In a free market, price is knowledge and a signal to communicate information. Price is not only a tool for capitalists to earn profits, but also an information system related to material production. It will communicate knowledge and coordinate complex production processes all over the world.

——   Saifedean Ammous

Price is the cooperative power source of a free market system. Every decision-maker relies on the available price information of goods and services to help him make decisions, because the price reflects all known market information with its own index. In other words, all relevant information will eventually be displayed on the price after compression (if you prefer a technical point of view, the price system is one-way like the hash function).

Every purchase and sale decision, in turn, will affect the price, so the new price will carry this new information back to the market. Some people may have heard this in the “efficient market hypothesis”, although this hypothesis mainly talks about how the information in the market appears in the price of assets (such as stock price).

In a word, buying and selling will affect the price, so the change of price becomes an indicator of the change of market supply and demand. Entrepreneurs can predict their production plan by staring at this indicator. Of course, because the production results of entrepreneurs will also be reflected in the price, the price becomes a system and a message to everyone It is also a system that continuously carries information and spreads out. A price system that cannot be dynamically adjusted is meaningless.)

Money is the measure

“Money plays a core information role in the whole economy. As a medium of exchange, a tool for storing value and a unit of account, money is a key tool for understanding market conditions.

“Capitalism is not so much a balanced system as a dynamic field of entrepreneur experiments. Then money should become the standard to measure the results of entrepreneur experiments.”

——   George Gilder

The essence of capitalism is to complete the efficient utilization of capital under the given resource and time constraints. The company is the place to experiment with how to distribute capital best, and money is the standard to measure “good”. Making money means the efficient arrangement of capital, and losing money is the embodiment of the ineffective utilization of capital. Competition means that countless independent companies and individuals respond to market demand with discrete decisions.

Bitcoin reshapes the way capital is distributed in the economy

-Capitalism is very much like chemistry. They all do experiments:)-

Information is decentralized

“The efficiency of a centrally planned economy can never be comparable to that of a freely accessible market, because what one knows always accounts for only a small part of the total known by all members of the whole society.”

——Hayek’s “local knowledge problem”

An economy composed of separate property rights is therefore complementary to the dispersion of knowledge scattered in society. Every company tries to use its own knowledge to create products and services (i.e. making profits) that are finally proved to make effective use of capital.

In order to highlight the dispersion of information, I quote Milton Friedman: “no one in the world knows how to make a pencil:

The wood should be removed from the tree

You need a saw to cut down trees

To make a saw, you need steel. Iron ore is necessary to make steel

Graphite must also be extracted from some mines in South America

The eraser is made of rubber and may come from the tropical rain forest

Maybe yellow paint (wrapping pencil)

Glue may be used to put these parts together

So no central planning bureau can do it. All this depends on the magic of the price system. “

-Praxeology is the study of human behavior-

Central banks and their pending data issues

Central banks face data problems from beginning to end – like all electronic signal processing systems, there will be bottlenecks in data acquisition, data processing and decision-making. The reason why the central planned economy can’t work is that the planning center can’t get all the knowledge necessary to make the best decision at any time. If you want to be wise forever, don’t even think about it.

“The difficulty of knowledge utilization is that, as a whole, knowledge will not be concentrated on one person.” – Hayek

In order to operate efficiently, the central bank has to collect trillions of data points every day, and there is no perfect way to collect so much data in the world. Think about how many cars people have to take, how many sandwiches they have to buy, and how many payments they have to make in mobile apps every day.

“We need to believe that we live in a predictable and controllable world, so we turn to those who promise to meet our requirements and look authoritative and credible.” – Philip Tetlock

In the past, we created the central bank system because we wanted the world to be “more orderly”. We wanted to believe that someone was in charge of everything. But even if we can collect data perfectly, it is difficult to induce simple causality for this complex and chaotic system (including the decisions of billions of individuals). Although it seems easy to determine the causal relationship between weather and harvest, how can you sum up the reasons why pancakes need to change? Unlike natural science, economics is always subject to insufficient samples. We cannot resume another Internet bubble when another president is in power and another central bank manages.

