I've written lots on these themes, posted extensively on SN about the core monetary differences between Bitcoin, gold, and fiat #768285 — particularly here: "MONEY CLASS OF THE DAY: Macro Purchasing Power Under Fiat, Gold, and Bitcoin"

Lots of Bitcoiners are hopelessly uninformed: about the fiat system they detest (#1516456) to the goldbugs they roll their eyes at, to the exact (monetary!) workings of the orange revolution they adore.

Lawrence White, professor at George Mason University, is not that. As I wrote in this review from the summer/fall of 2023 — I still vividly remember sitting in @Shugard's quiet, dark apartment late at night tinkering with this and three other book on a short deadline — White is worth taking seriously:

Of the many economists who opine on bitcoin, few are worth paying attention to; the deranged rumblings of a Roubini, Prasad, or Krugman are of no consequence. Lawrence White, of George Mason University, is of a different sort. Professor White has been thinking sensibly about private money and monetary arrangements since before most of us were born. He was on the cypherpunks mailing lists on which the early digital cash schemes were crafted and created.

Anyway, next to Broken Money and (tradfi) economist William Goetzmann's long-spanning history Money Changes Everything, this might be the BEST serious monetary economics resource there is. (At least for the specific themes of how gold/bitcoin/fiat work as monetary systems.)

To quote from another MONEY CLASS OF THE DAY post last year: "At some level, I find that my cosmic role in this Bitcoiner space is to help Bitcoiners understand their monetary asset better."

This review was published in Bitcoin Magazine Print's The Withdrawal Issue in 2023, the mentioning of it was a condition of me republishing it.

There is no doubt that Better Money, published this spring by Cambridge, is the culmination of White’s work over five decades, capturing a lifelong investigation into monetary affairs: his books on the history of gold and silver (early 2000s), on monetary institutions (1999), and how free banking operated in Britain (1984). The book is dense, academic, balanced, and extremely well written. It can teach fiat economists how to analyze hard money standards, make goldbugs understand the virtue of Bitcoin, and introduce Bitcoiners to the monetary properties that really separate bitcoin from fiat and gold.
It is a must-read for Bitcoiners keen on understanding how precisely their money differs from others on offer. (It is even more crucial for mainstream economists to read so that they stop saying asinine things about bitcoin.)

White presents his book as “contingency planning” (page 4) harking back to Milton Friedman’s quip about needing shelf-ready intellectual alternatives for when existing systems crumble. We need to have created and thought clearly about monetary systems into which the wide public can flee before their escape thereto is urgently needed.

We’re treated to a brisk walk through Chartalism, the origins of money, medieval banking arrangements, coins debased by kings and merchants, and plenty of high-level, practical illustrations of how money’s three functions (medium of exchange, store of value, and unit of account) have changed across time. The meat of White’s contribution comes in the supply-and-demand analysis he displays for gold as money and repeats with fiat and bitcoin, clearly indicating how the three monetary systems are different. He compiles the academic literature on how the gold standard worked and how well it performed, debunking the many poorly reasoned cases that gold caused the Great Depression, and conjectures into what a bitcoinized world might look like.

The following sentence, perhaps the single most important insight across these 250 pages, is worth stamping on message boards in every economics department and weekly memos to journalists covering the space:

"“The stability of the purchasing power of monetary Bitcoin under a Bitcoin standard cannot be judged by observing the behavior of the price of pre-monetary Bitcoin under a fiat standard” (page 95)."

All professional economists’ pontificating about the price volatility of bitcoin making it unsuitable as money is invalidated by this single succinctly phrased sentence by one of their peers. The information you gained from observing bitcoin when it was a fringe and emerging alternative money contender, anno 2009-2023, is not indicative of bitcoin’s behavior when it becomes the world’s preferred monetary asset.

Professor White doesn’t therefore say that the plebs were right all along, that volatility doesn’t matter and will go away upon adoption; we can’t know that yet. He managed to see this point clearly enough thanks to his many years arguing with the same narrow-minded economists on the viabilities and virtues of gold as base money. In the modern fiat world, gold behaved differently than it did during the classical gold standard — or would have today had it not been demonetized. The “swings in the speculative demand for gold as an inflation hedge… reflect, in other words, the instability of fiat currencies” (page 92). 

The same applies for bitcoin. 

