If Everyone Started Getting Rich from Their Bitcoin Investments, Wouldn’t That Cause Inflation?

00:02 hey everyone someone asked "What would 00:04 happen if everybody started getting rich 00:07 off of their Bitcoin investments would 00:09 that not cause inflation throughout the 00:11 entire economy?" Uh the short answer is 00:13 no but the uh the longer answer is 00:16 complicated which is why I'm doing a 00:17 video about it okay uh 00:22 in inflation is caused by a debasement 00:26 in the moni money supply when a money is 00:29 used as the measuring stick for the 00:31 economy and then whoever controls that 00:33 money prints too much of it that is what 00:36 causes inflation uh as Milton Freriedman 00:38 said inflation is always and everywhere 00:42 a monetary phenomenon that means if you 00:45 ever see inflation ever you kn you know 00:48 that I either someone is currently 00:51 printing too much money or that in the 00:53 past someone printed too much money and 00:55 it's just taken some time to see the 00:57 effects of that money printing okay so 00:60 what happens when let's say the price of 01:02 Bitcoin goes from $102,000 per coin 01:05 where it is this morning um 102,000 to 01:09 204,000 let's say it doubles and the 01:11 total value of all the bitcoin in the 01:13 world goes from $2.1 trillion to $4.2 01:16 trillion okay what so what you got to 01:20 understand is the ratio of all of the 01:23 monies in the world and the ratio of all 01:25 the goods and services has to be has to 01:28 balance so as uh and the reason for that 01:32 is money the the purchasing power of 01:35 money is expressed in its ability to buy 01:37 stuff and the amount of stuff that could 01:40 be bought which is in economic call uh 01:43 terms it's called goods and services 01:45 although the more sort of easier to 01:47 understand would be products and 01:48 services products meaning something you 01:50 can buy that's a physical thing or a 01:52 digital thing or something and services 01:55 being services that someone provides for 01:58 you that you pay for for example 02:00 somebody serves you at a restaurant that 02:02 is service the the the food is a product 02:05 but the uh the service where you don't 02:07 have to cook it yourself is a uh is a 02:10 service um so anyway so the the the all 02:13 of the money and all of the goods and 02:15 services or products and services have 02:17 to be in balance because the money 02:19 cannot have more purchasing power than 02:21 the goods and services it could purchase 02:24 and the goods and services that could be 02:26 purchased can't be more valuable than 02:29 the purchasing power of all the money 02:31 that could purchase them otherwise you 02:32 know where does that value come from and 02:34 where does that purchasing power come 02:35 from um and all of this is massively 02:37 oversimplified so for all you economists 02:39 that are listening you know I know I'm 02:42 massively oversimplifying this you know 02:44 for the purpose of making it 02:45 understandable i do understand there's 02:47 more moving parts to each of these 02:48 things but okay so if Bitcoin doubles 02:52 and it goes you know from 100,000 to 02:54 200,000 and all the Bitcoiners have 02:56 doubled the purchasing power the 02:58 question is where did that purchasing 03:00 power come from if the amount of money 03:03 in the economy and the amount of goods 03:05 and services has to balance and all of 03:07 the Bitcoiners you know are now twice as 03:09 rich that means that came from somewhere 03:12 so where did it come from well it it 03:14 came from a combination the primary 03:16 place it comes from is the people who 03:20 get new money from the government have 03:22 less purchasing power so there's 03:25 something called uh it's spelled C A N T 03:27 I L L I O N i'm not sure if it's the 03:30 Contilion effect or the Canton effect 03:33 i've heard people say it both ways i'm 03:35 sure that only one of them is right but 03:37 whether it's the Cilian effect or the 03:38 Canion effect I think that's the right 03:40 technical term what it means is whoever 03:43 is the closest to the money printer gets 03:46 the most benefit from and the most 03:48 purchasing power from new dollars so if 03:51 you think about it during the 2008 03:53 recession uh the Federal Reserve printed 03:56 you know the total sort of mining and 03:58 circulation um the M1 