This raises another question: how does the central bank measure the impact of events and make decisions? As an old saying goes, “if you can’t measure it, you can’t manage it”. It is not easy to accurately measure the mass of a kilogram, so how can we accurately measure the degree of inflation? The commodity basket that calculates the CPI (consumer price index) does not even include food and energy! (translator’s note: I don’t know which statistical bureau calculates the CPI here. Generally, the price of food and energy will be included in the calculation of CPI; in addition, according to Wikipedia, the “core price change rate” excluding the price of food and energy.)

“Big events come out suddenly. In a world where the real world is determined by unpredictable events (the so-called ‘black swan event’), making predictions may do more harm than good, because it creates the illusion of predictability for others.” – Carl Richards

Carl also said, “the so-called risk is what you confidently Miss after considering all the situations”. Daniel Kahneman also made a famous conclusion about the danger of learning from history:

“Hindsight, that is, the ability to explain history, gives us the illusion that there is nothing in the world that our understanding is inexhaustible; that the whole world operates in order, even if the current situation is out of order. This illusion is a major source of great mistakes in many fields.”

Here is a useful analogy: the Fed is like driving, but the rear view mirror is foggy and the front windshield is blurred. That car is the whole economy, and that glass is our insight. How can the Fed drive well? Is it better to let the car adjust itself according to the road conditions?

The interpretation of history is inseparable from imagination and intuition. There is so much “evidence” that you have to choose.

Do we have any other choice?

Sound currency

“Sound money is equivalent to scientific honesty: once the experiment is over, data changes are not allowed.”

——   Adam Taché

A sound currency is the scale of a fixed ruler, which does not allow the planning authority to manipulate the results of measurement.

Bitcoin is the perfect iteration of a sound currency. There is a hard upper limit on the number of bitcoins for a reason: to become a precise measure, reduce the risk of political attack, encourage the formation of a speculative boom and incarnate viral marketing.

Why is the ceiling 21 million? Why not 100 million?

The reason is… This specific value is not important at all! It is important to have a fixed number. Because economic activities grow up on a small scale, it is difficult for individuals to make decisions without a fixed accounting unit to compare value.

As for the risk of political attack, Nakamoto believes that it is impossible to set an “appropriate” inflation rate, so he decided to eliminate the space for human intervention. Nakamoto has twice expressed his support for fixed supply, both of which support this conclusion:

“With the growth of users, no one in our system will adjust the money supply like the central bank or the Federal Reserve. (to reasonably adjust the money supply), there needs to be a trusted subject to determine the value of money, because, as far as I know, software can’t know the value of something in the real world.”

TA also said:

“If there were any good way to anchor the money supply, or if we could trust someone and give him the authority to actively manage the money supply, this rule should have been programmed long ago.”

Finally, Nakamoto assumes that a fixed money supply ceiling will create a speculative boom.

“As the number of users increases, the price of currency will also rise, which may form a positive feedback cycle: users increase, prices rise, and then attract more users trying to profit from appreciation.”

The meaning of sound currency

Bitcoin is the ultimate safe haven asset. As more and more people buy bitcoin and its derivatives, it will become a de facto safe haven asset.

After the arrival of the bitcoin era, bitcoin will become a value storage tool, exchange medium and bookkeeping unit. Bitcoin will reflect the “risk-free” rate of return with unprecedented accuracy, so that market participants can allocate resources more efficiently. The risk-taking / risk exit operation of each market participant (whether individual investors or companies) will be shown in the price of bitcoin.

Finally, when bitcoin becomes a pricing unit and is used in daily transactions, market participants can observe the real-time capital flow of their suppliers and customers (through their public bitcoin address). This transparency will make the market super efficient because the way information is processed is very efficient.

Responsible editor; zl


Leave a Reply

Your email address will not be published. Required fields are marked *