It then takes White almost the rest of the book before he suggests a way that the plebs might even be right. If and insofar as BTC was only valued as a transaction medium (in contrast to a speculative investment vehicle), then its purchasing power volatility would likely be lower than it is today. Vindication.

The Purchasing Power of Money Under Gold, Fiat and Bitcoin

In the three-way race between the monetary properties in gold, bitcoin, and fiat, our favorite orange system usually occupies a blessed middle ground between fiat and gold — incorporating the best of both worlds, if you will. Fiat doesn’t have market-governed supply; there is no marginal cost to its production and no constraints on its creation, which is what contribute to its abuse and instability. On the plus side it doesn’t have nonmonetary demand from which shocks can emerge. 

Gold has nature-constrained supply, making its issuance subject to shocks of discovery and techniques for its extraction, and its industrial and decorative use on the demand side can mess with its monetary role. 

Like fiat, bitcoin has no nonmonetary shock vectors; like gold, it has competitive energy expenditure to constrain its production; and unlike both it has a perfectly predictable supply schedule. 

Gold has one enticing property that bitcoin lacks, and which White clings on to: The price level under gold is mean-reverting. Because gold miners adjust production (or sources of nonmonetary gold, their holding) in accordance with the purchasing power of gold, its supply expands when prices are falling — since the mined gold is more valuable — which brings prices back up again; and it contracts when prices are rising, which brings them back down. The price level under a gold standard becomes self-correcting, causing stable prices over decades and sometimes centuries. 

Because bitcoin’s supply cannot adjust to changes in its purchasing power, its long-run and short-run purchasing power becomes unanchored — a property it shares with fiat (though in the opposite direction). Its supply is “completely free from surprising exogenous changes” (page 184). 

Under fiat, with credible monetary policy and competent, knowledgeable central bankers committed to a 2% target (a unicorn, I know), we get short-run prices that consumers and businesses can deal with. If what costs $100 today will cost $102 this time next year, I know my wages must rise by 2% to maintain my standard of living; if my bank and I both know that the real value of my mortgage debt will be 2% lower next year and 2% lower still the year after, we can comfortably factor that into our interest rates today. Either party gets shafted only when experienced inflation diverges from what is announced by the central banker. Since real-world central bankers — as opposed to omnipotent and omniscient angels — reliably mess up, no market participant can have a remotely accurate price-level view for 10, 20, or 50 years into the future; the errors compound, making price-level predictability over medium-to-long horizons garbage. 

Under a gold standard the opposite is the case. Short-run price predictability is trash, since extraction cannot catch up fast enough with short-run changes in the economy, making gold share the supply inflexibility over the short run that bitcoin always has. In the immediate outlook, prices get unanchored — which is the main property that fiat economists have used to critique a gold standard. They forget gold’s superior medium-to-long-run supply reaction, mean-reverting price rises, or letting the profit motive turn price declines in reverse. Under gold, the price level over long time periods stays put, enabling long-term planning. 

Gold, unlike fiat, lets economic agents plan for the long term. Under ideal fiat, they can instead plan for the short term, at the expense of long-term predictability. With bitcoin, we can’t reasonably plan for either — at least until its monetization is complete. 

Because unstable monetary demand and unyielding supply makes the bitcoin purchasing price undetermined, White ultimately favors gold. It’s up to the reader to judge if his case is compelling, or if that one theoretical drawback overcomes the many well-known problems of gold and fiat standards.

Incredible book, incredibly important. We don't seem to talk about these themes in Bitcoin anymore.

... and only that ONE-SENTENCE takedown would be enough to discard 90%-something of fiat "commentary" on Bitcoin. Read White; be better.

BOOK on BOOKS review archive:

I Am Not Your Bruh: 21 Keys to Sound Parenting, by George Mekhail (#1548087)

Skin in the Game: Hidden Asymmetries in Daily Life, by Nassim Nicholas Taleb (#1540851)

Gradually, Then Suddenly: A Framework for Understanding Bitcoin as Money, by Parker Lewis (#1536970)

Fiat Ruins Everything: How Our Financial System is Rigged and How Bitcoin Fixes it, by Jimmy Song (#1530254)

Bitcoin One Million, The Final Chapter of Fiat, by Fred Krueger & Ben Sigman (#1521960)

Hijacking Bitcoin: The Hidden History of BTC, by Roger Ver (#1525907)

The Philosophy of Bitcoin, by Álvaro D. María (#1517354)