I think money 04:01 supply was like $2 trillion and they 04:02 doubled it to like $4 trillion uh 04:05 there's a bunch of different measures of 04:06 money so the question is well who got 04:08 that extra $2 trillion and the answer 04:11 was that bankers and insurance companies 04:14 and basically all the people who had 04:16 taken too much risk as a result of the 04:19 Fed keeping interest rates for too low 04:21 uh in the mid in the you know early to 04:23 mid 2000s all of those people got huge 04:26 bailouts so a huge amount of money got 04:29 pushed into the economy and the 04:31 purchasing power of those people went up 04:33 first now eventually all of that money 04:36 is going to cause inflation but it 04:38 causes inflation for other people later 04:40 so whoever is the closest to the money 04:42 printer gets the most benefit from new 04:45 purchasing power and whoever is farthest 04:48 from the money printer uh gets the the 04:50 the least benefit from the new 04:52 purchasing power so give me one second 04:54 i'll explain that 04:59 so let let's let's assume that the 05:02 government instead of giving all that to 05:05 you know trillions of dollars to bankers 05:07 and insurance executives who took too 05:09 much risk again in a lot of ways it was 05:11 not their fault they took the risk based 05:13 on low you know low uh interest rates um 05:16 and cheap credit and the Federal Reserve 05:18 was the one responsible for that the low 05:20 interest rates and cheap credit so you 05:22 know essentially they got uh you know 05:25 enticed into their behavior there was 05:27 still bad behavior but a lot of it was 05:29 also sort of enticed into but anyway um 05:32 okay so let's assume that the government 05:34 instead decided that I was the person 05:36 who should hand out the $2 trillion 05:38 instead of you know bankers and 05:40 insurance company executives and all 05:42 that sort of stuff and let's assume that 05:43 they did that secretly of course because 05:45 nobody wants to know that I'm the one 05:46 who's got the $2 trillion that the 05:48 government gave me so 2008 rolls around 05:50 they give me $2 trillion and they say 05:52 "Joel we need you to get this you know 05:54 this money out into the economy go spend 05:56 it as fast as you can." Well initially 05:58 none of the prices are going to increase 05:60 because nobody knows that this money is 06:02 basically magic funny money that got 06:03 printed out of thin air so for a little 06:06 while I get to go buy stuff at the old 06:10 prices but then over time as I empty out 06:13 the store shelves and I buy stuff and 06:15 all of that over time what happens is 06:17 the prices start rising for everyone so 06:20 the people who are then spending the 06:21 money I gave them to buy their stuff 06:24 they have to buy things that are a 06:25 little bit more expensive and then the 06:27 people who get the money sort of the 06:29 third hand have to buy things that are 06:31 even more expensive than that and it 06:32 it's like a ripple effect so when you 06:35 throw a big rock into a lake the biggest 06:38 effect is closest to the impact of the 06:40 rock and then it ripples out but the 06:42 farther you get from the rock the less 06:43 effect so it works the same way with 06:45 purchasing power if you drop a bunch of 06:47 new money into an economy or give it to 06:49 a bunch of bankers or insurance 06:50 executives or whatever uh they are going 06:53 to start with the most uh purchasing 06:55 power and the purchasing power they get 06:58 is being essentially pulled in from the 07:01 poorest people who are going to get the 07:03 money last so the canion effect or can 07:06 effect or however you say it is worst 07:08 for the poorest people that are farthest 07:10 from the money printer and it's best for 07:12 the people that are closest to the money 07:14 printer so if the price of Bitcoin 07:16 doubles and the purchasing power of all 07:18 the Bitcoiners doubles the number one 07:20 place that they are getting that 07:22 purchasing power is from people who 07:24 would otherwise be closest to the money 07:26 printer because effectively purchasing 07:28 power has now concentrated around the 07:31 Bitcoin holders rather than around the 07:34 people who are getting money uh for free 07:36 uh from the government now this uh this 07:40 effect is common anytime there's an 07:42 increase in