Notes on The Bitcoin Standard

George Gilder’s new book, Life After Google, is out today.  In October 2017 George sent me a draft of Saifedean Ammous’ book, The Bitcoin Standard.  I was excited to read Saifedean’s draft because Bitcoin offers tremendous promise.  I quickly realized that Saifedean champions the monetary design flaw that makes Bitcoin unsuitable as a currency.  If this flaw is corrected, Bitcoin can achieve its revolutionary promise.  I sent George this response to The Bitcoin Standard.  He adopted my view for Life After Google in the chapter, The Bitcoin Flaw.

*Note: The page numbers in my notes are from the draft copy.  I do not know if they match the published edition of The Bitcoin Standard.

* * * * *


I reviewed the book and my notes follow my comments.

The Austrian-Rothbardian economic view weaves in and out with the Classical economic view.  There is a lot in common but also some major differences.  In general, they both agree on sound money, small government, and low taxes. 

There are major unresolvable differences on the monetary side.  Mainly, what does sound money mean?  This is evident in the author’s Rothbardian view of the Great Depression as a monetary event.  Nathan Lewis has destroyed this view with data, and I have written about it here, in addition to Nathan’s original work on his website.  Nowhere does the author mention taxes as a contributing factor to the GD.  This puts him in the errant money, prices, interest box that Nathan has also written about extensively.

Bitcoin, as designed, is deflationary.  The author finds nothing wrong with this.  In fact, it fits the Rothbardian desire for a fixed base money supply beyond the control of the government.   

This conflicts with Mises’ warning on the danger of deflation, no different from inflation.  I find it contradictory that one can pick and choose from the Austrian canon what suits their purposes.  Either deflation is bad (Mises) or it is not (Rothbard).  (See Mises comment on deflation below)

The other major error the author makes is conflating base money with the money supply, M2.  This is an error that throws off all his data and his argument.  The only money is base money.  The Fed 100% controls base money but only indirectly (if at all) influence credit which is included in M2.

These are major differences which cannot be resolved within the Classical and Rothbardian views.  How one accepts these views determines whether the thesis of the book is valid or invalid.  My Classical view is that the thesis is invalid based on the irresolvable major differences that I highlight. 

I expand on agreement and differences that I find in the author’s view in my notes. 

Final thought:

The difference between Classical and Rothbardian monetary views is that Classical economics has been put into effect.  It has a 300-year history of monetary success with a gold standard.  

The Rothbardian monetary view has never been put into effect.  (There was a minor 100% reserves Bank of Amsterdam in late 1600s, but this was a very regional and brief experiment.)  Rothbardian monetary policy can actually attempt to prove its viability with bitcoin.  Bitcoin with its limited supply defines the Rothbardian monetary system.  There’s a reason the world has not adopted a Rothbardian monetary system up until now.  It won’t work, and bitcoin, as designed, will not last as a functional currency.

Whether deflation is caused by monetary error, correcting from an inflation, or from a fixed currency supply, the result is the same.  Deflation is an economically harmful monetary event. 

Mises on deflation from Human Action:

“People labored under the delusion that the evils caused by inflation could be cured by a subsequent deflation. Yet the return to the prewar parity could not indemnify the creditors for the damage they had suffered as far as the debtors had repaid their old debts during the period of money depreciation. Moreover, it was a boon to all those who had lent during this period and a blow to all those who had borrowed. But the statesmen who were responsible for the deflationary policy were not aware of the import of their action. They failed to see the consequences which were, even in their eyes, undesirable, and if they had recognized them in time, they would not have known how to avoid them. Their conduct of affairs really favored the creditors at the expense of the debtors, especially the holders of the government bonds at the expense of the taxpayers. In the twenties of the nineteenth century it aggravated seriously the distress of British agriculture and a hundred years later the plight of British export trade. Nonetheless, it would be a mistake to call these two British monetary reforms the consummation of an interventionism intentionally aiming at debt aggravation. Debt aggravation was merely the unintentional outcome of a policy aiming at other ends.

(p. 784, 1966 Regnery edition)”


Notes: The Bitcoin Standard

P.22  Not really a tragic flaw.  Gold standards have to rely on currency managers.  No way around it.  A 100% gold reserve standard is not possible.

P.24  Gold mining is constant.  No diminishing returns.

