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Savings and CivilizationDaniel Krawisz, Chief Scientist, MatterPool, Inc.
Money For a Rainy DaySaving is the act of continuously storing surplus instead of spending it. Someone who doesn't save is trapped in his routine, whereas someone who does has the power to change his life. This power extends to civilization as a whole. A civilization that doesn't save can't grow or adapt to new conditions. People who save can rescue it from collapsing. Savers have the power to enact their will when other people are swept along by the course of history because they have the power to create when everyone else has run out of energy.
Savings are accumulated doing the same thing every day for a long time; that is, spending less than you earn. That means foregoing consumption and opportunities to earn more with investment in stocks and loans. Ludwig von Mises famously said that money is a present good. What he meant is that the opportunity to spend can arrive at any time. Saving is beneficial because of the ever-present possibility that the opportunity is available now. People with savings are undetermined variables. They are prepared to take action at the time when it is most effective.
It is said that savings is "money for a rainy day". Thus, savings is money that is immediately available to be spent. Savings is cash or something as good as cash. In particular, savings is not stocks or interest-bearing bank accounts. I do not consider these to be savings because during a truly rainy day, neither will be adequate. If civilization is collapsing, then the stocks will have crashed before they can be sold. Someone with an interest-bearing account will find that there has been a bank run and the bank is empty before he can use that money if civilization is collapsing.
People are lured into accepting systematic risk with interest-bearing accounts that are always worse than everybody pretends. There is no way to design an interest-bearing account so as to ensure that the money is available when you most need it because behind-the-scenes they are really loans, which are riskier on rainy days no matter how safe they are under normal circumstances.
Of course, every system can fail. If things are bad enough, no asset will help you, even cash. However, cash is better adapted for rainy days than other assets. Cash is the last thing people get rid of on rainy days and the best thing to have before the rain falls.
Savings are not just for rainy days. They are for any time opportunity knocks. That is both bad days and good days. In other words, savings are for reacting quickly to new information. A new opportunity could arise demanding immediate investment. Value that is tied up in stocks is not good for that because any investment can go down before it realizes its potential. Investment in stocks requires a long-term commitment. If you don't have savings, that commitment must be broken in order to respond quickly.
Savings are like a pile of snow that is built up flake by flake in a critical state that can flow as an avalanche, big or small, as the holder desires. In order to be a leader who changes the economy, one must also be a cog in the big machine. Reliably turning reliably again and again over a long time gives one the ability to be a deus ex machina on one glorious day. The power of savings is choosing the right moment to create an avalanche.
Of course I am also not saying stocks are bad. Rather, I am explaining why you always need some cash. The principle problem of explaining the value of money is why people want it when it does not earn income. Income is great. The problem with stocks is that they are commitments. When there are big changes, commitments aren't as good. This calculation can be used to estimate the value of money. People need to balance current livelihood against openness to new opportunities. The value of all money relative to the value of all capital goods has to do with the benefit of a regular income relative to the benefit of new possibilities. If prices do not reflect this balance, then there is money to be made speculating.
Marginal utility means to think in terms of the benefit of more or less of something, not benefit in absolute terms. There is an optimal balance to everything. In a Bitcoin-dominated world, savings is relatively better than in a dollar-dominated world because of the lack of inflation. Bitcoin will grow with the economy and thus people will not need to do anything other than save to prepare for retirement. That does not mean you never want stocks or bonds. It means that you don't want them as much.
I am trying to be more careful about how I described savings than in the past because in BTC people have co-opted my narrative with something that isn't savings. In the past I wrote articles on savings such as Why Bitcoin Will Continue to Grow and I'm hoarding Bitcoin and No You Can't Have Any, which says that I think hoarding bitcoins is a good idea and that Bitcoin is good for savings. At the time Bitcoin was also good for spending and I assumed that everybody already knew that Bitcoin was a payment system. Something cannot be good for saving if it is not also good for spending. I did not understand that people could destroy Bitcoin and still tell each other that it's good for saving. I was trying to talk about the investment implications of Bitcoin but instead what I wrote was used to promote the BTC Core agenda, as if it wasn’t worthwhile to understand what I really thought.
While Bitcoin was being overrun by cult members who now claim the BTC ticker symbol, I was trying to explain what money is to Bitcoiners. I talked about savings because the value of money has to do with the need for savings. I did not intend to say that Bitcoin shouldn't be used for spending. There is no point in saving if you can't spend at the exact moment you desire. Money must work on long times and short times. BTC is not like that. Only BSV, the real Bitcoin, can work this way.
Capital GoodsCapital goods are produced as means of production. They are our machines and parts. They earn income which is called interest in Austrian economics. Money that is lent out or money that is spent on machines will, in equilibrium, earn money back according to the overall interest rate of the economy, once the cost of replacing the machines is taken into account.
