Money, Inflation, & Their Threat to Your Business

“Money is the most important good in any developed economy because it acts as the foundation for all trade and savings. Gold, the ancient and venerable precious metal, had served this role for millennia, but its physicality was an Achilles’ heel that made it vulnerable to centralization, confiscation, and state attack. Gold’s status as global money was eventually repealed during the twentieth century as the state came to dominate the issuance and management of money. With a desire to facilitate anonymous payments and to overcome the vulnerabilities of gold, cypherpunks hoped to develop a digital currency that would be immune to the coercive power of the state.” – Vijay Boyapati

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Your business faces a problem: money

An obvious yet understated fact about money is that it concerns everyone. While most disregard money subjects by lack of personal interest or genuine fatigue, the notion of money within society is quintessential to living life in a non-self-sufficient way. Money is the lifeblood of civilization.

The world has progressed from bartering to various forms of money, including sea shells, tobacco, and stones. These collectibles facilitated trade between tribes and across generations, though they had low velocity and were primarily stores of value.

As societies developed, they transitioned to using precious metals like gold and silver, which had superior monetary properties. Eventually, the world coalesced around gold as the standard. This was followed by the use of paper money issued by banks and governments (such as dollars, euros, and pounds).

Over time, we discovered that effective money needs certain attributes:

• Fungible: Each unit is identical to any other unit

• Durable: Resists damage over time

• Portable: Easily transportable

• Scarce: Low supply growth

• Divisible: Can be broken down into smaller units or combined into larger ones

• Salable: Widely recognized and accepted

These attributes ensure that money can fulfill its primary functions:

• Medium of Exchange (MoE): Facilitates the transfer of value

• Store of Value (SoV): Preserves or enhances purchasing power

• Unit of Account (UoA): Provides a standard measure for valuing goods and services and planning for the future

Until roughly sixty years ago, market forces generally decided which form of money reigned supreme, based on which medium best satisfied these characteristics. For thousands of years, gold was the dominant choice because it was scarce, durable, and recognizable. However, it still had drawbacks, particularly with transportation and verification.

Because it had to be stored and transported as a tangible metal, it became necessary to centralize it in vaults or banks for practical use. This centralization paved the way for governments to eventually gain control over its custody and circulation. Over time, money ceased to be chosen organically by the free market based on its monetary properties, and instead, it evolved into what we now call fiat currency—a form of money produced at will by government decree.

Once the state assumed control of the money supply, the crucial attribute of scarcity was lost. Fiat currency, unshackled from physical limits, became the least scarce form of money that has ever existed. As a result, whoever manages this supply—the nation-state—gains a disproportionate advantage, often benefiting politically connected interests at the expense of savers and wage earners. This has long been understood as the Cantillon Effect. 

"Money is a tool for trading human time. Central banks, the modern-era masters of money, wield this tool as a weapon to steal time and inflict wealth inequality. History shows us that the corruption of monetary systems leads to moral decay, social collapse, and slavery. As the temptation to manipulate money has always proven to be too strong for mankind to resist, the only antidote for this poison is an incorruptible money—bitcoin.” – Robert Breedlove, Masters and Slaves of Money

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Inflation & debasement

At the core of the issue with money lies the inevitability that when you create more of it, the existing supply becomes less valuable. Today, money can be created in infinite amounts for free, infinitely debasing the currency’s purchasing power and our economic lifeblood through inflation. 

This shift set the stage for many of the societal issues we see today, erroneously blamed on symptoms and not the root cause of the problem.

A business’s failure to recognize the difference between “hard money” and “soft money” results in a slow drowning of resources that brings the company to its knees, silently, meticulously, and to the bewilderment of its owner.

The eye-opening reality is that most businesses are completely neglecting the dynamic that soft money plays in stunting business growth.

Thanks to human ingenuity, thousands of years of innovation, and technological progress, bitcoin now emerges as the preeminent choice for the role of money, given its unparalleled attributes as a monetary instrument far superior to debt-based alternatives.

