In the aftermath of World War II, Germany was in a desperate state. To say that words are not up to the devastated state of the country is a good example of an understatement. All the post-war rubble alone, if piled up, would have soared over 4 miles into the sky.

In the midst of all this destruction, money emerged to facilitate the exchange of the few goods available for sale. Some might wonder how it could have been since there was really no government to speak of, except that it doesn’t take a libertarian to observe that government is unnecessary when it comes to money. Since people want to get things in return for what they have, money is always evident wherever there is production. As I report in my new book The confusion of moneymoney is always there where goods and services circulate as if they were given to us – yes – by an invisible hand.

In the case of Germany, cigarettes have become the medium of exchange. With the Reichsmark destroyed and realistically invalid as legal tender, cigarettes asserted themselves as the most stable measure to facilitate the exchange of goods and services. In post-war Germany, cigarettes could be exchanged for food, cameras, and even nights with a member of the opposite sex. The sole purpose of money is to enable the exchange of real goods and services, and cigarettes were the currency par excellence in Germany precisely because those who exchanged real goods, services and favors regarded them as the measure the most believable. Please stop and think about this.

Please think about it with modern life in mind. Many who should know more, and that includes libertarians, argue that there is “no free market in money.” Except there are. We know this first and foremost simply because more dollars are circulating outside the United States than inside. The previous truth is proof that when it comes to exchange, producers do not accept just any currency, including the currency of the country in which they reside.

To be more specific, what did the Russian people do once the war with Ukraine started, and once many Russians started leaving their own country as a result? They quickly withdrew US dollars they had in bank accounts and similarly exchanged tips with other Russians on how to acquire dollars. When you are on the run, the dollar commands goods and services around the world. No “free market” for money?

Why the dollar? Although it has obvious drawbacks, especially those related to instability (see $7 trillion to $10 trillion in daily currency exchanges worldwide), it remains – by far – the most reliable currency in the world. . And it’s the most reliable because, at least compared to other currencies, it has a pretty good track record of reasonable stability. So, while dollar holders have suffered from bouts of instability and devaluation over the decades, the dollar is still accepted almost everywhere as a means of communication.

Which brings us to bitcoin. USC professor Nik Bhatia claims in Layered Money this bitcoin
BTC
is the future of money, and one piece of evidence to support its claim is private currency ownership that exceeds 100 million people. Up front, what Bitcoin has become is a staggering achievement. Even better, without the growing use of Bitcoin as a store of value, the move towards private money would be much less advanced. When the story of how private money gradually pushed back against government measures is written, Bitcoin will figure prominently.

At the same time, it is difficult to argue forcefully that it will emerge as money par excellence as its supporters imagine. They point to its scarcity as a selling point, but in reality the quantity of money is limited only by production. See above. Wherever there is production, there is always money to move goods and services between producers. The quantity of good money is by definition unlimited simply because money is always the constant consequence of production. Since Bitcoin cannot grow with production, it logically cannot facilitate its exchange.

What some say curiously that the scarcity discussed above is a feature of Bitcoin. As gold continues to be discovered, Bitcoin is capped at 21 million coins. Such a view misrecognizes gold twice and realistically misrecognizes silver. This implies that good money continues to grow in value. In fact, good money is like a foot, a minute, or a tablespoon. It’s consistent. Assuming Bitcoin’s value rises, rises, and rises, how would that recommend it as a currency? Money is an agreement on value that facilitates exchange. How, then, would a measure that is not a measure work like money?

Moreover, gold does not acquire its monetary qualities from scarcity as such. The use of gold as money is precisely due to the fact that the value of the yellow metal itself neither rises nor falls. Due to unique stock/flow characteristics, gold is constant. What moves are currencies and commodities that measure it, not gold itself. It is crucial. According to Bhatia himself, gold became silver for thousands of years as more and more producers recognized its rather unique stability.

All of this speaks to the future challenges for Bitcoin. Without turning their noses up at what it has become for a single second, the story is very clear that market players willing to trade commodities for commodities (the definition of trade) invariably happen upon what is most stable as an exchange medium. And for obvious reasons: they want to receive pretty much the same as what they bring to market.

The problem for Bitcoin is that, as its biggest cheerleaders unwittingly or implicitly acknowledge, it cannot be stable. What is fixed in the offer cannot logically be. Bitcoin may continue to thrive as speculation in scarcity, but it cannot be the latter and also be silver. This is not a commentary from a critic but rather an acknowledgment of what trade is and what producers of goods and services have always demanded. They want what Bitcoin cannot be. It’s free markets at work.