap the rewards of value creation rather than being rewarded for privilege, status, and geography.
“The only way to get Bitcoin is to get it from someone else. Bitcoin is almost impossible to steal, you have to provide something valuable and someone else has to willingly part with their Bitcoin. I think the depth of this cannot be overstated. There is no other way to get value from global markets than to be productive and I think this is a huge change for society. “
Gigi, engineer at Swan Bitcoin (Bitcoin’s Nature, “Bitcoin Magazine Podcast”).
The transition to a Bitcoin standard is an awakening of truth and reality.
Bitcoin prevents institutions from taking action against the market, as Bitcoin cannot be made out of thin air without an exorbitant amount of energy to mine it. Creating more than 21 million bitcoin is not possible as the upper limit of 21 million is enforced by a distributed network of independent nodes. For the first time in history, Bitcoin offers individuals a means of accurate economic calculation.
Bitcoin makes the use of force to extract value much less scalable.
Since Bitcoin allows for easy custody and validation of Bitcoin, Bitcoin users no longer have to rely on central institutions to hold their assets. Because of this key distribution and the fact that there is no way to move coins without actually gaining control of a bitcoin private key (spending key), censors or thieves now have to switch from key holder to key holder and extort every single key.
We see technology fundamentally changing the logic of violence. Gone are the days when a government could simply freeze its bank account. This increased cost of blackmailing and controlling the prosperity of a population is a fundamental change in the current organization of the world.
Defense bitcoin, which is offered to individuals and businesses alike, has been the subject of extensive discussion recently Bitcoin Magazine Article “The Sovereign Company Thesis”.
A transparent future offers more possibilities
We are all very much aware of what a closed and centralized monetary system leads to because we live through it every day. Centralization certainly has its use cases, but not when there is a lack of accountability for the watering down of an individual’s work. Making money out of nowhere continues to affect a person’s productivity and ability to get ahead in life.
With Bitcoin, accountability lies more with the individual than with any institution or self-appointed bureaucrats who are too far removed from the realities of most people’s situation. There are very few people who understand how money is created and how governors at branches of the Federal Reserve decide on “acceptable” inflation rates. How much is too much inflation versus how little is too little? Fiat is more like improvisational theater than actual science. Rules are broken when those in power deem them necessary, while citizens of nations have no say in what is best for their monetary interests.
In contrast, Bitcoin’s consensus rules do not change and the code is updated extremely slowly with world-class peer review. Unlike your iPhone, which fails if it’s not updated, Bitcoin upgrades are optional and users volunteer to sign up. The Bitcoin network consensus is purer than democracy. There is no attempt to take away what is productive in order to support pension seekers or parasites. It continues to incentivize the best outcomes for all participants, especially if it means forcing individuals to be more productive in order to purchase more Bitcoin.
In the past 12 years of Bitcoin’s existence, it has been difficult to find someone who hasn’t heard of digital currency. Up until that point, however, it was uncommonly curious to find out what money really is, how it is created, how it has been used throughout history, and what makes a currency or store of value successful and what doesn’t. Today, Bitcoin is the viral orange pill that is awakening the world to our current monetary system and the impact it has on our daily lives.
In a bitcoin-based world, rather than a world where those who have the right social positioning and leverage are unfairly benefited, value is created by those who create value. those closer to the truth.
Ultimately, Bitcoin allows individuals the ability to log out and build outside of the existing control constructs. These benefits are not equally experienced. The sooner a user is, the more they are rewarded, as should be in a really fair system. Bitcoin rewards the curious.
We all find bitcoin at the time when we make it the most. There are people who owned Bitcoin very early on but no longer have anything to do with space. Some people have to go the more agonizing path of finding Bitcoin very early in order to capitalize on their position before a great deal of value is unlocked – not just with the price of Bitcoin, but also to unlock the true potential of more productive individuals who situations are not ideal. Bitcoin changes this by making it accessible to anyone with an internet connection. With the advent of the internet and access to information, bitcoin will play a similar role in continuing to expose the opaque practices of centralized banking networks.
A transparent future offers more possibilities. What happens to the world when there is money that can really do without built-in privilege?
Welcome to the Bitcoin Renaissance!
Special thanks go to Gigi for the inspiration and careful editing.
This is a guest post by Christian Keroles and Deniz Saat. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.