Overview

Possibly the most central idea in neoclassical economics can be summed up in a single line from Kevin Costner's 1995 flop of a post-apocalyptic film about life after the melting of the polar ice caps: “Nothing's free in Waterworld.” Or from a popular introductory economics textbook, describing the concept of opportunity costs: “To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another” (Mankiw 2012, 4). Trade-offs may be what neoclassical economics is all about, but this hinges on a concept of scarcity, popularized in anglophone economics by Lionel Robbins (2007 [1932], 15), so tradeoffs must be understood in context. The economy, society, and cultures in which we live influence decisions that neoclassical economists often model as made freely by identical autonomous individuals. Rather, the organization of capitalist society compels some activities and constrains others.

In Chapter 2 of this book, I discussed my Marxist-feminist model of household production in which households, capitalist firms, and the state are linked to one another via their production processes. According to this model, households can get things done in everyday life using varying proportions of inputs—commodities purchased with money from waged work, goods and services from the state, and time in the form of unwaged work—but in doing so are complicit in the reproduction of capitalist society. In Chapters 3 and 4, I described the ways my informants get things done in everyday life via mundane practices, prioritizing the things that are important to them, making use of the resources available to them, and subject to the factors that constrain them. The sustainability priorities of my informants include community well-being, the health of individual family members, nature, technology, and waste avoidance. Their resources include money, time, and know-how. My informants feel constrained in their choices by social and cultural norms, as well as a lack of accurate information about sustainability practices. This combination of priorities, resources, and constraints were different in every household. However, one striking universal complaint across all of my interviews was about a lack of time, as pro-environmental practices tend to take more time than money.

The rise of inflation rates around the world has rekindled debate over alternative monetary systems. What options do we have for better money? The gold standard is an alternative with a long history, while Bitcoin is a new contender. Would a decentralized gold standard or Bitcoin standard outperform the current system of fiat money issued by a government central bank? Unlike accounts of the gold standard or of Bitcoin that are one-sided works of advocacy, and unlike accounts of fiat money that are published by central banks, Better Money: Gold, Fiat, or Bitcoin? provides a nuanced and hype-free discussion. Written by a pioneering economist in the study of alternative monetary institutions, it explains how gold, fiat, and Bitcoin standards differ in terms of their supply mechanisms. Drawing insights from monetary theory and comparative history, it evaluates the three standards on their relative merits. It is essential reading for anyone interested in the future of money or in proposals for fundamentally reforming our monetary system.

This chapter focuses on academic models of collective choice. It discusses voting models and models of social choice to show that the link between instrumental preferences and collective choice outcomes is broken once one recognizes that the political preferences of citizens and voters are expressive, so do not represent the outcomes they most prefer. The models themselves are not wrong, in that they describe the way that expressed preferences are aggregated to make collective decisions. But the interpretation of the models often is mistaken. There is no clear relationship between outcomes of collective decision-making processes and the outcomes that would be preferred by those whose preferences are being aggregated.

Chapter 5. Bitcoin emerged in 2009 from a community of libertarian cryptographers who sought an alternative payment system free from fiat inflation and from government payment surveillance and censorship. Today it provides an alternative payment rail that circumvents central banks. Bitcoin serves as a medium of exchange in some transactions, but not yet as a commonly accepted medium of exchange. The Bitcoin source code keeps the number of Bitcoin in circulation growing, at an ever-slowing rate, along a programmed quantity path. Basic monetary theory shows that this supply mechanism has pros and cons: It avoids money supply shocks, but it rules out any supply response to variations in demand, making the purchasing power of Bitcoin more volatile than that of gold or (relatively well-managed) fiat, which limits the attractiveness of holding Bitcoin as a medium of exchange. The costs of the Bitcoin industry are borne by its users, not by third parties, to the same extent as those of any energy-using private industry. The non-zero chance of its serving as a future global money means that Bitcoin has a fundamental value. It does not inherently rest on an unsustainable chain-letter or “bigger fool” process.

