Schiff vs. Mallers: Who Needs Bitcoin?

On Thursday, Peter debated Jack Mallers, the CEO of Strike, a Bitcoin payment system. They cover what makes a good money, their future outlooks for both gold and Bitcoin, and what would make Peter change his mind on the cryptocurrency. Throughout the debate, Peter explicates the Austrian School of Economics’ theory on the origin of money and argues from it that Bitcoin can’t function as money.

Historically, gold has functioned as a check on the government’s ability to inflate the currency. So long as paper notes can be redeemed for gold, the metal limits how much new currency can be printed.

“Gold keeps government honest. It’s like the chaperone at the high school prom. But you know, the kids want to get rid of the chaperone because they want to do stuff that the chaperone won’t allow. So in order for governments to promise something for nothing and to run big deficits and create inflation, they needed to sever the link between their currencies and gold.”

In fact, the printing of paper money originated with private companies that would give and accept money notes as long as they were redeemable for precious metal:

“Remember, before governments issued paper currency, private companies issued their own note currency backed by gold. In fact, going back to the old blacksmith and warehouse receipts, people found that it was easier to negotiate a receipt for gold than to go to the blacksmith and actually get their gold.” 

Peter traces the development of precious metals as money:

“Gold is not valuable because it’s scarce. I mean, it has a high price because it’s scarce, but its value is not from its scarcity, but  from its properties as a metal. Gold can do things that other metals and other materials can’t do.”

Gold’s non-monetary uses (e.g. jewelry) made it valuable as a commodity, and people figured out it was an effective medium of exchange:

“If you go back to barter, the original idea behind barter was so that when people traded, they would trade one good for another good. But in terms of money, it wasn’t a good that they necessarily needed, but it was a good that they could trade with somebody else.”

Crucially, gold could not have become money if it wasn’t initially valued for its intrinsic uses. Here Peter echos economist Ludvig von Mises:

“We know gold has value. It had value before it became money. If it didn’t have value, it never would have become money. Gold’s been used for thousands of years. It was used before it was money as a commodity.”

In contrast, Bitcoin (and all cryptocurrencies, for that matter) have never been widely enough to be considered money. Nor do they have a non-monetary use:

“Bitcoin has never been used as money. It’s only existed for a little over a dozen years. But during its existence, it may have been used early on by the black market. …They might have accepted Bitcoin back in the beginning. But it’s not used as money.”

Peter explains how gold could be tokenized and used digitally as money, while still drawing on its long history as the best money humanity has ever discovered:

“Gold can actually function as much better money than it ever has in the past. And it did a pretty good job for hundreds or thousands of years. Because you can take gold, you could tokenize it. And now I can divide it infinitely into tiny little specks. I can send it across the world as quickly. In fact, I can send it faster than I can send Bitcoin. …You can make it very easy for people to transfer ownership of gold. The gold itself doesn’t have to go anywhere. All that has to go is the ownership.”

The world’s central banks testify to gold’s superiority as a money:

“Central banks have been buying gold for years now. They’re accumulating gold. None of them are buying Bitcoin. All you got is El Salvador. That’s the one country that owns Bitcoin. But all the real countries in the world are buying gold.”