productivity anytime a 07:44 company like Google decides to make 07:46 search engines more effective and 07:48 becomes incredibly help uh wealthy and 07:50 you know a bunch of billionaires are are 07:52 born as a result of Google or something 07:55 like that the same thing happens those 07:57 they have a lot of purchasing power and 07:59 it's a result of human productivity they 08:00 made the world more productive therefore 08:02 the world has more purchasing power um 08:04 you know therefore uh they they do that 08:07 so if somebody gets more purchasing 08:09 power as a result of smart investing 08:11 like buying Bitcoin or as the result of 08:14 making the world more productive but 08:16 like Google and actually buying Bitcoin 08:18 actually does make the world more 08:20 productive as well because as the world 08:21 moves to a a hard money standard a sound 08:24 money standard which is Bitcoin the 08:26 entire economy becomes more efficient 08:28 and so uh part of that purchasing power 08:30 comes from the fact that the economy is 08:32 more efficient and we are on basically 08:35 everybody's using you know yard sticks 08:37 that have you know 36 in in them instead 08:39 of everybody using you know you know 08:41 rulers and some of rulers have 11in 08:43 measurements and some have 13 which is 08:45 what we're doing with our current money 08:46 supply so uh so when Bitcoin becomes 08:48 more valuable the people who lose the 08:51 people who would normally get free money 08:53 under the old standard which is you know 08:55 the closer you are to Wall Street the 08:57 closer you are to Washington DC and the 08:60 closer you are to the uh you know the 09:02 Federal Reserve are the people who are 09:04 getting the extra purchasing power 09:06 before inflation sort of eats it up for 09:08 the rest of us uh so those people are 09:10 losing bit uh purchasing power as we 09:12 move to bitcoin the other people who 09:14 have the less purchasing power benefit 09:17 um so the losers are the people who get 09:18 to print the money that's the losers so 09:21 where does the purchasing power come 09:22 from if you know bitcoin increases in 09:25 value from $2 trillion to $4 trillion 09:28 one it comes from it comes away from the 09:30 people who otherwise would be able to 09:33 magically print money out of thin air 09:35 those are the people who are like the 09:37 losers of the Bitcoin appreciation um 09:41 the people who win less the purchasing 09:43 power shifts toward the Bitcoiners and 09:46 away from the late adopters so everybody 09:49 on a Bitcoin standard eventually wins 09:52 except the people that were getting free 09:53 money from the government as a result of 09:55 you know their proximity to the 09:57 government meaning they could they could 09:58 their they could use their power to get 10:00 the government to give them money 10:02 whether in the form of subsidies whether 10:04 in the form of handouts tax breaks that 10:07 are unique to them or their industry 10:09 that don't apply to the rest of us those 10:11 are the losers the people who just 10:13 benefit less than the Bitcoiners are the 10:15 late adopters so everybody eventually 10:17 benefits because everybody moves to a a 10:21 you know a yard stick that's got 36 10:23 inches on it everybody benefits from 10:25 using a measuring system uh you know a 10:27 unit of weights and measures that is 10:29 uniform and that is solid and that you 10:32 know imagine how hard it would be to 10:34 build a house if um if every year uh the 10:38 uh the the the length of a of a ruler 10:40 that is supposed to be 12 in if they 10:42 added a quarter of an inch every year 10:44 and of course the point would be we're 10:46 doing this to make you wealthy because 10:48 you know everybody's house is getting a 10:49 little bit taller every year um or I 10:52 guess a little bit shorter if you like 10:54 you know taller if you like you know 10:55 made it less anyway um so regardless if 10:59 you manipulate it you can make it feel 11:01 to people like hey your house is getting 11:03 bigger but the truth is the measuring 11:05 stick is getting smaller um the same 11:07 thing's happening with money everybody 11:08 feels like the house the price of their 11:10 house is going up and their stock 11:12 portfolio is going up most of that is 11:14 not true your house your house and your 11:16 stock portfolio are mostly not