‘’The unprecedented worldwide growth in money supply following the COVID-19 pandemic led to widespread inflation, eroding the purchasing power of established fiat currencies. Bitcoin’s role as a potential hedge against inflation has increasingly become a talking point central to investment decision-making. As previously alluded to, the cornerstone of this idea lies in its limited supply and decentralized nature. Unlike fiat, which can be printed by governments and central banks, bitcoin has a fixed supply, with supply growth decreasing by 50% roughly every 4 years with the halving events. Bitcoin is not subject to the same inflationary pressures caused by fiat money supply growth, making it an attractive option for investors concerned about the impact of inflation on their portfolios and their subsequent purchasing power.’’ – VanEck, The Investment Case for Bitcoin

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Your business needs hard money

The most important function of money was, is, and always will be to store value. This is only logical; if the money does not keep its value, all its other functions are irrelevant. Primitive forms of money like salt, tobacco, seashells, silver, and paper currency share one common flaw, namely that they can be produced easily; they are “soft” forms of money.

Society cannot function without money, and how hard the money is determines how well it can function. If money is hard only for one group of people and soft for another, that group of people will be tremendously advantaged compared to the other. 

The main conceptual difference between hard money and soft money is how difficult it is to produce. What backs hard money is a real commodity (i.e., gold) that takes real effort to produce. Behind soft money (i.e., fiat) there is void. A central bank can make a few keystrokes and have a trillion new dollars ready to enter circulation at a moment’s notice. 

We can understand money's hardness through understanding two distinct quantities related to the supply of a good: (1) the stock, which is its existing supply, consisting of everything that has been produced in the past, minus everything that has been consumed or destroyed; and (2) the flow, which is the extra production that will be made in the next time period. 

“If people chose to store their wealth in an easy money, with a low stock‐to‐flow ratio, it would be trivial for the producers of this good to create very large quantities of it that depress the price, devaluing the good, expropriating the wealth of the savers, and destroying the good's salability across time.” – Saifedean Ammous

The ratio between the stock and flow is a reliable indicator of a good's hardness as money, and how well it is suited to playing a monetary role. A good that has a low stock‐to‐flow ratio is one whose existing supply can be increased drastically if people start using it as a store of value. Such a good would be unlikely to maintain value if chosen as a store of value. 

The higher the stock-to-flow ratio, the more likely that good is to maintain its value over time. If people choose a good with a high stock-to-flow ratio as a store of value, high demand does little to impact the quantity being produced. Because the flow is small compared to the existing supply, even a large increase in new production is unlikely to depress the price significantly.

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Your business’s greatest threat: inflation

“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.” – Friedrich Hayek, father of Austrian Economics

If the main reason for being in business is to create value, and that value is stored in soft, low stock-to-flow money like cash, then the very lifeblood of the company is evaporating over time. Holding cash reserves in a company treasury—beyond the cash needed for short-term operational expenses—is like lighting your reserves on fire. And with inflation, that fire is growing hotter and spreading faster with each passing year.

Inflation represents the increase in prices resulting from monetary expansion that outpaces growth, leading to a decline in the currency’s purchasing power. If you grow your savings by 5% and inflation is 7%, your net purchasing power decreases by 2%.

Historically, inflation has always been inextricably linked to money. The generally accepted school of thought that economists and governments have propagated is that inflation helps the economy as it eases credit payback over time and allows borrowers to repay faster. In times of crises, cash injection serves as a backstop for preventing greater economic fallout. 

But the sobering reality is setting in as we keep raising the debt “ceiling” higher and higher: inflationary interference brings short-term solutions while creating long-term problems.

Financial authorities historically reached a consensus on maintaining a target inflation rate of 2%, mimicking the average issuance rate of new gold, the historic hard asset benchmark. While 2% may seem relatively minimal, this economic policy effectively erodes approximately one-third of a currency's purchasing power over two decades. Should this rate increase to three percent, the erosion would accelerate, diminishing nearly half of the currency's value within the same timeframe. 