Capital goods wear out and need to be replaced. In a more advanced economy that is more reliant on capital goods, people must therefore spend more of their time working to replace capital goods than they do on consumer goods. Nonetheless, more consumer goods are produced because capital goods make labor more efficient.
Civilization depends on capital goods. When we have civilization, everything is constantly being destroyed and there is a long way to fall. Civilization is constantly collapsing and being rebuilt. Every day we are faced with the option to be lazy and not rebuild. If we do that, we can lead wonderful lives for a while until our productive capacity is depleted, one machine at a time. As this happens, labor becomes less efficient. Thus, the worse it gets, the harder it is to rebuild.
The first time a type of capital good is produced is the moment that an economy grows. This can only happen because of savings. A new capital good is one way that the undetermined variable can be determined. In that case, the saver has become an entrepreneur. If he has correctly imagined something the economy needs, he will earn profit and thereby invite imitation until so much of the new good has been produced that it no longer earns more income than the rest. It becomes part of the standard production process that people must go through the motions to replace every day. Only someone with savings can grow the economy or prevent it from collapsing. Other people will be too preoccupied by short-term problems to face the real problem. People without savings are like people who will scramble for the life rafts when a ship is sinking. People with savings are people who can repair the boat before the problem is too bad.
Civilization depends on people who can both delay gratification and who are prepared for new information. It depends on both savings and capital goods. Civilization means choosing to work when we don't have to and depriving ourselves from what we could have in anticipation of rare opportunities. If we don't, civilization falls.
In the movie The Shawshank Redemption, Andy Dufresne spends nineteen years escaping from prison by chiseling tiny amounts of rubble every night from his cell until he creates a tunnel that leads him out. The rock hammer he used to dig the tunnel is his capital good, the act of chipping away at his tunnel is like saving, and the prison escape at the end is the opportunity that one takes advantage of when the right time arises. The value of money is how likely an escape attempt really is relative to how comfortable prison life can be without digging a tunnel all day.
Unfortunately, people struggle to pursue the benefit of savings. People I know are imprisoned by debt and other bad decisions that they did not fully understand when they made them. Savings is the escape from these kinds of mistakes. Periodic sacrifice over time for an uncertain future is required. However if people learned this skill, our civilization as a whole will escape from prison. We will be able to create things that make our lives better. The more that people understand how to save, the more that they will be able to contribute.
There is a great deal of prejudice surrounding the issues I have discussed here. Poverty is a problem that takes generations to address. People who are in trouble want solutions now. I have spoken to many people who believe that their present problems are so big that thinking about the future is beyond their reach. Unfortunately, the only solution is to sacrifice the present for the future. That means that you must make your own problems worse in order to make a better future. It is easier to do this when you have money, but it works a lot faster when everyone does it. Everyone can do something, even if it is just a tiny bit. Today the future is being destroyed very rapidly but everyone is so distracted by present problems that they cannot turn away for even a moment to prepare for something even worse.
The Value of MoneyThe value of money has to do with the benefit of saving in that money. I am not talking about pumping! Bitcoin will pump if people understand that the real benefit of holding Bitcoin at a constant price is better than other things. If Bitcoin goes up, that means people are expecting new information to come into the Bitcoin economy. If it goes down, then they are expecting the economy to stagnate.
An important result from Mises has to do with an idea called the Evenly Rotating Economy. The ERE is an economy in which nothing is different from day to day. The same things are produced and wear out every day. In this economy everyone is able to plan ahead perfectly. This means that anyone who holds a medium of exchange for any time could benefit by replacing it with a capital good instead so as to earn the interest. This argument explains that the value of money has to do with new information.
If we really wanted to pump Bitcoin, we would want to convince people that new information is coming in and that the act of saving in Bitcoin is going to give them much better odds of a successful "escape attempt". In other words people will hao better opportunities to improve their lives.
If we want to actually make Bitcoin more valuable, then we need to actually bring in that new information and actually create those opportunities. That is what makes Bitcoin better as savings.
Bitcoin as savings is the foundation of any investment in the Bitcoin economy. Everything else entails more risk. That does not mean you shouldn't have something else. The best portfolio has everything in the right proportion. Investing in a business is like having a job. A level of competency is required or else you will not know if the business is failing. Savings is for sitting around waiting to get lucky. Bitcoin is very lucky so people can put a lot of their net worth into that, especially if they know nothing. The more competency you have, the more risk you can calculate.
Savings is for responding to new information; thus Bitcoiners must look at all information and integrate it. They do this by discovering profitable ventures. All profits arise from a synthesis of otherwise overlooked information. As everyone profits, all relevant knowledge comes to light.
I have been trying to explain the value of money to Bitcoiners for a long time. You would think that people in Bitcoin would want to know about this given that's what Bitcoin is for. However, I don't think that there has ever been a serious conversation about value in Bitcoin. Right now everyone in BSV is interested in business, or so it seems to me. Yes business is important and it is very bad if there is none. Bitcoin is still better than any Bitcoin business. It is less risky and has more upside.
