Public Finance – Agapuram Policy Research Centre

Bitcoin’s Achilles’ Heel

Bitcoin’s Achilles’ Heel Bitcoin’s Achilles’ Heel by Shanmuganathan N December 3, 2025 Indian Economy, Public Finance, World Economy While almost all market participants have an opinion on the value of Bitcoin, or the lack thereof, the most vocal proponents for both sides of the argument have come from the same ideological community of Laissez-faire Economists/Libertarians. To that extent, I will be drawing on the work of Rothbard, Menger, and Greenspan in this article. The objective is not to convert the Comrades or the Keynesians. Perhaps ironically, and to paraphrase Greenspan, “They (comrades/keynesians) seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that Bitcoin does not have the required monetary characteristics. And a restraining force on the reckless spending habits of government, it cannot be”. Trump, with his “Big, Beautiful Bill,” would not be embracing Bitcoin if it would. Let me start with the conclusions, and the rest of the article is a praxeological explanation of why it is indeed the case. Bitcoin’s Achilles’ Heel, as I have captioned it, is not the lack of widespread adoption as a monetary medium, as one might expect. It is the lack of any non-monetary utility whatsoever that disqualifies its usage as a monetary medium. Even if Bitcoin is adopted by a few countries as a medium of exchange, either through legal tender laws or by the willing use of market participants, it would ultimately fail the test of “desirability.” The Origins of Money The society transitioned from a direct exchange (barter) to an indirect one (using a medium of exchange), as it was more efficient from a transactional standpoint. It permitted greater, easier, and granular exchanges as compared to the prevailing barter system. Consequently, the division of labour could be greater when the medium of exchange was more “marketable” as compared to direct exchanges. The entire process did not originate through an overnight discovery, but a gradual transition of members accepting and using the medium of exchange for conducting their transactions. This medium of exchange had to be a highly valued good under the barter system before it became accepted for its monetary value in indirect exchanges. Or, in other words, the monetary property of a commodity was a consequence of widespread non-monetary utility within a community. It couldn’t have been otherwise. Many textbooks would define money as a “medium of exchange” and a “store of value” (i.e., retains purchasing power). However, as readers would realize, a good medium of exchange would also be a store of value. Greenspan summarizes it best in terms of the advantages of moving from a barter system to using money as a mechanism for conducting transactions. Reproducing his quote from Gold and Economic Freedom, “The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.” While all commodities possess varying degrees of acceptability as a monetary medium, it was the non-monetary utility that determined their widespread market acceptance for monetary purposes. Literally hundreds of commodities have been experimented with as a medium of exchange in the free markets, and only three have met the market test across countries and for extended periods of time. This is depicted in the table below. So, why did society start using wheat as a medium of exchange and subsequently transition to iron/copper, and eventually gold/silver? Once again, we turn to Greenspan for a pithy summarization “…the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe, where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.” So not only should the object used as a medium of exchange have widespread non-monetary utility, but it should be a very highly desired commodity as well. The transitions over thousands of years reflect this, as increasing productivity, induced by the specialization of labour, turned what were once luxury items (e.g., wheat, iron, and copper) into basic, everyday goods. Why only Gold / Silver? While societies have experimented with hundreds of commodities, we eventually settled on gold/silver, as they best met the requirements desired of money. The authors mentioned in the beginning (Rothbard, Menger, and Greenspan) have extensively documented the rationale, and a summary table is included below. While desirability (i.e., a luxury good on account of its non-monetary utility) has been expanded earlier, a brief overview of the other four properties is provided below: Durable: An ability to retain its essential property over prolonged periods of time. Gold and Silver, even under the most corrosive conditions (e.g., the ocean floor), retain their essential properties over thousands of years. While proponents have argued that bitcoin is durable (as it is nothing more than an algorithmic token), durability refers to not merely the extended physical/virtual existence but the continued desirability of the object over that time period. Even assuming some non-monetary utility (i.e., desirability) is found for bitcoin in the years ahead, how can we remotely suppose that a better algorithm will not come along that will serve the same purpose better than bitcoin? Divisible: An ability to subdivide into tiny units, with the divided unit retaining its fractional value of the whole. While gold can be divided into units of 0.001 gram with the unit retaining its value by

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Gold’s Price Rise – Three Perspectives

