#BTC may be a valuable asset going forward, but I'm becoming more skeptical. The more I think about money, the more I see it as inextricable from credit. I'm having a harder time seeing how a deflationary asset is a good base layer for a credit-based monetary system.

Even before coinage, credit was the essence of commerce. In barter, in the intervening seconds between when someone handed over a loaf of bread and the other side handed them back a bead necklace, credit was created.

Money is just the most effective intermediation of credit.

To be sure, money must store value for a reasonable period. You need to be sure that your loaves of bread (or the labor you invested to create them) will facilitate predictable consumption tomorrow or even next month, otherwise chaos ensues.

That doesn't, however, mean that the core essence of money is or should be a store of value.

In fact, on a relative basis in the long run, money should hold value less effectively than all other asset classes. Ie, it should be inflationary (relative to other assets, at least).

Your cost of capital is affected by the real return on your money. If the expected real return is positive (opposite of fiat), then the hurdle rate for investment will be correspondingly high.

A deflationary currency would naturally discourage value-creating investment.

It would also discourage consumption because if prices are expected to decline then it makes sense to postpone purchases—you get more later! Boxing Day is a good example of this (however spurious the discounts might be).

But remember, household consumption is corporate sales.

Meaning reduced consumption further decreases the attractiveness of corporate investment.

So, not only does the cost of capital increase (and thus the hurdle rate), but the expected return (regardless of the hurdle rate) would be lower for a deflationary currency as well.

Both the supply and demand of money for investment would be (relatively) low in that world, meaning economic output (GDP) would be low.

That is not a good recipe for human flourishing. We can debate how the pie should be divided up, but we shouldn't decrease the size of the pie.

As much as MMT is "descriptive" of contemporary monetary policy and its effects, acknowledging that money holds value less effectively than all other asset classes is "descriptive" of thousands of years of real economic progress.

Through the only experiment of exponential increase in human flourishing we've ever run (ie, the hundreds of years since the dark ages), it is undeniable that all legitimate monies have lost nominal value exponentially therein.

It is likely not a flaw; rather a core feature.

It's why I can't buy a Model T for $1,000 anymore
(inflation)

It's also why I can buy an iPhone for $1,000 now
(societal advancement)

It's why I can't (currently) buy a house
(inflation)

It's also why I can live in relative comfort
(societal advancement)

One primary measure of money's value should be how effectively it facilitates value-creating activities for society through incentivizing work, consumption, and investment—and the relative amounts of each.

Another should be how effectively it disperses wealth. I can't imagine how a money with a fixed supply that people are incentivized to hoard will disperse itself equitably throughout society. Can anyone provide a theoretical basis for such an assumption?

Money has some inherent value (or else we would still barter for everything), but it is mostly just an effective record of the value that is created through the toils and interactions of people—which are what actually matter.

Maybe I'm missing something important and #BTC will end up being a good base layer to the monetary system, but I'm more doubtful the more I think about it.

Open to thoughts and critiques.

@profplum99
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@LukeGromen
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