I recently had the opportunity to attend the i3 Summit hosted by Sanlam which is a large and long established financial institution in South Africa. My main reason for attending was to listen to Yanis Varoufakis who would be the main speaker of the event.
I will start off by saying that I was, and still am, a great admirer of Yanis Varoufakis. I followed him throughout his term as Greece’s finance minister, continued to follow his writings and talks after his resignation, and more recently his founding of the political movement DiEM25.
I regard him as an accomplished economist and a genuine fighter for democratic principles. So when I came across videos and articles of Yanis discussing his opinions of Bitcoin I was left utterly surprised when he showed disdain and contempt for the monetary phenomenon that Bitcoin has become. I wanted to use the i3 Summit to confront him on his beliefs and hopefully to find out if he had economically valid reasons for disliking Bitcoin.
Below is the audio clip of our brief Q&A (9 minutes).
Let’s breakdown Yanis’s response. The first questioner you heard was my sister where she posited that due to the extent of our broken democratic systems – which control our monetary and financial systems, so by extension are also broken – individuals need alternatives where they can take responsibility for themselves without relying on anyone else.
Yanis should be in full support of alternative systems, especially non-violent, voluntary systems like Bitcoin, since, from his own experience, he knows first hand how democracy failed to serve to Greek voters. He wrote an entire book detailing the disconnect between politicians and the electorate: Adults in the room.
“Imagining that you can take money out of the political process is a dangerous fantasy. I wish we could but then of course society collapses, capitalism collapses.”
Money has never arisen out of the State nor from politics. The only instances of politically or centrally controlled money issuance have been when large Empires or States have coopted the production of monetary resources. For example, the minting of gold, silver or copper coins and in the previous century by removing the Gold Standard and imposing legal tender. Saifedean Ammous notes this fact in his book, The Bitcoin Standard “..no fiat money has come into circulation solely through government fiat; they were all originally redeemable in gold or silver..”.
All instances of money are spontaneous creations of the free market and Bitcoin is the newest example of this process. Yanis makes the error of assuming that State money always was, and always will be. He is wrong, history proves this.
“The quantity of money, if it is not politically managed is going to create huge deflationary forces… In the capitalist world, if it [the economy] is not growing in terms of GDP, it will collapse…”
Here, I’ll begin with where I think Yanis is right: If GDP is not constantly growing the economy will collapse. This is not a problem of capitalism, but rather a problem of the underlying monetary system within the capitalist framework. To explain this I first need to explain a key difference between fiat/artificial money and natural money:
Fiat money is DEBT-based. Bitcoin and commodity monies (Gold) are EQUITY-based.
Debt-based money is created very inexpensively, usually in paper form (since the advent of computers more commonly it is digitally accounted for in a database) and incurs debt plus interest due to the issuer.
Equity-based money is only found or produced after a large amount of verifiably difficult work and is fully owned by the producer. No debt is created and no interest is incurred. It is a net credit to the economy and serves to reward the producer for work done.
Let’s imagine a brand new country is established and populated with new citizens. In order to isolate its economy let’s assume it’s a remote island. There are no indigenous people nor any established monetary systems, thus no pre-existing economy. If we were to replicate the system of fiat money that the world currently uses it would look like this: A small group amongst the new settlers establishes a central bank (this could be privately or state owned). In coordination with Government they legally mandate that only the central bank can create money. No other resource on the island is acceptable as tax and no form of economic trade is exempt from tax. If any of these mandates are defied then the offender will be fined, imprisoned or completely banished from the island.
Now that the law is established the CB (central bank) can start to create liquidity – print money. The CB, being the only creator of money, needs to supply both government and the general market with currency so that the economy can begin to function. There are some costs associated with printing money so the CB is not going to do this for free. Instead of creating liquidity for the purpose of allowing a free and prosperous market, they issue debt.
- The economy has a total monetary balance of zero.
- CB prints 100 units of currency.
- CB sells 50 units to the Government as credit which will earn x% per annum.
- CB also sells 50 units to the public either through liquidity providers like commercial banks or direct to individuals. This also incurs an interest charge of y% (typically y>x).
Even before we move into another round of money printing, we can already see the fundamental flaw in this system.
- The economy has 100 units of currency in circulation.
- After 1 year the CB is owed 50*(1+x%) + 50*(1+y%) > 100.
So the CB is owed more money than the total amount in existence. In order to recover the difference they issue more debt into the economy to create more commerce which can only ever pay back less than what is actually owed and this cycle continues until people realise the jig is up. This is why Yanis is correct when he says we need continuous growth “like a shark”. If people start to lose faith in their currency, trade and commerce stagnate, debt becomes unsustainable and finally the entire economy collapses.
This is the madness of running an economy using debt-based money. If every unit of currency in circulation is debt then the entire economy can never be solvent. If the blood which runs through our veins is poisoned or becomes infected with a virus, the body will die. Debt is the poison pulsing through our monetary system and will ultimately result in the death of our debt-based economy.
We wonder why the US is continuously at war, stealing resources from helpless, underdeveloped countries? Simply because the US govt needs to guarantee continuous growth for their Dollar otherwise it will collapse. Currently the United States has the largest deficit in history: more than $21,000,000,000,000 (https://www.nationaldebtclocks.org). This is unlikely to ever be repaid to creditors and I believe the USD is very near its inevitable collapse. Jim Rogers’ related opinion.
Yanis makes the additional point that Bitcoin is “deflationary” and that deflation causes widespread recession. This is a Keynesian myth. I don’t want to turn this post into an economics lecture so I will simply link to articles which do well to debunk these myths.
“..the most important thing is that it [Bitcoin] is not acceptable for tax payments. The only thing that gives currencies their currency is that it is used to extinguish taxes.”
Yanis makes another false assertion. The purpose of currency is to exchange value via transactions, not simply “to extinguish taxes”.
Did jewellery, sea shells, kula rings, rai stones and gold arise as a means of exchange because Chiefs, Monarchs or Emperors denominated tax payments in those units? Of course not! Yanis’s assertion is actually laughable. I will repeat, governments have coerced our monetary systems, using threats of violence in order to extort us, and because this has been the case for the last century (the entirety of 3-generations’ lifetimes) it has lead us to believe in these monetary myths.
Just before the Q&A audio clip, Yanis describes himself as a Libertarian (38:03 in full clip) – yet another contradiction. Libertarians (for the most part) believe that taxation is theft, yet Yanis clearly explains that the only benefit he sees from blockchain systems is that it would give him (or the issuer, a centralised authority) complete control over tax collection. Should a government manage to CONvince a population to use their blockchain-based currency (Yanis admits he had a plan very similar to this when still finance minister), then citizens no longer have any transactional privacy nor any discretion for tax payments. So we have a self-proclaimed Libertarian who announces on stage that he prefers involuntary tax currencies over a voluntary system like Bitcoin to be used for value transfer.
This view is anti-freedom, anti-liberty and denigrates the monetary intelligence of the average citizen. Far from being Libertarian, a more accurate description of Yanis would be some kind of quasi-Statist-Keynesian-Socialist conglomerate. A type of Man-Bear-Pig so to speak…
I would further diagnose Yanis with over-exposure to academia. How the Federal Reserve Bought the Economics Profession.
Contrary to the tone of this blog post I still admire Yanis and still believe that he would make for a better Statist than the Statists who currently yield power in Europe, but am also incredibly thankful that, with time, Bitcoin will yield all of these crazy control freaks completely insignificant.
Should you be interested in listening to Yanis’s full talk the audio is available below.