P. 38  Flaws again

P. 40  Good point, fiat exists because of original link with gold

P. 46 Rothbard 20s inflation.  Wrong

P. 47  Great Depression analysis way off.  Never mentions taxes.

P. 55 Reuff theory as a problem with BW

P. 59 How does he define money supply,  M2?

P. 64 POG is not a function of demand.  Refutes his own previous analysis.

P. 76 Again he conflated money supply with base money.  This is errant analysis but it looks good on a chart.  Fig. 18 is errant

Division of an appreciating value only means that each division increases proportionally in value regardless of the degree of division.  This is an immutable fact and goes against the real role of a unit of account.

P. 77  Bitcoin’s value is rising because it is deflationary, as designed.  Demand exceeds supply

P. 78  Had its supply mimicked gold, it would not have the problems it has today.

P. 81 Used more as speculative bet than transactional currency due to supply limit.

P. 93  Don’t agree with this:

 “as any supply of money is sufficient for any economy of any size.”  Mises well explained the problem of deflation.

P.94  False  “Any quantity of economic transactions could be supported by a money supply of any size, as long as the units are divisible enough.”

Explains why gold is monetary (constant increase in supply) after describing he desires a fixed monetary supply.  Contradicts himself in one paragraph.

P. 96  Missing the point of stable money: “As people develop a lower time-preference overall, more people are likely to want to hold money, causing a rise in its market value compared to other goods and services, further rewarding its holders.”

P. 98  Agree with Jastram analysis

P. 100  In Rothbardian camp that we must have currency free from any government control.  Like a 100% reserve gold standard.  Yet GB and U.S operated gold standard for over 200 years successfully under government control—as the author agrees with Jastram.  His solution is not applicable.  It won’t work.

P. 101 Wrong. sound money is money whose value doesn’t change.  Again he references Jastram who showed that GB prices remained stable (NOT GAINING) in value over 200 years.  Contradicts himself.

  “Sound money is money that gains in value slightly over time, “

Agree with his section on Keynesian analysis and Peter Thiel

P. 113  Agree on knowledge and price mechanism

P. 119  Off the rails on this:

  “A fundamental fact to understand about the modern financial system is that banks create money whenever they engage in lending.” 

Again, confuses credit with money.  The unbridgeable flaw of Rothbardians.

P. 120  Central banks don’t manage the money supply, which includes M2.  Central banks may influence credit, but they cannot control it in any way, shape, or form.  They manage base money ONLY.  This confusion is Achilles heel of Rothbardians.

“As the central bank manages the money supply and interest rate, there will inevitably be a discrepancy between savings and loanable funds.” 

Can agree with CBs controlling the price of interest causing malinvestment.

P. 124  Switzerland was forced to abandon gold.  A small country cannot maintain a gold standard while the rest of the world is fiat—unless it wants its entire economic system to reside in banking and finance.  Exporters can’t compete with constantly devaluing fiat currencies.


P. 125 Errant:  “banks and governments could often expand their supply of money and credit beyond the gold held in their reserves,”

P. 128  Rothbardian view that monetary inflation caused the GD.  Nathan destroyed this view with data.


P. 130  Can agree on sound money and trade

P. 135  Utopian Rothbardian view that we can have currency free from government control.  Even if currency were 100% gold (wouldn’t work) or cryptocurrency beyond the control of government, government controls taxation.  A currency can’t function in its 3 roles when it is taxed as a capital gain.  The government has ultimate control over currency through taxation even if they are unable to create it.  Prevents real competition with government fiat.

P. 151  Agree with the problem of financialization caused by fiat devaluation

P. 165   Why is a deflationary monetary standard good?  Mises wouldn’t think so. 

“For the first time, humanity has recourse to a commodity whose supply is strictly limited. “

P. 169  Re: Problem of gold has to be assayed.  Bitcoin has its own limitations as Mt. Gox showed.  The process of an individual securely maintaining their private key is extremely burdensome.  An unintentional mistake may result in a catastrophic loss of one’s bitcoin.  The blockchain is in its infancy. It has many problems and growing pains ahead. 

P. 175  Errant view of understanding how a gold standard works:

“Once the gold was centralized, its lure proved irresistible for governments, who took control of it and eventually replaced it with fiat money whose supply it controls.”

P. 176  Despite recognizing the difference between a gold standard and bitcoin—gold is stable with a growing supply while bitcoin is deflationary—which disproves his entire argument, he doesn’t acknowledge the contradiction:

“The situation would be similar to gold under the gold standard, as detailed in Jastram’s study referenced in Chapter 6. For centuries during which gold was used as money, the very low increase in its supply meant that its value did not increase or decrease significantly, making it the perfect unit of account across space and time.” 


