2. 1
When you start to think deeply about the
distortionary effects of a centrally planned
monetary system, you start to see them
everywhere.
● Money is one half of every economic
transaction.
● Its effect is pervasive in everything.
● Distort money, and you distort everything.
3. 2
● Money is the medium for the communication of
information in a market economy.
● When its value is distorted, profit/loss calculations
are ruined for businesses, causing misallocation of
resources
● This affects all businesses and individuals that
use money, i.e. everyone
4. Fiat money is a constant redistribution mechanism
from society's savings to government spending.
● This has two main impacts:
■ Government gets enormous power and resources to
distort and affect economic productivity
■ Individuals are less capable of saving for their future
3
5. Part 2 of this book focuses on thinking about the
distortions that fiat causes to the world, in
particular:
● Food
● Energy
● Science
● Education
● International politics
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6. ● This chapter focuses in particular on the impact fiat
has on time preference
● Money is the main vehicle with which we can trade with
our future selves through the act of saving.
● When money is devalued, we become less capable of
providing for our future selves
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7. Fiat time preference
● The more we can provide for the future, the more we can
think of it
● First, humans learned to store durable goods for the future.
● Then, with the invention of money, it became the most
efficient for providing for the future: saving
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8. ● Saving economic goods has the coincidence of wants
problems: will you want this exact good in the future?
● Saving money allows you to exchange the money for
any good
● Money is by its nature optimized for holding value,
across space, time, and scales.
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9. ● The better the money holds its value, the better we can
provide for our future
● Human civilization and progress is intertwined with the
increasing hardness of our money
● Harder money -> Better ability to provide for the future
-> Less future discounting -> More future-orientation ->
More savings -> More capital investment -> increasing
productivity
8
10. ● Throughout history, we find money constantly
progressing from easier to harder
● We also find time preference declining historically,
as interest rates decline and human civilization
advances
● By the end of the 19th century, the whole world
could save in gold, a money recognized worldwide
with a supply increasing at no more 2% per year.
9
11. Under gold:
● Everyone could provide for their future self by simply
holding the money they earned
● Everyone is constantly being taught the opportunity
cost of spending by watching their money maintain
or increase its value over time
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12. Then fiat appears!
● Money supply growth rate goes from 2% to 14% on
average
● 7-8% in the best cases
> 50% in the worst cases
● How do you save now?
● How can you provide for your future?
11
13. ● Rather than expecting money to appreciate and thus
having a reliable way to retain value into the future, fiat
returned humans of the twentieth century to far more
primitive times, when retaining value into the future was
far less certain and the value of their wealth was expected
to be reduced in the future, if it survived at all.
The future is hazier with easy money, and the inability to
provide for the future makes it less certain. This increased
uncertainty leads to a higher discounting of the future and
thus a higher time preference. Fiat money effectively taxes
future provisions, leading to a higher discounting of the
future and an increase in basic present-oriented behavior
among individuals. Why delay consumption today when
you are unsure what will happen to your property
tomorrow?
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14. ● The result is just what you see in hyperinflation, but at a
lower dose and slower pace
● Saving becomes unthinkable, and people seek to spend
whatever money they have as soon as they secure it.
● People begin to discount all things which have value for
the long run, and capital is used for immediate
consumption: fruit-bearing trees are chopped down for
firewood in winter, businesses are liquidated to finance
expenditure, and the proverbial seed corn is eaten.
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15. ● Human and physical capital leave the country
● With the future so heavily discounted, there is less
incentive to be civil, prudent, or law-abiding, and more
incentive to be reckless, criminal, or dangerous.
● Crime and violence become exceedingly common as
everyone feels robbed and seeks to take it out on
whoever has anything.
● Families break down under financial strain.
14
16. ● Regular fiat inflation is just low intensity hyperinflation
in slow motion
● People increase their consumption and reduce savings,
capital is consumed and incentive to maintain is
eroded, civilized manners erode, crime becomes more
common, families break down.
● All property is insecure because fiat makes government
omnipotent
● Quality of everything declines
15
17. Fiat architecture
● Buildings are the longest-lived consumption goods
● Being long-lived makes goods highly sensitive to
fluctuations in time preference
● As time preference rises and future discounting
increases, the value of a building surviving into the
future is discounted heavily, while present costs and
benefits weigh heavily.
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18. ● Architecture sucks today because we have a very high
discount of what happens to a building in 20 years
● Architecture today is not cheaper; it is only cheaper in
the short-run, but it is more expensive in the long-run
● Under the gold standard, homes were built to last
because people did not heavily discount the future
● They had a reliable alternative way for providing for
their future: gold
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19. Boston Library Johnson Building
Gold standard: McKim building
● Finished in 1895
● Cost: $2.268 ($70.2m in today dollars)
● No major renovation needed yet
Fiat standard: Johnson building
● Finished in 1971
● Needed $78m of renovation in 2013
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20. Fiat capital destruction
● Lowering time preference brings about savings
● Then, from savings, we are able to make
investments
● Lower time preference is what leads to investments.
Increasing time preference reduces investment.
Government inflation is used to replace savings
● Less saving, but more investment results in the
business cycle of constant boom and bust
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21. ● Fiat seeks to encourage people to invest by artificially
lowering interest rates
● But that doesn't create more investment
opportunities, it simply makes them invest in
businesses they would otherwise not deem productive
enough
● A business that offers -2% real return is unattractive if
money is expected to maintain its value. But it
becomes attractive if money is expected to lose 5%.
● Burning people's saving doesn't magically make them
better investors, it just forces them into bad
investments
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22. ● Fiat raising our time preference causes us to
discount natural resources
● Why keep healthy soil for the future when you can
increase profits today?
● The higher your future discounting, the less you
will care about the health of the soil or your
natural environment
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23. Fiat family
● Fiat takes from you the ability to save for the
future and provide for your family
● It gives your savings to the government, allowing
it to spend endlessly
● The responsibilities of the family become those of
the state
● The incentives to start a family diminish
22
24. ● In the world in which fiat did not finance the
welfare state, family was one’s only hope for
surviving childhood and old age, and so everyone
had a strong incentive to invest in familial
relationships.
Children had little choice but to listen to their
families, and adults had little choice but to be
devoted to their families, as straying away from a
family was far more consequential without a
welfare state to care for you in your old age.
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25. ● Even if the state successfully finances your
education and childhood and elderly years,
humans have needs beyond just the financial.
● The state won't be there to hold your hand like
kids do.
● High time preference makes you underinvest
in family and overinvest in consumption
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26. ● Armed with the advanced and dangerous
technologies of his ancestors from the golden age,
fiat man finds himself approaching the world with
a progressively shorter horizon, stumbling along
from one short-term fix to another, depleting his
capital stock, devaluing the age-long institutions,
mores, and traditions that have allowed his
modern existence. Fiat man finds himself
descending back into the barbarism of his distant
ancestors.
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