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Slight quibble with the Scottish free banking example. While they didn't have a formal backstop, they did appear to rely on the Bank of England for liquidity, much like the American banks in the 19th century, as well as others around the globe.

Got an article here that touches on it: https://mises.org/power-market/rothbard-free-banking-scotland

Cykros 6d ago

It is perhaps a stretch for me to say that free banking broke sound money, as a deleveraging event without a backstop can indeed happen and, if allowed to, you are still left with the bullion as total supply.

The issue is, while that's fine in theory, in practice, the inflated supply of credit that traded at par with money did have a devaluing impact on the money itself, as it of course had to. Just like a new deposit issued by JP Morgan increases the supply of dollars, despite the fact that the Fed didn't issue any new reserves, nor did the Treasury print any bills. Perhaps it's more accurate to say that the issuance of credit distorts, rather than breaks, sound money and its pricing in the market, but as far as the impact it has on the value in the marketplace, it seems to be a bit of hair splitting.

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Cykros 6d ago 💬 3

There are reasons why perhaps it's not fair to say this would happen with Bitcoin -- it's a lot easier to take custody of spot after all, and very little reason anyone might want to accept a BTC note in place of BTC. The idea that it'd ever trade at par seems pretty unlikely.

But I guess therein lies my disbelief that there'd be much reason to accept a bill of sale in exchange for spot Bitcoin. If interest rates were below 20% for any real size I'd be pretty surprised.

Hu₿ertus the Austrian 2d ago

That’s actually rarely the choice, a bill or spot bitcoin.

In an economy with commodity money, division of labour and specialisation, long production and supply chains, the choice is bills or no sale, rotting goods, breakdown of trade.

That’s the reason why bitcoin has not been, could not be, adopted in the real economy.

Cykros 1d ago

Perhaps there's a place for it on that front.

Though, arguably, the need to find a buyer in spot would lead people to producing things only that have a higher likelihood of payout, less malinvestment and less risk taking.

Which, from a Keynesian stance sounds bad, but do we really want to incentivize production of things there isn't demand for?

I'm not here to stop anyone from doing anything, mind you. I just generally see more hazard here than benefit. If you have rotting fruit sometimes, you either produce less, people pay more to cover your costs, or somewhere in between. If they don't, it's not that there's not enough fruit -- it's that the market doesn't demand it.

That said, sure, people will likely always trade for promises. That seems to be a tale as old as ledger money itself. It's just worth always remembering that a promise is only as good as the promiser. Probably for the best to have tools to implement and store them in a neutral, public, and cryptographically verifiable format though, if only to provide that inescapable reputation to hold people to their oaths.

Cykros 1d ago 💬 1

Perhaps the issue isn't promises. It's promises lightly made.

Hu₿ertus the Austrian 16h ago

The sellers are giving away their production, hard work.

Companies in the global supply chain do not grant the necessary 30, 60 or 90 days lightly.

They check on the buyer company, they have long term relationships.

The bill of exchange then gives them the liquidity to continue operating, without shutting down, creating unemployment.