getting 11:19 more valuable the measuring stick that 11:21 you're using to measure them is getting 11:23 shorter and so you're like "Wow my house 11:26 you know used to be you know two stories 11:28 tall or one story tall 10 years ago but 11:31 now I you know there's an extra little 11:33 story in my house." It's like no it's 11:35 just the ruler went from you know 12 in 11:37 to 6 in so now your foot you know 11:39 instead of your house being you know 11:40 whatever 16 feet tall now it's 32 feet 11:43 tall but that's only because we changed 11:44 the unit of weights and measures um so 11:47 that's what's going on there so uh as a 11:49 result of everybody benefits by moving 11:51 to a sound money standard like Bitcoin 11:56 the only actual losers are the people 11:58 who are no longer able to print free 11:60 money out of thin air and the people who 12:02 are close to those people who get the 12:04 money first those people are the ones 12:06 that lose the purchasing power the rest 12:08 of the purchasing power shipped comes 12:10 from uh late adopters to early adopters 12:13 and but everybody ultimately benefits so 12:15 if somebody said you know if somebody 12:17 said and I'll get back to the question 12:19 of inflation in a minute here but if 12:20 somebody said if Bitcoin increases from 12:22 $100,000 a coin to $200,000 a coin 12:25 someone has to lose i would say you are 12:28 correct someone does have to lose the 12:30 loser is whoever can't print money out 12:32 of thin air anymore which is the Federal 12:34 Reserve and the companies that are 12:36 closest to the Federal Reserve and all 12:38 the the grifters that are making money 12:39 off of this money printing system that 12:42 exists in Washington that's facilitated 12:44 by Wall Street and all of that to the 12:46 losers and somebody said "Yeah but 12:48 there's not you know somebody the 12:51 purchasing power of other people has to 12:52 be changing also." I would say yes other 12:55 than the losers everyone else wins in 12:57 the long term but the earlier adopters 12:60 of Bitcoin win more and now if somebody 13:03 says that's not fair I would say well 13:05 that's the way everything works the 13:07 first adopters of the internet to do 13:09 accounting and finance and audit became 13:12 way more efficient than the people who 13:13 stuck with paper systems and therefore 13:16 they had purchasers of any technology of 13:20 more purchasing power than the late 13:22 adopters of the technology the early 13:24 adopters of any new money monetary 13:26 system more purchasing power than the 13:29 late adopters of any new money monetary 13:31 system 13:33 the the people who get education earlier 13:35 in their life make more money than the 13:37 people who get education later in their 13:38 life so anything that increases your 13:41 productivity or that involve you moving 13:43 to more you know a better unit of 13:46 weights and measures or more 13:48 sophisticated tools anything that moves 13:51 you forward gives you more purchasing 13:54 power as compared to a later adopter so 13:56 Bitcoin is not unfair in that way it's 13:59 just operating the exact same way any 14:01 other technology uh works and the same 14:04 will be true of artificial intelligence 14:06 artificial intelligence is amazing it's 14:08 extremely powerful i use chat GPT 14:11 probably dozens of times a day everybody 14:14 that uses chat GPT or one of the other 14:17 AI engines to do their job becomes more 14:19 effic more more efficient and over time 14:22 gets more purchasing power eventually 14:24 everybody uses AI and everyone's better 14:27 off but the people who are 14:30 the result of the productivity gains 14:32 from AI are the early adopters the 14:34 people who are late adopters to AI will 14:37 not have the same productivity that the 14:40 that the early adopters do because by 14:42 the time the late adopters get around to 14:43 it uh you know everybody else has 14:45 already adopted okay so getting back to 14:48 inflation how does it affect inflation 14:50 well so what happens is the the Canilian 14:53 effect or Canton effect or whatever it's 14:55 called um you know again it means you're 14:59 you're better off if you're closer to 15:01 the money printer so those people are 15:03 harmed meaning they have less purchasing 15:05 power they're not actually harmed they 15:06 just you know the they don't get