People always blame capitalism for the problems of today, but fiat money has messed up how the free market works.
This is an opinion piece by Hannah Wolfman-Jones, who started We The Web and wrote the book “System Override: How Bitcoin, Blockchain, Free Speech, and Free Tech Can Change Everything.”
Capitalism is a hot topic right now. Many people look at the problems in society today and say that capitalism is the main cause. What these “anti-capitalist” crusaders don’t understand is that the global fiat system we have now is not really capitalism.
In a pure form of capitalism, people with money put it into businesses and projects they think have value and are therefore likely to make money. Investors have to make hard decisions and take the chance of losing a lot of money.
When their money is put into a business that does well, it creates services, goods, and jobs that people want. This makes the profits that successful investors get fair. Through investors in a free market, good ideas can get the money they need to start or grow a successful business, which makes everyone better off in a way that is fair.
Unfortunately, this system has been thrown off by the fact that a few bureaucrats now make decisions for everyone instead of millions of independent actors in a free market.
Under the fiat monetary system, money is run by a small group of economists and bankers who were not elected. Free markets are at the heart of capitalism. When it comes to our money, bureaucrats decide what currencies we use, how much of them we have, and what their interest rates are. This isn’t capitalism at all.
So, instead of using all their analytical skills to look at possible business ideas and market needs, smart capital allocators must watch and predict the actions of central banks, whose rules can send whole economies into bear or bull runs.
“Don’t fight the Fed” is an old Wall Street saying that means investments must go along with the Federal Reserve’s current monetary policies to be successful. Investors have to watch and try to make sense of the actions of powerful centralized actors like the Chair of the Federal Reserve, Jerome Powell, who are not elected and don’t have to answer to anyone.
This wastes a lot of time and money because the capital available to businesses that make money depends a lot on what one man, Powell, says, and these businesses have no control over what Powell does. For example, Powell’s speech on August 26, 2022, caused the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite to drop by 3.03%, 3.37%, and 3.94%, respectively. This was a huge drop for just one day.
This makes it much harder for capitalism to create value based on merit. Smart investors have to make decisions based on Powell’s words instead of a business’s worth.
Also, under the fiat system, legal currencies like the U.S. dollar are always going up in value. People who want to save money but can’t because of inflation have to put their money at risk by investing it or watch their buying power slowly go away.
So, people who aren’t investors and don’t want or know how to put their money at risk in business are forced to do it. People who work hard and don’t have a good idea for investment put their money in indexes and mutual funds.
Due to their inclusion in these indexes and funds, “zombie companies,” which aren’t profitable but keep going because of investments but don’t sell enough products and services to cover their costs, can last for many years.
People who don’t know much about how a company works but have to invest in indexes and mutual funds to keep their savings safe because of constant fiat inflation put money into these “zombie companies.”
If Bitcoin were used everywhere, it would give people hard money that doesn’t lose value over time. So, regular people could save in Bitcoin instead of putting their retirement money in mutual funds and indexes that invest in companies they don’t know much about.
Also, Bitcoin’s monetary policy is built into its code and can be seen by anyone. It is not controlled by powerful central bankers. In a world where Bitcoin was more important than paper money, investors could once again focus on finding good investments instead of listening to every word the Fed says.
This would mostly bring back the engine of capitalism that makes it the best economic system we have.
