Is Bitcoin Elastic Enough to be Good Money? Debate between Jeffrey Snider and Parker Lewis!

Summary

In a thought-provoking discussion, Jeff and Parker explore the nature and purpose of money, delving into its role beyond a mere medium of exchange. They debate the philosophical and practical aspects of money, including its elasticity and the implications of Bitcoin's fixed supply. The conversation challenges traditional views on monetary systems, touching on historical contexts, the emergence of digital currencies, and the potential shift towards decentralized financialization.

Takeaways

• 🤔 The purpose of money is to facilitate transactions in a specialized economy and can take any form as long as it is agreed upon by society to represent value in exchanges.
• 🏆 Money is often what arises from the bottom up, based on the commercial needs of a system, rather than being mandated from the top down.
• 🔄 There have been various forms of money throughout history, and the 'best' form of money is subjective and can change based on societal needs and conditions.
• 💡 The concept of 'moneyness' refers to the qualities that make something a good form of money, and different forms of money can have varying degrees of these qualities.
• 💰 The elasticity of money is a point of debate; some argue that Bitcoin's fixed supply makes it inelastic, while others argue that its available supply is elastic due to its divisibility and the responsiveness of its market.
• 📉 During times of crisis, the elasticity of money can break down, with money not circulating as needed, regardless of price, leading to economic issues.
• 💡 Bitcoin's adoption as a store of value is increasing, but its use as a medium of exchange is still limited, partly due to its volatility.
• 🌐 The global financial system has moved towards a dynamic, flexible form of money rather than a fixed supply, reflecting the need for a responsive monetary system.
• 🔐 Bitcoin's fixed supply is critical for its security and final settlement in transactions, which is a key feature of its design.
• 🚀 The future of money is still open for debate, with technology potentially offering new solutions to the needs of a dynamic world.
• 🌟 Bitcoin's properties, such as decentralization and resistance to censorship, are seen as advantages by its proponents, who believe it could play a significant role in the future of money.

Q & A

What is the fundamental purpose of money according to the discussion?

The fundamental purpose of money is to settle transactions in a specialized economy, acting as a substitute for barter and facilitating the exchange of goods and services.

How does the discussion define 'moneyness' and what properties make something a good form of money?

The term 'moneyness' refers to the qualities that make something suitable to serve as money. Good money should be able to describe the value of transactions, be widely accepted, and ideally arise from the bottom up based on the commercial needs of a society.

What historical examples were given to illustrate the problems with inelastic money supply during crises?

The discussion mentioned the Panic of 2008 and the situation in 1894 as examples where inelastic money supply led to problems during crises, with the 2007 subprime mortgage crisis being a specific instance where money did not circulate effectively despite the presence of liquidity.

What is the debate around Bitcoin's elasticity as a form of money?

The debate centers on whether Bitcoin's fixed supply of 21 million makes it inelastic by definition. While some argue that its total nominal supply is inelastic, others argue that its available supply is elastic because the entire existing supply can respond to market needs.

How does the discussion view the role of central banks in the context of money elasticity?

The role of central banks is seen as problematic in terms of money elasticity. Central banks can create money out of thin air, which can lead to moral hazard and prevent the natural market forces from taking out the bad actors during economic crises.

What is the concept of 'backwards elasticity' mentioned in the script?

The concept of 'backwards elasticity' refers to a situation where as the price of something like money goes up, it actually causes more people to pull out of the market, contrary to the expectation that higher prices would encourage more supply or circulation.

What is the role of risk in the circulation of money during a crisis as discussed?

During a crisis, the perception of high risk can cause people to hoard money and avoid lending to riskier borrowers, regardless of the price or interest rates. This behavior can lead to a lack of liquidity for those who need it, even if there is a theoretical supply of money available.

What is the position of the speaker named Parker on Bitcoin's role as a store of value?

Parker argues that Bitcoin has been an exceptional store of value despite its volatility, and he believes that as more people adopt it for this purpose, it will naturally start to be used more as a medium of exchange.

What is the counterargument to Bitcoin being a good medium of exchange presented by Jeff?

Jeff's counterargument is that the world has moved away from store value money and towards dynamic mediums of exchange. He suggests that Bitcoin's fixed supply might not be responsive enough to the needs of a dynamic economy and that it has not been adopted widely in commercial transactions.

What is the discussion's stance on the future adoption of Bitcoin as a medium of exchange?

The discussion suggests that while Bitcoin is currently not widely used as a medium of exchange, the trend of adoption is growing. It is suggested that as more people hold Bitcoin, its use in commerce will naturally increase, although this is still a matter of debate.