Gold’s Price Rise – Three Perspectives Gold’s Price Rise – Three Perspectives by Shanmuganathan N November 14, 2025 Indian Liberals, Public Finance, World Economy Gold’s rise over the last couple of years has been meteoric to say the least. While the media has largely overlooked the move, there have been occasional discussions on why the uncertainty surrounding Trump’s tariffs and geopolitics has led to a rise in gold prices. These narratives overlook the massive tectonic shift underneath from an economic perspective. Unless one views the events with knowledge of Austrian Economics, forecasters will likely miss the action that lies ahead. If one were to go by the US Government numbers (propaganda would be a better word – but that’s a discussion for another day), gold’s rise makes no sense – the US GDP growth is hitting nearly 4%, price inflation is on the decline, and US unemployment is near all-time lows. If this were truly the case, gold prices should not have doubled to over $4,000/oz in the last two years. However, let us return to the numbers later. Let me begin with an overview of the three prevailing perspectives on gold: Keynes’s Barbaric Relic, the Neo-Keynesians, and the Austrian Economists. I. KEYNES’S “BARBARIC RELIC” John Maynard Keynes, wrote “The General Theory of Employment, Interest and Money”, in 1936 and referred to gold as a Barbaric Relic in his thesis. In one form or another, Keynesian economics has been widely adopted and built upon over the subsequent decades, far exceeding the wildest dreams Keynes might have had. So much so that it would be (almost) appropriate to say, “We are all Keynesians now” – a quote attributed to Milton Friedman. Keynes suggested, in his work, among other things, the use of fiscal and monetary policy to manage business cycles extensively. From a Monetary policy perspective, the idea was to lower the interest rate during a recession to stimulate business activity and to increase the interest rate when price inflation is too high. How many times would we have heard this simplistic, and in fact naïve explanation, over the last few decades by Central Bankers, Economists, and commentators? From a fiscal perspective, Keynes’s suggestion was to run deficits during a recession and to use the surplus during the good times to pay down the deficits. Needless to add, once an intellectual justification (albeit a flawed one) was provided in favour of deficits, Governments never have the incentives to balance the budgets. For the record, the US Federal Government has not had a single year of budget surplus since 1971 (not an “accounting surplus”, but viewed as a decrease in the National debt). But what has gold got to do with the above fiscal and monetary stimulus? As Greenspan wrote in Gold and Economic Freedom, “Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process”. Suffice it to state at this juncture that Gold limits the deficits as well as the manipulation of interest rates. The total accumulated National Debt of the US government between 1789 and 1971 was less than $400 billion. In contrast, the US has run a higher deficit every quarter for the entirety of this decade so far, with the pace of addition only increasing over time. Gold is an insurmountable barrier to even a very rudimentary implementation of Keynesian ideas of fiscal and monetary stimulus. Classifying it as a barbaric relic was a very self-serving argument for Keynes. However, in some sense, I find a commonality between Keynesians who call gold a barbaric relic and some Austrian economists who refer to Bitcoin as fool’s gold. In much the same way, the former believes gold’s price will crash in the years ahead, I think Bitcoin and other unbacked crypto prices will crash. Perhaps alongside the AI bubble bursting. With one difference in the above commonality, the key distinction between gold and bitcoin is that the latter has no non-monetary utility (i.e., Desirability in the D3C2 table below), a very fundamental requirement of qualifying as money. Barbaric Relic Summary: It would be tempting to term this as “Buffett Blindspot,” especially given the number of his followers who have used his observations on gold to classify it as a useless asset. Buffett’s views are, however, far more nuanced than that. While one doesn’t have to be Buffett to recognize that Gold has far outpaced the DJIA since Aug 1971 (a 115-fold return for gold as compared to a 55-fold return in the DJIA), I suspect nothing short of hyperinflation in the US dollar will eradicate the blind spot of this crowd II. THE NEO-KEYNESIAN ECONOMISTS A nagging piece of evidence against the Barbaric Relic Theory has been the rise in gold prices over the decades. While it could be ignored/dismissed as the proponents of Keynesian Economics do, most Neo-Keynesians find it convenient to attribute non-monetary reasons to explain away surging gold prices. The reasons for the justification date back to 1968, when the U.S. Senate Committee on Banking and Currency held hearings on legislation to eliminate the gold cover, i.e., the legal requirement that a fractional 25% of the issued Federal Reserve Notes (i.e., the paper U.S. dollar) be backed by gold. Parallel to the Senate hearings, the House also conducted similar hearings, with the Chairman Wright Patman declaring that “the US Dollar is stronger than Gold”. The Treasury members, Federal Reserve officials, and noted Economists (including Milton Friedman) argued in favour of the bill, terming it a pro-dollar move. In reality, it was the final straw in abandoning the Gold Exchange Standard, and Nixon’s closing of the Gold Window in 1971 was a foregone conclusion after the 1968 vote in favour of removing the Gold Cover. The 1971 removal of the Gold-Dollar exchange rate was a historic move whose significance will be recognized in the years ahead. However, at the time, many officials/economists argued that it was the Bretton Woods agreement and the US Dollar that