Philosophy & Economics of Bitcoin

Andrew M. Bailey, Bitcoin Policy Institute

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Week 5: Bitcoin and Monetary Institutions

Lecture: Non-State Money

Key Themes

• The difference between monetary policies and institutions, and the role of trust in traditional monetary institutions
• Why monetary policies and institutions matter, including what happens when they go wrong, and the possible avenues of escape for those stuck under poor institutions or policies
• The distinctive tradeoffs of bitcoin’s monetary institution in comparison to alternatives, their connection to the monetary rule of law — and who benefits from or is harmed by those tradeoffs

Focal Readings

• Resistance Money, Chapter 5: 'Money Machine'
• Boettke, Salter, and Smith, ‘Money and the Rule of Law’
• Selgin, Lastrapes, and White, ‘Has the Fed Been a Failure?’
• Bank of England, ‘Money Creation in the Modern Economy’

Secondary Readings

• White, The Theory of Monetary Institutions (selections)
• Roy, ‘Bitcoin and the U.S. Fiscal Reckoning’
• Selgin, ‘The Case for Free Banking’
• Goldberg, ‘Famous myths of ‘fiat money’’
• Endörfer, ‘On the Wrongfulness of Bank Contributions to Financial Crises’’
• Dick, ‘How Many People Does It Take to Make a Dollar?’’

Reflections

1. 100 words or less: describe the distinction between a monetary policy and a monetary institution, and illustrate each with an example. Be as concrete and specific as you can.
2. 100 words or less: does bitcoin effectively reduce trust in monetary institutions? Why or why not?
3. 125 words or less: describe the difference between a quantity guarantee and a price guarantee. In what ways do traditional sovereign currencies carry out a price guarantee (it may help to speak to one in particular)? In what sense does bitcoin make no price guarantee, and how would it have to change in order to credibly make one?
4. 100 words or less: prepare exactly two critical discussion questions about any of the focal readings. For each question, be sure to include a specific quotation or citation to indicate how the readings prompt it, and one sentence about why it matters.

Practicum

• Identify a sovereign currency not mentioned in the assigned readings. In no more than one page, describe in broad terms the monetary institutions and policies that govern it, and compare and contrast them with those of the US dollar, or of bitcoin. Use anecdotes or recent news stories, as it pleases you, to illustrate.
• In one page or less, address this question: have bitcoin’s monetary policies ever changed? Pay special attention to bug fixes that pertain to supply (poke around and you’ll find a few famous ones); are these changes to either bitcoin’s monetary policies or institutions? Why or why not?

Schedule

Tuesday 13 February
Readings	Read Chapter 5 carefully and in its entirety.
Reflections	Complete any one of Reflections 1-3 and Reflection 4, and submit by midnight before class.
Friday 16 February
Readings	Read the remaining focal readings in their entirety, but skim judiciously.
Practicum Assignment	Complete both practicum assignments and bring your findings to class.