Derek Magill

I haven’t written much about Bitcoin recently but my review the other day of Saifedean Ammous’ silly book was, for whatever reason, enough to kickstart my interest in writing a few more pieces.

This essay is about why Bitcon Core “thought leaders” like Jimmy Song are economically illiterate central planners — the real crypto Keynesians — and why their arcane, throwback talking points deserve little more than ridicule.

In order to understand this, we can look back to the 1930’s at the height of the Great Depression. You can pick a whole host of examples from which to choose, but I’d like to focus on tart cherries.

Crop Destruction and the CIAB

One of the wacky carryovers from Roosevelt’s New Deal legislation is an organization called the Cherry Industry Administrative Board, or the CIAB.

The CIAB was created during the Great Depression by protect the interests of tart cherry farmers. If this sounds like a comically bad idea, that’s because it was, but they in fact still exist today. The argument at the time, and now, is that overproduction of cherries would lead to a fall in prices and put farmers out of business.

The idea was to create quotas on the numbers of tart cherries that could enter the market at any given time, and when too many cherries were produced, the government would order the farmers to literally dump their cherries on the ground, often to the tune of tens of millions of pounds of cherries, all in the name of keeping prices up.

Of course, like any government policy, this had hilarious and sad consequences. Cherry farmers were put out of business because they couldn’t offload excess product. Stores were chronically understocked of tart cherries because central planning bureaucrats turned out to be totally unequipped to determine the proper amount of tart cherries required to fill demand. Grandmas were unable to make pies!

What was in effect an indirect form of price fixing to raise prices and protect farmers had often the opposite effect of crushing small farmers and leaving Thanksgiving dinner tables pieless.

Does this sound familiar yet?

Bitcoin Core as the CIAB

Before I continue, I’d like to borrow a quote from Murray Rothbard:

It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.

Indeed, I don’t object to Bitcoin Core people like Jimmy Song being economically inept. I object to the fact that they slander Bitcoin Cash users like Roger Ver as “crypto-keynesians” while not understanding that they are the real crypto-keynsians.

See, if we take our “cherry farmers” and replace them with “miners,” and we take the “price of cherries” and replace them with “transaction fees,” and we replace the “CIAB” with “Core Developers,” we have an identical situation that played out in the 1930s playing out in Bitcoin Core today. [1]

The main argument pushed by Song and others is that fees need to be high (no number is ever really given) to sustain miners after the block reward goes away, and that therefore we must limit block space below what we’re technically capable of doing to stimulate higher and higher fees. Block space should not be able to flood the market because that would lower fees and harm the system. Does this sound familiar now?

What we have being advanced from Core today is no different than the ridiculous arguments advanced by the government central planners to justify quotas on tart cherry sales in the 1930s. Core developers like Song want to centrally plan higher fees on the Bitcoin network via artificial block size limits instead of letting natural market mechanisms determine block size and transaction fees, just like the government stupidly wanted to centrally plan tart cherry prices instead of letting the market determine production levels.

And while it’s bad enough when the government does this, at least they don’t pretend to be pro-market Austrians. They’re open about their biases whereas Song and others do all of their price fixing under the guise of free markets.

Predictably, this price fixing had disastrous consequences for Bitcoin. Businesses dropped Bitcoin as a payment method left and right. The network became backlogged as it turned out that Core Developers were totally unequipped to determine the proper transaction throughput capacity, and daily usage has not recovered since.

One wonders whether they have ever read their history or economics.

The Real Crypto-Austrianism

If Song and others are Keynesians, where are the Austrians?

They all moved to Bitcoin Cash. Contrary to what people like Song claim, the Bitcoin Cash position is not that we need to stimulate transactions. Rather, it’s that Bitcoin blocks should not be centrally planned by a group of developers.

To quote from Hayek’s Use of Knowledge in Society,

The problem is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.

Big blocks do this. Block size should be as open as technically possible in order to allow the market to determine the proper size of blocks, cost of fees, and transaction throughput. Just as farmers and consumers know better how many cherries need to be produced, individuals and miners know best how much block space must be produced.

To argue otherwise is, in a word, crypto-keynsianism.

 

[1] There are actually a few other reasons why they are Keynesians, perhaps the most obvious being the they want to encourage hoarding of Bitcoin via high on-chain fees, which is very much similar to government encouraging saving or spending via interest rate controls. That might be the subject of another essay.

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