One motivation for this volume is to question the way that academic models of the political process depict preference aggregation and public policy formation. More significantly, this analysis has implications for democratic political institutions. There is an illusion, promoted by the political elite, that democratic oversight of government can control its power and direct it toward the public interest, but the powerless cannot control the powerful, even if the powerless far outnumber the powerful. The ability of constitutional constraints to limit government power and direct it toward the interests of the masses is also questionable, because those constraints must be enforced. If public policy is designed and implemented by the political elite, ultimately the power of government can be controlled only by a system of checks and balances that enables some of the elite to control the power of others. Democratic institutions can play a role in determining who holds political power, and constitutional constraints can play a role if there are institutional mechanisms to enforce them, but without a system of checks and balances that enables some elites to control the power of others, democracy and constitutional constraints are ineffective.

Chapter 3. The mechanisms that govern how a gold standard works, and the historical performance of gold standards in practice, have often been misunderstood or inaccurately described – both by critics and by supporters, including academic economists. We address the main misconceptions by critics, including “The Gold Standard caused the Great Depression,” “A gold standard is dangerously deflationary,” “The volatility of the price of gold in recent years shows that gold would be an unstable monetary standard.” We also address the main misconceptions by supporters, including “Gold has objective value,” “A gold standard provides a perfectly stable measure of value, like a yardstick provides a stable measure of length, because it fixes the definition of the monetary unit,” and “The quantity of money is self-regulating under a gold standard only if we outlaw fractional-reserve banking in favor of one hundred percent reserves.”

Chapter 6. As a future monetary standard, should fiat standards collapse, gold would exhibit greater purchasing-power stability than Bitcoin. Gold and Bitcoin supply and demand diagrams from earlier chapters, brought side-by-side, illustrate that Bitcoin’s purchasing power is more volatile in the short run and especially in the long run. Legal obstacles facing gold and Bitcoin as media of exchange are similar. Bitcoin’s main advantage is its greater resistant to government censorship, but the difference is smaller than sometimes claimed. A determined government can drive Bitcoin underground to the point where it is unlikely to serve as a common currency. The policy conclusion is not a blueprint for top-down choice among monetary standards, but a plea to let potential monies compete openly and freely on a legally level playing field.

Chapter 1. Where can we look for better money: to the market or to the state? It is a myth that better money has always, and can only, come from government or other collective action. Theory and historical evidence indicate that the “state theory of money” is false: Private initiative gave rise to the earliest commodity monies to serve the needs of commerce. Although sovereign states commandeered the coinage in antiquity, not to improve it but to extract revenue, we provide the evidence that private mints worked well when and where they were allowed. Silver and gold coins were valued by weight, not by which ruler’s face was stamped upon them. Private currencies in the form of redeemable banknotes were the most popular form of payment in the nineteenth century, and their introduction preceded government paper currencies. Central banks in monopolizing the issue of currency and obstructing international specie flows did not improve the monetary system but the contrary. While contemporary [italic]fiat[/italic] money (non-commodity money issued by government) rests on the power of the state, gold and Bitcoin do not require the imprimatur of the sovereign to serve as good money.

Chapter 4. In a fiat standard, the money is not useful for any non-monetary purpose, or redeemable for any commodity with a non-monetary use. Fiat monies historically emerged not from market forces but from default on gold-redeemable central-bank or Treasury liabilities. The quantity and purchasing power of fiat money obeys the logic of supply and demand in the special form of the Quantity Theory of Money. Central banks control the growth rate of the quantity of money and thereby the rate of inflation. In principle fiat standards could produce lower inflation, but in practice have produced higher inflation than silver or gold standards. Higher inflation imposes real burdens on the public. These burdens, especially when we include the expenditure of labor and capital to produce hedges against inflation, has exceeded the resource burden of a gold standard.

The idea that the political preferences of citizens and voters are expressive rather than instrumental is well established, and lays a foundation for understanding why citizens and voters adopt the policy preferences offered to them by the elite. Voters realize that no matter how they vote, election outcomes will be unaffected. When they make choices in the market, they get what they choose. When they make political choices, what they get is unaffected by what they choose. Thus, voters may vote for outcomes they would not choose if the choice were theirs alone. The distinction between instrumental and expressive preferences, discussed in this chapter, lays a foundation for the material that follows.