Gold, Bitcoin, and Alan GreenspanFeb 07, 2021
Currency, financial markets, and commodities are in a turbulent state. The dollar weakens with murmurings of potential collapse, the stock markets boom amidst record-breaking unemployment, and gold is at an all-time high, with silver following closely in its wake.
The world’s economies have all followed the Keynesian model since 1973 based upon the U.S. dollar. This model utilizes and manipulates this fiat (by decree) currency which is not backed by gold, silver, or anything of value at all. The dollar’s survival depends on two great levers: the faith and credit of the Unites States, and the world central bank’s ability to control the printing of currency and manipulate interest rates, without triggering a side effect of depression or hyperinflation.
Bitcoin, a new arrival upon the monetary scene, was born in 2009. Only about 14% of the U.S. population currently hold it. For all its pluses and minuses, it seems to satisfy the textbook definition of not only currency, but also of money. Currency is something generally accepted as a medium of exchange; is portable, durable, divisible, and fungible. (Fungible means that every dollar has the same value as another).
Money has one additional attribute over currency, and this makes all the difference in the world. Money is a store of value over a long period of time. Fiat currency has never been a store of value. Its raison d’être is to enable deficit spending, which always results in devaluation of the currency. “In fact, the dollar has lost over 96% of its value since 1913. That means today’s dollar would be worth less than 4 cents back in 1913 .”
Bitcoin is an excellent store of value because it can’t be devalued, and it’s production becomes increasingly scarcer over time. While the Federal Reserve prints trillions of dollars at its discretion, bitcoin’s rate of currency issuance diminishes every four years until the total supply of 21 million bitcoin is achieved in the year 2041.
This brings us to an excerpt from an essay by Alan Greenspan published in The Objectivist in 1966 entitled,“Gold and Economic Freedom”.
“A fully free banking system and fully consistent gold standard have not, as yet, been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled…
But the opposition to the gold standard in any form, from a growing number of welfare-state advocates, was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). The welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale…
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves…
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Since World War I, governments have learned to manipulate the price of commodities like gold and silver, preventing it from serving as a protector of owner’s rights. Unfortunately for governments, bitcoin cannot be manipulated; it is completely decentralized, and it is a near perfect store of value. Unfortunately for us, according to Mr. Greenspan, “it will require government to make its holding illegal”.
The following question appears in your upcoming federal income tax form 1040. “At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency,” When this first appeared in 2019, hidden away at the top of Form1, I found it unusually terse. There was no mention of where to detail bitcoin transactions and how to file for gains and losses. I surmised that the IRS was soft-pedaling the subject to gain gradual tax compliance for upcoming years. After reading Alan Greenspan’s prophetic words I see this differently. The government is not just preparing for taxation. It may actually be preparing for confiscation.
(2) My article continues with multiple direct excerpts from “The Objectivist” — 1966