BitcoinWorld

Bitcoin News

Bitcoin To Transform Humanity’s Understanding of Economics

Many groundbreaking technologies have had a significant impact on humanity’s understanding of the world.The success of the first computers in the early twentieth century forced people to recognize that the world could be computed. In the 18th century, the first steam engines compelled humans to study the mechanics of work and heat.

Bitcoin will have a similar impact on humanity’s understanding of economics.

Many schools of economic theory, for example, argue that stateless money is impossible. Such schools also argue that producing new money out of thin air benefits the economy.

Grasp Bitcoin necessitates an understanding of the basic nature of money and its role in the economy. The emergence of a Bitcoin (BTC) standard will result in a paradigm shift in humanity’s knowledge of economics.

Keynesianism is a macroeconomic theory created by economist John Maynard Keynes in the early twentieth century.

The historic 1929 stock market crash convinced Keynes that free market capitalism was incapable of preventing such economic disasters, and he set about reinventing the nature of economics, claiming that demand, rather than supply, is the engine of economic growth.

According to Keynes, if aggregate demand affects supply, then aggregate expenditure determines both the production of products and the rate of employment.

Because, according to Keynes, demand drives supply, governments can help an economy recover by stimulating demand. They could accomplish this by increasing deficit spending and/or lowering interest rates.

Although there are several flaws in both Keynes’ economic theory and his prescriptions, the mechanics of Bitcoin defy Keynes’ tenet that demand drives supply.

A single contradictory example is enough to disprove a hypothesis in science, and the same is true for Bitcoin and Keynesian economics.

The supply of Bitcoin is not determined by demand. The number of Bitcoins in circulation, on the other hand, has been predetermined by math and code. Every 10 minutes, a new block is added to Bitcoin’s blockchain.

A predetermined number of Bitcoins are added to the supply with each new block. This increment is reduced by a factor of two for every 210,000 blocks. For example, the current ‘block reward’ is 6.25 BTC.

The next ‘halving event’ will occur around March 18, 2024, and each new block will contain just 6.25 BTC divided by 2, which equals 3.125 BTC. This cycle will be repeated until there are 21,000,000 Bitcoins in circulation.

It makes no difference how much demand there is for Bitcoin. The loop stated above continues, oblivious to our relationship with the digital asset.

It’s no coincidence that one of today’s leading Keynesian economists, Paul Krugman, described crypto (read: Bitcoin) as having “no backstop, no connection to reality” and that “Bitcoin plays into a dream of self-sufficient individualism… unspoiled by institutions like governments or banks.”

It is understandable that Krugman and other Keynesians are opposed to Bitcoin; its success would be fatal to their entire economic theory. Not only that, but Bitcoin makes implementing their political prescriptions even more difficult.

Governments cannot create Bitcoin in order to infuse liquidity into the market. As a result, Bitcoin endangers the livelihoods of Keynesians.

MMT (modern monetary theory) is best thought of as a more refined relative of Keynesianism. MMT has lately gained traction as countries sought to justify greater spending during the global Covid-19 outbreak.

MMT’s central claim is that “there is no financial constraint on government spending as long as a country is a sovereign issuer of currency and does not tie the value of its currency to another currency.”

In today’s political structure, MMT offers the United States the unlimited ability to print new money. A Bitcoin standard, once again, will make this impossible. Those who continue to advocate for MMT on a Bitcoin basis will appear to be flat-earthers telling us we can’t sail around the world.

Leaving aside specific economic theories, it is universally acknowledged that the government must select which money people may use. The more popular Bitcoin gets, the more its presence serves as a critique of that concept.

Each person’s cognitive dissonance will reach a breaking point at a different time. Bitcoin’s trajectory toward becoming the next global reserve asset will demolish people’s faulty economic assumptions one by one.

Many people will not stop at money once they become aware of the flaws in their worldview. “If I was wrong that the government must control money, what other assumptions was I wrong about?” they could reason. Is it necessary for the government to provide healthcare, charity, and even courts?”

They’ll look for economic ideas that make sense in light of their new discoveries.

They will no longer fall to what they now regard as propaganda – those with a financial interest in convincing you that we cannot have functional money without government intervention.

These inquisitive minds may come across Austrian economics, a theory of how people act deliberately in a world of finite resources. They will learn Mises’ Regression Theorem, which explains how money can arise in the absence of top-down control.

They could have laughed at such an explanation before Bitcoin. They are less ready to dismiss such hypotheses for the emergence of money now that Bitcoin has proved the plausibility of stateless money.

And there’s no reason they’d stop there if they believe the Regression Theorem. They may be curious about how prices emerge in general. They may find that prices are not arbitrary, according to the same economic theory that gave them the Regression Theorem.

After all, price gouging isn’t always a negative thing: when demand rises, prices must rise in response. Similarly, corporations are no more greedy than any other entity. They only make money in a free market by providing goods and services that buyers desire to buy.

They may learn that interest rates, like all other costs of borrowing money, are not random. And this leads to the most profound revelation of all: forced interest rate cuts are the root cause of the boom-and-bust cycle.

Thus, according to Keynesians’ beliefs, government interference in interest rates creates the circumstances for a new recession rather than bringing us out of one.

This type of economic awakening occurs every day, all throughout the world. Bitcoin is more than just a trustworthy worldwide asset. It is an economic teacher, one who will lead us out of the Keynesian Dark Ages and into the Austrian Golden Age.

 

Disclaimer: The information provided is not trading advice, Bitcoinworld.co.in holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.