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Op Ed: Money And Helicopters

After a Helicopter ride paid for with Bitcoin while in New Zealand, Jeffrey Tucker shares his thoughts on the 'Quantitative Theory of Money'.

Helicopter Ben

Money and helicopters have a long rhetorical relationship. Former Fed Governor Ben Bernanke was called “Helicopter Ben” for the way he handled the financial crisis of 2008 and following. We imagined him flying all over the country dropping dollars on cities and towns. The root of that moniker was Ben’s own comments about the right way to fight deflation.

But there’s an even deeper root. The “Quantity Theory of Money” imagines that we dispense with the details of precisely how to get new money to the population and instead imagine that it is dropped from helicopters. The problem with that theory is that is assumes away the real problem: the “injection effects” of a manipulative interest-rate policy that causes distortions in the production structure.

So it was with some relish that I took the first-ever helicopter flight paid with Bitcoin in New Zealand. Yes, I know that this is flight is not going to be deeply etched in the annals of history. Still, it was very cool, and I learned some things from the experience.

I learned that it is crazy cool to float around in a whirling bubble in the middle of the air. I learned that New Zealand is the most beautiful place on earth (that I’ve ever seen). And I also learned that a new currency like Bitcoin, which is not tied to a single nation state, offers unexpected benefits in terms of foreign exchange.

It’s yet another case in which I’m gradually discovering for myself the seemingly countless benefits of this technology.

Anyone who travels abroad knows what a headache exchange rates are. It takes you a few days to figure out the pricing. You constantly convert from one to the other. Credit cards have made this easier, but when you deal with cash, this problem can be awful. And that’s just at the consumer level. Imagine what it is like to run a mega-billion dollar company with offices in 50 countries. The headaches and inefficiencies are overwhelming.

So it was for me in New Zealand. Their national currency is different from my national currency. I had developed a mental routine of converting back and forth whenever I bought anything.

When it came time to pay for my helicopter ride, I began to do the conversion again, from NZ dollar to US dollar to Bitcoin and back again. Then it suddenly struck me. I don’t need to do that. I only need to know the ride of in terms of Bitcoin. It was 0.548. There is no New Zealand vs. U.S. vs. Canadian vs. Brazilian Bitcoin. BTC is an international currency. It is one currency for the whole world. There is just Bitcoin and no other.

Yes, I knew that intellectually, but there is something about experiencing it directly that underscores the point and the advantages. Imagine if all international business took place using such an international currency. The efficiency gains would be enormous. Plus, the rules wouldn’t constantly change. It would achieve a form of monetary stability we haven’t experienced in 40 or so years.

When Nixon closed the gold window, economists were excited to experience what they imagined would be a real market in currencies. No longer would gold be shipped between countries depending on the value of the currencies. Traders would be the ones to determine the price relationships between currencies.

Over time, that stopped working as well as people originally imagined. It creates terrible friction for businesses in their accounting. With exchange rates changing by the minute, trying to value a capital portfolio can be maddenly hard. This was one of the driving forces behind the European monetary reform that created the Euro. The floating rates had become radically inconvenient.

During the mid and late 1980s, the U.S. Treasury Department worked hard to achieve a fixed-rate regime on an international level. The were countless meetings between central bankers and political authorities to achieve greater stability. The goal was a global monetary system that would dispense with the endless speculative activity in currency markets and replicate something approaching the old-world gold standard.

The scheme never worked, but you can see the rationale behind it. In the age of the gold standard, different national currencies were really just different national names for the same thing. The real money for the world was gold and/or silver. The names of the units were different expressions based on history and language. So long as a country maintained a sound monetary policy with debasement, there was one currency for the world.

That still stands as a monetary ideal but there’s a problem: governments and monetary authorities can’t get their acts together. They are constantly cheating, debasing, inflating, manipulating. So long as that is true, there will be no hope for a fixed exchange-rate system. For that matter, not even the Euro can brag of longevity so long as all the signatory countries maintain different approaches to fiscal policy.

In any case, it is essentially impossible to recreate through negotiation and diplomacy what the real free market would produce in absence of the nationalization of money. Gold’s universality came about organically through the market process. A fixed-rate regime under paper money is the result of imposition and political power. As the planners discovered in the 1980s, it is not and cannot be stable and maintainable.

But that doesn’t mean there is any great shakes about the current system. Contrary to what the floating-rate people say, this is not a market in a normal sense. It’s a vast waste. It might be the least-bad system given the prevalence of bad money without specie backing. But it is far from ideal. The ideal is one market-chosen currency for the world that lives within a competitive space of choice and freedom.

Remember that when Bitcoin emerged on the market, it was not within one country. It was not created out of the existing value of the Dollar, the Euro, or the Yen. It emerged as a free-standing unit of trade without any strictures concerning borders, monetary authorities, or national legislators. It is a one-world currency that lives outside and beyond borders.

That gives Bitcoin a huge advantage in international payments, international business, and international travel for consumers and investors. While this is not obvious for now, it will increasingly become so as cryptocurrency continues its march to mainstream life.

So, yes, there is a relationship between money and helicopters. And now there is a relationship between helicopters and a new form of sound money for the digital age.


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