The Economist of the 21st Century

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This essay aims to address the problems economists face in the 21st century, namely inflation, business cycle, monetary policy, free trade, and government authority.

By exploring the phenomena in depth via thorough mental exercise we will try to arrive at a solution for each of them accordingly. As the pandemic is unravelling and the prospects of our civilization are perceived as highly ambiguous and unimaginably complicated, an unexpected solution emerges on the horizon, claiming to offer a refreshing paradigm shift, which can put our civilization back on the right course. The solution at our hand is like no other we have ever had the privilege of experiencing, as it hides behind a wall of concentrated digital energy, fuelled by the democratic power supply of an ingenious technology built upon the rails of digital revolution. So, let us dive right into the subject of the matter and analyse the above-mentioned phenomena, ultimately arriving at the solution as discussed above.

For the past 100 years, our society has experienced a radical shift in the direction of central banking combined with fractional reserve banking, increasing government authority and a poorly comprehended emerging phenomenon that is inflation. Since then, various economists have developed their idiosyncratic theories trying to explain these concepts by integrating them within the domain of science. Using what they pondered was scientific method, they arrived at distinct aggregates which helped them distil economics into a set of numerical formulae and extract from it various laws which strive to explain the relations between the aggregates. All their efforts were the fruit of their labour to make economics a natural science, among the likes of mathematics, physics, or chemistry, with overarching phenomena which possess cardinal relationships.

Nevertheless, such efforts were in vain as we will quickly come to realize due to a single yet crucial detail which separates economics from natural sciences and rather categorizes it among social sciences. That detail is the main subject of observation in economics, i.e., human beings. Economics is concerned with the exploration and understanding of trading individuals which comprise an economy, on either a local or global scale.

Since the main unit of observation in the field is a human individual, economics immediately falls into the domain of social sciences, where the objective rules of natural sciences become devoid of utility to a large degree, due to the subjective nature of human experience.

No social science, no matter how thoroughly explored and sophisticated, can objectively explain human nature using cardinal metrics. That is because humans as a species possess free will, which guides their behaviour and makes it sporadic and unintelligible. We can only use some ordinal metrics to guide our observation of human action and approximately extrapolate from it some common principles that apply to our species, such as being conscious, able to override our basic instincts and control them to act in a civilized manner, being mostly rational yet often possessed by emotions, being aware of the future and having a sense of time, etc. Such common aspects of our being allow us to engage in the process of civilization and trade with each other instead of aggressing over and stealing from our fellow humans. Without consciousness, trade would not be possible. Consciousness helps us understand that other people might offer us something of pragmatic utility in return for something we do not value as much but that might offer them a similar utility which their possession offers us. Thus, we can peacefully exchange the two goods to increase our common wellbeing in contrast to engaging in violent exchange, trying to forcefully obtain others’ property, risking our own livelihood in the process.

By understanding these characteristics pertaining to human nature, we quickly find that modern economists with their sophisticated theories and formulae have been consistently wrong in their approach to economics as a scientific endeavour. This fact explains why none of them have yet been able to provide a logical explanation of superficially complex phenomena of inflation and business cycle, apart from them being a natural occurrence. Additionally, they were consistently mistaking cause and effect in claiming that recession is a necessary consequence of a business cycle, preceded by an exponential growth of the economy which overheated and necessitated the recession.

Business cycle is best described in Austrian economic theory, where it is called the boom and bust cycle. The boom period is the expansion of the economy, caused by an increase of money supply which produces a period of a seemingly rapid economic growth. The reality is, however, that what an increase in money supply does for an economy is that it redistributes wealth up the socio-economic hierarchy, destroys the middle class and hurts the poor. By pumping more currency into the markets we do not achieve any positive net benefit and wealth creation. All we do is distort the natural price mechanisms which keep markets functioning properly and thus overwhelm people with ambiguous information about real prices of goods. The inevitable consequence of such government intervention is the bust part of the Austrian business cycle, where the overheated economy crashes, asset bubbles burst and the affected society heads into a recessionary period where it needs to recalibrate itself.

How do we solve the pressing problem of government meddling in the money market? The answer is via disintermediation. We need to develop a subtle, yet extremely effective monetary mechanism which allows people to obtain full custody of their property without the threat of confiscation and by doing so remove the counter party risk posed by central banks. This is where we discover the genius of Satoshi Nakamoto and his/her compatriots. Satoshi managed to develop a digital monetary network serving as a bank in cyberspace which successfully extinguished the counter party risk and solved the double spend problem. By creating a monetary network using blockchain technology, Nakamoto invented a completely transparent ledger of transactions with an immutable set of parameters. That allows everyone to verify all the transactions ever made on the network and make sure no double spending of the same money ever occurred. Additionally, using cryptography, developers managed to conceive a secure and completely decentralised monetary system which gives custodial right only to the people holding the private key to the digital wallet in their possession. This way, Bitcoin solved all the seemingly insolvable problems of money. In the following blog posts, we will discuss why we believe Bitcoin is the most important invention of our generation and will help set the world straight in the following years. Additionally, we will provide further information on Austrian economic theory and discuss other interesting topics. This is our first blog post and hopefully many more are to follow.

Thank you for reading!

Klemen K.V.

Author and editor

Clemency Media