free 15:08 money anymore under a Bitcoin standard 15:10 um so those people you know are they 15:14 lose purchasing power and the Bitcoiners 15:16 gain it prices in US dollar terms do 15:20 rise over time on a Bitcoin standard but 15:22 that is because the value is not gained 15:24 so that's going to happen anyway and 15:26 whether people move to a gold standard a 15:28 Bitcoin standard any standard you move 15:31 to that does not involve um you know 15:34 somebody magically money printing uh is 15:38 going to result in prices rising and the 15:40 existing system that does involve magic 15:43 money printing in prices rising so you 15:45 have to look at what prices are rising 15:47 the prices are not rising as measured in 15:50 ounces of gold prices are not rising as 15:53 measured in Bitcoin so on any all of the 15:57 prices in the world are already falling 15:59 over time as measured by scarce money 16:02 the only reason the prices are rising is 16:04 because they're measured in US dollars 16:06 that are not scarce so as we move to a 16:08 hard money system um the US dollar 16:11 prices will continue to rise but that is 16:13 not the fault of Bitcoin or of gold or 16:16 of any sound money that is the fault of 16:18 the US dollar and the people who control 16:20 it because they will not stop printing 16:22 money and that's just going to keep 16:23 happening so uh back to the original 16:25 thesis is does Bitcoin cause inflation 16:28 the answer is no uh it shifts purchasing 16:32 power away from the money printer and 16:34 toward the adopters of new technology um 16:38 it shifts that purchasing power but it 16:40 does not Bitcoin does not increase 16:41 aggregate purchasing power in the near 16:43 term it does in the long term because 16:45 the economy works way better on a sound 16:47 money system um so and will prices in US 16:52 dollar terms rise under a gold standard 16:55 or under sorry I should say under a gold 16:58 standard where gold is not tied let me 17:01 back up most people think gold standard 17:03 means the US dollar is based on gold so 17:04 let me use my words more carefully will 17:07 the prices rise as measured in ounces of 17:09 gold no will the prices rise as measured 17:13 in Bitcoin no will the prices rise as 17:16 measured in US dollars yes unless the US 17:20 dollar is tied to gold or to bitcoin or 17:22 to something scarce so as long as uh the 17:25 uh dollars are not tied to something 17:27 scarce the prices will rise in dollar 17:30 terms but again that's not a problem 17:32 because all you have to do is switch to 17:33 a a sound money so that doesn't apply to 17:36 you so if somebody said "Yeah but as 17:38 Bitcoin's purchasing power increases the 17:40 US dollar cost of everything is 17:42 increasing." I would say "Yeah there's a 17:44 very simple solution to that whoever has 17:46 a problem with that should switch to a 17:48 Bitcoin standard because then their 17:50 prices are falling with the rest of us 17:52 so um it's it's the same way again with 17:54 AI somebody said "Well this is not fair 17:57 it's uh you know my friend who hates AI 17:59 keeps having a harder time making ends 18:01 meet." I would say "Yeah that's going to 18:04 keep happening if you don't adopt AI and 18:06 everybody else is then it's going to be 18:08 harder and harder for you to make 18:10 money." And there were you know the 18:12 response would be "Well that what is my 18:14 supposed to do?" The answer is 18:17 like it's not hard if if if your life is 18:21 getting harder to live because other 18:23 people are adopting new technology the 18:25 answer is not to stop the new technology 18:28 the answer is to adopt the new 18:29 technology by the people who are having 18:31 a hard time living on the old technology 18:34 so if people are having a hard time 18:35 making ends meet 18:38 using US dollars because the prices keep 18:40 going up in US dollars the solution is 18:43 well why don't you change to the 18:44 technology that doesn't be you know 18:47 inflate that way that's the solution so 18:50 if you're getting left behind by AI get 18:52 on the AI train if you're getting left 18:55 behind because the whole world switched 18:56 to computers and you're stuck using 18:58 paper systems the answer is switch to 19:00 computers like that is the answer and if 19:03 the answer is you're getting left behind 19:05 because the US dollar price of 