Once again, this does not mean you should never own or start a Bitcoin business. It means that the optimal Bitcoin business is cheap. Everything in the market depends on what other people are doing. If no one was doing a business, then of course the coin is no good. If everybody was just trying to hoard it like in BTC then that should make you want to start a business.
Things are certainly better now than a few years ago when everyone was trying to destroy the economy back in BTC. Back there they wanted to destroy all business and make it impossible for people to benefit. At least in BSV are trying to be good. However I still think things in BSV are far from optimal. I think that people are spending a lot of money on business when we could do a lot more to improve value by learning economics a lot better. That is cheap.
I have explained exactly what I am saying here elsewhere. However in BTC they only read things that supported their narrative. I tried to say things in a way that was funny and provocative but instead I was creating cult propaganda material. Please try to actually understand economics. I would welcome arguments with people who have different ideas. This is how knowledge is improved.
I don't claim absolute knowledge and I have not always been right about everything. In particular, in How We Know Bitcoin is Not a Bubble I made the mistake of saying Bitcoin is not a bubble, not realizing that by the time that bitcoin was a bubble I would not have the chance to write another article because there would be a cult trying to control all information about value. I made the mistake of saying that there is a positive feedback loop between Bitcoin's price and value, unlike most other goods. This was a mistake because it is not true that every price rise is good. It is only true long-term as the market adjusts to new information. You cannot just pump the coin to improve it, especially if you destroy the economy at the same time! Since that article came out, people in BTC have attempted to control all information and sentiment so that the market can't adjust to new information. Of course they can't really do that forever but the market hasn't been rational for a long time.
The Bitcoin CivilizationOur world is in great peril. Civilization is being destroyed. Inflation eats away at all work. It is like your escape tunnel grows shorter over time as the money is devalued. Why try to escape under those circumstances? There are ways to try to avoid this but nothing is as good as money that has a fixed supply. Every possible substitute involves extra risk. In a Bitcoin dominated world, the value of money will grow with the economy. People who save will improve over time without having to take those risks.
Money is an investment in other people who are developing new production processes in order to get it. When we have a fixed-supply money, everyone will be invested in each other much more than they are now. That will make the world less violent and more cooperative because people will be hurt more when other people are hurt. Good money makes everyone love each other.
This whole year people have been prevented from benefiting each other. The response to covid-19 makes people less useful to each other. That is very dangerous. Capital goods are all wearing out without being replaced. People who cannot benefit each other still need to eat somehow. Their hunger will drive them to hurt each other. It is not true that the state removes the war of all against all. Money does. Money makes people assets to each other. Instead, the governments of the world are initiating the war of all against all instead.
To invoke another movie about prison, the world is like The Matrix. People live in a world of illusion created by parasites which manipulates them into being prey. For example, Keynes's theory of economics is a way of tricking the working class into not noticing that their wages are going down. Those who do not know the nature of the prison are sucked dry. They do not know how to escape or what it would mean to be out, unlike Andy Dufresne. They believe their prison is good. This is how it is in BTC and the wider world. They are all asleep. They have been so distracted by craziness that they can't think about their situation. They can't wake up from their dream until they can step back calmly and think about the nature of society.
People who don't understand economics can be trapped in a dream. They won't worry about all capital goods being used up and not failing. People who are asleep can't dig out of prison for nineteen years. They don't understand the world well enough to be able to. They won't know the right time to spend their savings if they ever had any. People who get caught up in a speculative bubble can waste years of their life and end up worse than when they started. Manipulators can lead them into believing that it is good to be parasitized.
Bitcoin has the potential to outlast any civilization but right now it is almost dead. It is irrational to start a new blockchain. If an old civilization becomes corrupt and starts to collapse, new ones are better off building on old history. If we can make Bitcoin successful now, it will survive longer than Sumeria. It will make people better. It will make the world more productive and more peaceful. Better cooperation means a lot. It does not only mean more specialization but larger organization. Bitcoin will enable people to address global problems.
Proof-of-work means that all inefficiencies can be converted to income. Any energy that can be conserved can be used to power ASIC machines. This dynamic can enable all people to pursue vast collective purposes. This is depicted in my video Bitcoin: At Scale. Right now people struggle to respond to global problems because their methods of organization are primitive. Today we do not eliminate bad ideas fast enough. With proof-of-work, every bad idea that hasn't been eliminated is worth income.
I have been trying to talk about the most important things there could be ever since I first got into Bitcoin and I wasted too much time talking to sleep walkers who I thought were awake. I didn't understand that people live in dreams so much. People who create civilization need to be awake. For anyone who is awake, please try to keep making more money no matter how rich you get. There is a lot that is not being done and everything is falling apart so fast. Any money left on the table is value that is not being created. Almost nobody understands what is at stake or what needs to be done.