Some economists complain about the possibility that a monetary system with a fixed quantity of units of value (fixed supply) is dangerous because the individual would tend to save, and this would increase his purchasing power over time. The system would therefore facilitate a certain inequality because those who "entered first" had the opportunity to do so by paying a lower price and have been able to save over a longer period of time, compared to those who entered later.
On the contrary, a monetary policy based on the issue of units of value over an unlimited time would reduce the tendency to save, because the individual units tend to lose value over time as well as the purchasing power of those who hold them believing to save. The reduction in savings, combined with the change in money supply (monetary inflation), which according to some economist changes only as a function of changes in production and population, would lead to a more equitable system.
The concept is interesting and deserves to be investigated.
With some clarifications though.
First of all, the Bitcoin issue is limited (capped), not simply fixed. These two terms might seem synonymous but they aren't: the concept of fixed supply suggests that the units are limited but also not divisible and that they are all already in circulation. We have seen that instead the emission occurs in a constant way over time but halves every four years (see halving). e will see in the following chapter that, even on the fractionability of bitcoin, things are not like this: we can have as many units as we want by simply splitting BTC, without varying the total amount of bitcoins in circulation ( capped supply ).
Furthermore, if we consider the current monetary system, we see that the creation of unlimited money allows those close to the issuing entities, for lobbying or similar political purposes, to benefit unfairly - yes, here unequally. This inequality is also fueled by loans to businesses and, indirectly, to citizens, issued by banks[25].
According to the economist prof. Richard A. Werner:
"Bank credit creation does not channel existing money to new uses. It newly creates money that did not exist beforehand and channels it to some use…. What makes this 'creative accounting' possible is the other function of banks as the settlement system of all non-cash transactions in the economy. … Since banks work as the accountants of record – while the rest of the economy assumes they are honest accountants – it is possible for the banks to increase the money in the accounts of some of us (those who receive a loan), by simply altering the figures. Nobody else will notice, because agents cannot distinguish between money that had actually been saved and deposited and money that has been created 'out of nothing' by the bank"
It is also interesting to read the final closure of the paper How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking by prof. Werner:
"In this paper it was found that banks combine what are effectively very different operations, namely deposit-taking and granting of loans under one roof, because in this way they can invent new money in the form of fictitious 'customer deposits' when purporting to engage in the act of 'lending'[26]. It was found that the defining characteristic of banks is that they are exempt from the Client Money Rules, which prevent other firms from creating money in the same way. It was found that, in practise, only banks can issue money in this way. (...)"_
Another point to consider is that those who firmly support the fact that a capped supply involves inequality, often fall into a "logical trap" or false syllogism.
Let's go back to the hypothesis expressed at the beginning and expand it: "I enter the system first, I spend less to buy the units of value, so I can buy more and I have more time to save. It follows that those who come later will be able to purchase less units because they will spend more and I will therefore be able to lord and dictate the line of the economic system thanks to my "unjust" and amazing purchasing power."
In short, a feudal situation would arise.
The reasoning would seem logical but is fallacious on several points.
First of all it would presuppose a closed system, in which resources are well-stored and conserved and there is a coordination between the great "capitalists" able to control the purchasing power of individuals. As if to say: "we have a lot of money; let us agree so that the price of our precious good continues to increase artificially and new individuals are attracted to the system. But these will have to settle for the crumbs! ".
In reality, the monetary system is open and subject to a free market.
Of course there are rich actors ( whales ) able to influence the market trend (the price), but not to coordinate a global control system worthy of the most grim conspiracy theory. It is easier for this to happen in the current fiat system, where the power to issue new currencies is in the hands of a few central banks and where the creation of money and direct control over large capitals coincide.
Fortunately, in Bitcoin those who possess large amounts of assets cannot technically influence monetary policy because they would also be forced to control the majority of the nodes of the system.
Secondly, it would presuppose that most of those who first entered the system already knew that the price of the single bitcoin would reach today's levels and that therefore they had spent nothing to be able to guarantee a huge purchasing power in the future. In short, all of them should be " Hodlers", regular savers.
But we know that, in a free market, individuals buy and sell trying to make the highest profit. Many have immediately used Bitcoin as a monetary system for the purchase of goods; bitcoin was cheap, it had fast and practically free transactions. How many have bought or even mined so many bitcoins in the early days and now remain with few BTCs in their wallets?
In 2010, a year after the Bitcoin network started, the single bitcoin struggled to find a monetary value.
It was extremely difficult to find someone willing to sell a good or a service and to have in exchange those that at the time seemed only Monopoly money that anyone could produce with a simple personal computer.
On May 18, 2010, on the BitcoinTalk forum[27], a user called laszlo (Laszlo Hanyecz) sent a curious request to the community:
"I'll pay 10,000 bitcoins for a couple of pizzas.. maybe 2 large ones so I have some left over for the next day. I like having left over pizza to nibble on later. You can make the pizza yourself and bring it to my house or order it for me from a delivery place, but what I'm aiming for is getting food delivered in exchange for bitcoins where I don't have to order or prepare it myself, kind of like ordering a 'breakfast platter' at a hotel or something, they just bring you something to eat and you're happy! I like things like onions, peppers, sausage, mushrooms, tomatoes, pepperoni, etc.. just standard stuff no weird fish topping or anything like that. I also like regular cheese pizzas which may be cheaper to prepare or otherwise acquire.
If you're interested please let me know and we can work out a deal. Thanks, Laszlo"
On May 22, Laszlo announced that he had successfully exchanged bitcoins with user jercos (Jeremy Sturdivant):
"I just want to report that I successfully traded 10,000 bitcoins for pizza."
Well, that expensive transaction[28]
- jercos spent about 40 dollars for two pizzas that in Italy probably would have cost less than 20 euros - turned out to be much more expensive for Laszlo, because today those 10 thousand bitcoins would have a value of around 100 million dollars! Jercos most likely spent those bitcoins instead of storing them; the final balance of the address he used in October 2018 was 0.00111111 BTC. He may have transferred them to a cold wallet stored in a secret place but it is definitely more likely that he had used these funds for other transactions at a time when the price of the single bitcoin was significantly lower than the current one.
The fallacy of the reasoning of the supporters of the current monetary system or of its characteristic of adaptive and infinite supply applied also to other systems (even those "crypto-related" like Ethereum), is precisely in considering all the pioneers like savvy investors and savers, with non-human predictive capacities and with a secret communication channel used to communicate each other and guide the market according to their will.
Bitcoin is as fluid and "living" system as the classic one: the difference lies in the tendency to save that a sound money like Bitcoin entails, compared to the tendency to spend promoted by the fiat ( easy money ) system. For the rest, those who own bitcoins spend, earn, live or survive, like all members of society and therefore, except for rare cases, put his satoshis back into circulation.