Broken Money

Technology ruthlessly filters weak monies. The stock-to-flow ratio — existing supply divided by annual new production — determines whether a commodity can serve as money long-term. Gold's ratio is roughly 67, meaning it would take 67 years of mining to double existing supply. That's the highest of any commodity. Shell beads survived thousands of years until industrial drills made them easy to mass-produce. West African glass beads collapsed when Europeans flooded the market. On Yap island, an Irishman with modern ships broke the rai stone economy.

Even in the video game Diablo II, millions of players naturally selected Stone of Jordan rings as money — until duplication bugs destroyed their scarcity. Only gold and silver withstood millennia of technological progress.

Speed created an unbridgeable gap. When intercontinental telegraph cables connected financial centers in the 1860s, transactions began moving at the speed of light while gold still traveled at the speed of horses and ships. Banks filled that gap with IOUs, gaining a monopoly on fast long-distance payments. Claims for gold proliferated far beyond actual gold reserves. By the early 20th century, the UK banking system held just 4-7% reserves against deposits.

This wasn't a moral failing — it was technological inevitability. Out of nearly 200 countries, zero maintain a gold standard today. Switzerland was last, dropping it in 1999. If we reran this period of history a hundred times, Alden argues, we'd end up in the same place nearly every time. Once telecommunication systems existed, centralized ledgers dominated.

The UK's WWI financing was a cover-up. The 1914 War Loan was marketed as massively oversubscribed; a century later, Bank of England archives revealed it raised less than a third of its target. The Bank secretly created money to buy the rest, then lied. The Financial Times issued a correction 103 years late. Prices and the broad money supply more than doubled within five years, silently confiscating savers' purchasing power.

The pattern repeats. The US War on Terror cost an estimated $5.8 trillion by 2022, financed entirely through debt rather than transparent taxation — unprecedented in American history. Meanwhile, US broad money supply has grown at roughly 6.6% annually since 1913, while bank accounts rarely keep pace. Scarce assets like waterfront property track money supply growth almost exactly.

The Cantillon effect plays out dramatically. During 2020-2021, the top 1% collectively gained $11.8 trillion in net worth while the bottom 50% gained $1.5 trillion. A study found that three-quarters of the $800 billion Paycheck Protection Program went to the top 20% of households. Airlines that recklessly spent profits on buybacks received tens of billions in bailouts; prudent competitors were punished for their conservatism.

Access to cheap credit is the real divider. Large corporations borrow at low rates, expand with leverage, and get bailed out during crises. Small businesses pay higher rates and get displaced. Since 1972, US banks consolidated from 13,733 to 4,135, with the top ten holding 55% of all assets. The system inherently centralizes wealth toward those nearest the source of money creation.

US total debt: $461 billion in 1952; $93.5 trillion in 2022. It was never allowed to decrease in that seven-decade span, except for a 1.3% blip during the 2008 crisis. By 2007, total debt was 63 times the monetary base — like musical chairs with 63 children per chair. When the music stopped, rather than let debt collapse, the Fed doubled the monetary base.

This is the long-term debt cycle. Short-term cycles build higher and higher debt through recurring policy interventions that prevent credit from ever clearing out. Eventually interest rates hit zero, debt levels become unworkable, and the resolution shifts from the private sector to the government, which inflates it away. The 2020s echo the 1940s: war-era deficits, financial repression, and purchasing power destruction for bondholders.

Extra global demand for dollars is a curse. It makes US exports uncompetitive and workers expensive relative to peers. The US has run structural trade deficits since the 1970s, and its net international investment position has become deeply negative — foreigners own more American assets than Americans own abroad. Industrial production per capita has been declining since roughly 2000.

The system enriches two groups: American financiers and foreign exporters. It harms two others: American workers and developing-country consumers stuck saving in constantly devalued local currencies. The petrodollar arrangement likely helped win the Cold War, but since the 1990s it has been more curse than blessing. China now uses its trade surpluses to finance 150+ countries through the Belt and Road Initiative rather than buy US Treasuries.

Bitcoin closes the 150-year speed gap. For the first time, a finite digital asset (21 million coins, subdivided into 2.1 quadrillion units) can be self-custodied and transferred peer-to-peer globally within minutes — no bank required. The Blocksize War of 2015-2017 proved its decentralization: over 80% of miners and major exchanges tried to force a rule change and failed. Individual node operators maintained consensus.

The Lightning Network adds instant, near-free payments as a channel layer on top. Afghan refugee Laleh Farzan kept 2.5 bitcoin through her family's escape to Europe — thieves stole their jewelry and cash, but she hid her seed phrase on a scrap of paper. Navalny's Russian opposition used bitcoin after Putin's establishment froze their bank accounts. Nigerian protestors turned to it when their accounts were frozen by government.

Miners are unique energy buyers. They go to the energy source (rather than requiring energy to come to them), tolerate intermittent supply, and need rock-bottom prices — so they consume energy that would otherwise be wasted. The World Bank estimates 144 billion cubic meters of natural gas is vented or flared annually; that alone could power the Bitcoin network several times over.

Gridless in Kenya uses bitcoin mining to anchor rural hydropower microgrids, making small-river power development economically viable. Vespene Energy captures landfill methane. Texas miners curtail during peak demand, acting as a virtual grid battery. Bitcoin's energy usage is strictly limited by the utility it provides — and the declining block subsidy means energy consumption as a percentage of market capitalization has fallen every year.

This is the fork in the road. China's digital yuan can track all transactions, set expiration dates on money, and auto-freeze accounts. The ECB's president suggested allowing zero anonymous transactions above €300-400 — citing a decade-old terrorist attack. Nigeria capped ATM withdrawals to $45/day to push citizens toward its eNaira, yet far more Nigerians adopted bitcoin and stablecoins instead.

Encryption provides asymmetric defense: cheap to deploy, impossible for supercomputers to break. Phil Zimmermann published his PGP encryption code as a book to invoke First Amendment protection when the US government classified it as munitions. Bitcoin extends this principle to value transfer. If the mere existence of an open-source ledger threatens the existing system, Alden argues, the problem lies with the existing system.