Now consider what’s transpired over the last four years. During the 2020, coronavirus pandemic, central banks inflated the global money supply by 20-40%, depending on where you get your data from. Looking at the historical data on the expansion of the money supply, the true inflation rate is actually closer to 7-8% annually. If you've been running a business in the last four years, you’ve probably felt the pressure on costs get even worse.

The long-term consequences of such reckless monetary expansion are still to be felt.

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Reality isn’t adding up

“Technology is profoundly deflationary. With abundance comes price deflation. This is simple supply-and-demand economics: the more abundant something is, the more likely it is that its price falls. We’re now entering an age of deflation unlike any the world has ever seen.” – Jeff Booth

Think of the first computer in the world, which needed a soccer-field-sized facility and cost hundreds of millions of dollars to produce. Today, nearly everyone has a computer in their pocket, and most households have at least moderate access to a computer, all produced at a mere fraction of the cost.

While computing systems, televisions, and other inventions experience profound technological deflation, the cost of groceries, gasoline, education, healthcare—the essential components of our everyday lives—keep on rising. Your business’s expenses don’t seem to enjoy the same deflationary effect that modern-day technology benefits from.

An unlimited money supply results in more and more dollars chasing the same amount of goods, effectively eroding the purchasing power of each dollar in the process.

If today’s money was grounded in reality, technological innovation would draw down the cost of living as we streamline production processes. But the paradox that inflation creates is an ever-rising cost of living, despite the innovation. 

Even though your business may offer great value to the world, the dilution of our money supply siphons away that added value. This systematic devaluation imposes mounting pressure on businesses through escalating material and operational expenses. Consequently, companies transfer these financial strains onto the workforce, compelling employees to shoulder the concealed burden of inflation. 

What results is a skewed system of incentives. 

Companies now need to prioritize shareholder returns over the world’s overall wealth, health, and well-being. It's unsurprising, then, that many struggle to maintain positive workplace environments.

Such a long-felt, systemic plague to operational efficiency surely calls for a solution.

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The paradigm is shifting

A paradigm shift represents a fundamental transformation in our understanding, compelling us to reconcile novel discoveries that challenge established wisdom. While some revelations emerge gradually, others manifest as profound breakthroughs that rapidly revolutionize human knowledge. 

Consider the evolution of transportation. Humanity's journey from bipedal locomotion to the domestication of horses, the revolutionary invention of the wheel, and the subsequent development of motorized vehicles, railways, and ultimately aerospace technology has progressively compressed both time and space. The modern world enjoys unprecedented human interaction, revolutionized commerce through efficient distribution of perishable goods, and enabled exploration of previously inaccessible frontiers.

Technological adoption usually follows an S-curve pattern, characterized by three distinct phases: initial sluggish uptake, explosive middle-stage growth, and eventual deceleration as market adoption approaches its ceiling. 

During the nascent phase, early adopters constitute a minimal user base, while peak saturation typically encompasses between half and nearly all potential users. 

Today, innovation diffusion occurs at an unprecedented pace. Telephone communication systems demonstrate this phenomenon clearly: While the introduction of conventional telephones took nearly a century, mobile communications achieved widespread implementation within two decades. 

As a business owner, the wake of rapid inflation may seem insurmountable, but the critical realization to make right now is that modern-day business stands on the precipice of a once-in-humanity paradigm shift: the re-engineering of our monetary system.

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Bitcoin is money, re-engineered

Bitcoin offers the best solution to businesses feeling the effects of inflation. By perfecting the conditions of hard money, bitcoin is a digitally native form of money that’s optimized for capital preservation. In the wake of ever-increasing inflation, it’s a tool that’s more necessary with each passing day. 

Adopting bitcoin for your business tackles inflation at its root, but the benefits don’t stop there. To learn more about the Bitcoin Business Standard, schedule a consultation with our team today, and we’ll offer tailored guidance on how bitcoin can best serve your business’s needs.

This blog post is an excerpt from our eBook, The Business Case for Bitcoin. Get your free copy for over 80 pages of insights.