  1. JayTe

    Mr. Kendall, I discovered your blog through George Gilder’s book, “Life After Google”. What I find striking in your analysis is the following:
    If one mines gold is it obvious that one believes there is a market for it that can be traded directly for something else of value such as food or clothing.
    Or one could use the gold to make something considered useful such as jewellery or some other application.
    So if gold is used as both a means of barter as well as in one or more applications it is considered even more valuable.
    As we know from Mises’ Human Action, people place different value on different items. In this context, people are constantly using gold as something that they are willing to trade in exchange for other goods, over time it is used as a means of exchange because once gold is acquired it can be easily exchanged for something else of value as well it is expected to maintain its value over time. But since it is now used as a means of exchange, the demand for gold increases which would mean that less gold is required to buy the same goods the person purchased before it was used as a means of exchange.

    Now if one mines more gold thus increasing the supply of gold when it is being used primarily as a means of exchange, it is now considered part of the pool of real wealth of the population. Even if this trend of mining more gold continues, all of factors remaining the same, the exchange value of the gold would tend to decline relative to other goods. In this context, people would likely to abandon gold as the medium of the exchange and look for another commodity to fulfil this role. But in this case, the demand for gold for other uses would likely either stay the same or increase. So one is always engaged in an exchange of something for something. One is exchanging wealth for wealth.

    In this context, the printing of gold receipts i.e., receipts that are not backed 100% by gold, is essentially fractional reserve banking and is an act of fraud. This is what inflation is all about, it sets a platform for consumption without contributing to the pool of real wealth. Empty certificates set in motion an exchange of nothing for something, which in turn leads to boom-bust cycles. Just because royalty and banks have been conning people out of their money is not a reason to not demand the elimination of fractional reserve banking and the implementation of 100% gold standard. All you’re doing is giving justification of the theft of peoples money by the printing of paper receipts and you and George Gilder justify it by saying that entrepreneurism couldn’t function without it when that is patently untrue.

    The interest rate functions as the price of money. It is regulated by the supply and demand. The supply depends on when people make a conscious decision to forgo consumption or investment in their own projects and make their excess wealth available to others to invest in activites that would provide a rate of return to compensate themselves as well as those who made their excess wealth available. It is sad that you are just pushing the same sort of arguments as someone like Paul Krugman for banks being given license to print money.

  2. Michael Kendall (Post author)


    Thanks for your comment.

    The fractional reserve banking and 100% gold reserve debate is a quagmire. No matter how much we exchange views, we are not going to change each other’s mind.

    One thing to ponder. Fractional reserve banking has been around for centuries along with gold standards with limited gold reserves. Mankind advanced quite nicely under governments built on a foundation of stable money, low taxes, and individual liberty. Humans, under the auspices of individual liberty, are genetically wired to evolve to what best advances progress and living standards. There’s a reason there is no historical example of 100% banking reserves being implemented to any degree. Anywhere.

    I salute your gratuitous Krugman insult though. Being compared with Krugman is the ultimate low a blow.

    1. Elias

      I also found your blog through the book. My question is, can you elaborate on why their has never been a 100% reserve currency. I believe, if you forgive me, that that is exactly what a gold coin is. The solidus and the florin are two examples of the longevity of a currency that remains stable. It is only once debasement, inflation, if you prefer, begins that the currency system collapses and a new one must take its place. Athenian currency was minted from pure gold, as was the aureus, although the Romans debased their currency incredibly quickly, and were successful at it for a long time. In my examples, the currency itself was gold, and not used as a reserve. Is this not synonymous with a Rothbardian system? What am I missing? Thanks for your insight!

      1. Michael Kendall (Post author)

        Monetary policy evolves just like everything else. While gold is a store of value and means of exchange, its primary utility is as a unit of account. One has to understand this to understand gold, including investing in gold. Gold remains the ONLY unit of account due to its unique physical and monetary properties. Gold’s role as a unit of account doesn’t necessarily translate into a role as the SOLE means of exchange. At certain points in history with the population in balance with annual and total gold production, gold may have acted reliably as both a means of exchange and unit of account. Bu with increases in population, gold transitioned to its primary role as a unit of account, as it remains today. Under a gold standard today, gold would still act as a means of exchange, but it would be a less important ancillary function. With the population growth since the 17th century, there’s simply not enough gold to act as a global 100 percent reserve currency. A Rothbardian system would be deflationary. This is the problem with bitcoin–to an even greater degree due to its fixed supply flaw.


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