In this episode of Bitcoin Study Sessions, Lucas and Grant discuss chapters 7 and 8 of Lyn Alden's "Broken Money," focusing on free banking versus central banking and the impact of transaction speed versus settlement speed. Key Topics: Free Banking vs. Central Banking History of Central Banking in the U.S. The Impact of Telecommunications on Financial Systems The Role of Technology in Shaping Monetary Systems The Consequences of Fiat Money and Centralization Summary: In this episode, Grant provides a detailed summary of chapters 7 and 8 of Lynn Alden's "Broken Money," starting with a recap of the book's initial premises. The core question, "What is money?" leads to the understanding that money serves as a ledger for recording transactions and ownership, evolving with technology to shift power structures . The discussion covers the differences between free banking and central banking. Free banking involves multiple independent banks, each holding deposits and potentially issuing their own banknotes, with nature and individual banks exerting control over the ledger. Central banking, on the other hand, centralizes control under a government-recognized entity that standardizes the ledger and acts as a lender of last resort. Grant then outlines the history of the U.S. monetary system, noting the transition from early currencies like the Continental to the establishment of the Federal Reserve in 1913, highlighting key events such as the Coinage Act of 1792 and the gold seizure during the Great Depression, and the default in 1971 which resulted in the removal of the ability to redeem for gold, leading to structural inflation and increased government power. Chapter 8 delves into the technological developments that made central banking inevitable, specifically the advent of telecommunications. While gold was slow and inconvenient for transactions, the invention of the telegraph enabled near-instantaneous access to a central bank's ledger over vast distances. This shift led to the rise of credit theories, like chartalism, which posit that money derives value from the state's imposition of taxes. Alden emphasizes that this technological shift is not a moral tale but a practical consequence of preferring speed and convenience over the constraints of commodity money. Lucas provides insights into the moral implications of fiat money. He draws a parallel to plastics, initially celebrated for their flexibility but now recognized for their detrimental environmental and health impacts. The duo explores how optimizing for speed softened the hard qualities of gold, making it easier to manipulate and control. They then discuss the concentration of power within governments due to fiat money, the illusion of choice in pseudo-scientific justifications for fiat, and the temptation for governments to inflate money for self-benefit. Grant and Lucas engage in a thought-provoking conversation about the consequences of fiat money, linking it to the moral implications of technological advancements. They discuss how the fiat system necessitates the use of counterparties and leverage to keep up with inflation. They also explore the role of central banks as lenders of last resort, questioning whether crises are genuine or created by government intervention. The pair then question the necessity of hierarchy and centralization, drawing on insights from Jason Lowry and Jordan Peterson to highlight how the need for stability leads to rigid systems that are vulnerable to collapse. They contrast this with the resilience of decentralized systems like Bitcoin, which can absorb attacks and adapt to change. The next conversation covers chapters nine through eleven.