19:07 everything is rising the answer is stop 19:10 using the US dollar as the way you price 19:12 things use Bitcoin so that your prices 19:14 start falling like that's how all 19:16 technology works that's not unique to 19:18 Bitcoin that is the way all technology 19:19 works is the answer is you know get on 19:22 the train and the faster you get on the 19:24 train you know the easier it is to uh to 19:26 keep up i'll make one last point one 19:28 second 19:32 all right so there's an important 19:33 concept that's hard to understand but 19:34 worth thinking about which is there's a 19:37 famous saying that when the money is 19:39 plentiful the goods and services are 19:42 scarce and when the money is scarce the 19:45 goods and services are plentiful okay so 19:48 let me give a you know very brief what 19:50 that means what that means is the more 19:53 money you print the poorer everybody 19:55 gets so look at every country Venezuela 19:58 Turkey you know Argentina before Javier 20:01 Malay every country where the money is 20:04 plentiful meaning they're printing lots 20:06 of it is very is getting poorer by the 20:10 day so if money printing made people 20:13 wealth wealthy the wealthiest countries 20:15 would be Zimbabwe Venezuela uh Cyprus 20:19 like these all you know these countries 20:22 are in a horrible way with extreme 20:24 poverty and everybody having a really 20:26 tough time and the reason is because the 20:29 money is plentiful the money is 20:30 plentiful so the goods and services are 20:32 scarce because you can't run an economy 20:35 where the measuring stick of value is 20:38 constantly being inflated the same way 20:40 you cannot build buildings if the 20:42 measuring stick of distance and space is 20:46 constantly being inflated and it's the 20:48 same way you cannot run an economy if 20:51 time you know let's say the government 20:54 woke up one day and said the problem is 20:56 there's not enough hours in a day so 20:58 from now on every single year we're 21:00 going to add one hour to the day it 21:03 would throw the entire system into chaos 21:06 productivity would drop massively as a 21:09 result of the government trying to add 21:12 time to the day by defining the second 21:14 as 70 seconds instead of 60 or defining 21:17 a uh a uh a day as 25 hours instead of 21:21 24 it would throw everything into chaos 21:23 night and day would all get mixed up 21:25 because you know the sun would start to 21:27 set at the 24hour mark but the 21:29 government would have mandated that the 21:31 day was 25 hours and so you know if we 21:34 end up working during currently 90 it 21:37 would be chaos so if time is plentiful 21:40 productivity is scarce if money is 21:43 plentiful goods and services are scarce 21:46 if distance is plentiful it gets hard to 21:49 travel if measurement is plentiful it 21:53 gets hard to build things you have to 21:55 have a finite unit of measure of time of 21:59 energy of space of value and Bitcoin is 22:03 that measure of value so does Bitcoin if 22:07 everybody got rich on Bitcoin does their 22:11 does that mean inflation no it just 22:13 means that the the US dollar price of 22:15 everything is rising but that is not 22:18 inflation as a result of people having a 22:21 hard time buying things that is just the 22:23 purchasing power shifting from US 22:26 dollars to Bitcoin and the same thing 22:28 would happen if we went onto a gold 22:30 standard that was not connected to the 22:31 US dollar if we started measuring 22:33 everything in um ounces of gold the same 22:36 thing would happen the prices in ounces 22:38 of gold would go down just like they're 22:40 going down in Bitcoin but the uh the 22:42 prices in US dollars would go up but 22:44 again I guess I don't call that 22:46 inflation uh in the same way uh the US 22:49 dollar is going to lose purchasing power 22:50 no matter what you do i mean that's 22:51 inevitable routines 22:54 because they're never going to stop 22:55 printing money the question is do you 22:56 stay on that standard or do you switch 22:58 to a standard where that is not 23:00 happening to you so complicated issue 23:03 i've attempted to massively oversimplify 23:04 it sorry for the where the areas where 23:07 I'm not exactly technologically and uh 23:10 economically precise due to the 23:12 complexity of the issue but hopefully 23:14 this was still helpful thanks everyone