Old Laws, New Order: How the Internet Postpones the Hyperinflation Crisis
Money is ancient. The Internet is new. While the principles of money themselves cannot be changed, the advent of web tech infrastructure has caused a drastic imbalance in a system that will eventually right itself. The question is: will you keep your footing in this change, or just become collateral damage? Neglecting to understand this imbalance is tantamount to self-sabotage.
In order to understand this change, we need to understand money. Money is the tokens we use to represent something valuable. We need these representations so that we can more conveniently and efficiently exchange value. Gold and silver only have value because they can buy a certain number of things with real value. Their value only exists in reference to other things and is not inherent.
The stories of pirates stranded on desert islands with nothing but chests full of gold, diamonds and rubies, should teach us this important lesson. On a desert island, there is nothing to buy. Money is tokens, and these tokens are valuable because they can be exchanged for things like land, animals, food, services, guns, and security. Without the ability to buy things with it, money is worthless.
Economic principles are not invented by human beings; they inhere in animal nature. Monkeys and crows can be taught to use tokens to buy food or special privileges and end up fighting over these tokens.
Classical conditioning is the psychological concept that an animal can be trained to associate an unrelated signal like a bell, to a biologically relevant one such as food. Normally, food causes dogs to salivate. But a bell that consistently rings before the food arrives, becomes paired with the biological signal, the food, in the mind of the dog. Soon, the dog can be made to salivate at the sound of a bell even when the food is not present.
Our fascination with tokens can be understood in a similar way. Obsession with the token makes people forget that the token itself is not wealth. The US government, like dogs salivating to bells, has been printing USD at a breakneck pace in order to pay its own ever-expanding bills.
To understand how printing money—creating more tokens—reduces wealth, consider this analogy: if you have five apples, and five tokens, then each apple is worth one token. If you mint five new tokens, then each token now only buys half an apple. The value of each token has been halved by doubling the number of tokens. This is because the value of the tokens is set by the value that it can buy. If, however, you add five more apples, then you have five tokens and ten apples, and each token is now worth two apples. Increasing the valuable thing that can be bought, is what increases the value of the tokens.
Increasing valuable goods and services increases wealth. Increasing the number of tokens decreases wealth.
Web tech infrastructure is the reason that the US printing money at an alarming rate, is not facing the consequences of hyperinflation that one would expect. Web tech infrastructure is any business that adds to the ways in which we can use the internet. It includes things like Paypal, Instagram, Twitter, Stripe, Google, Netflix and Substack. Because web tech infrastructure operates primarily in USD, and new tech is being developed every day by ambitious and intelligent people around the world, value is being created at an astonishing rate that absorbs the effects of hyperinflation. It is the equivalent of minting new tokens at almost the same rate as we add apples to the equation.
Even though all governments have been doing this, it is most relevant to speak about the US government because today, no matter where you live in the world, it is possible to earn in USD. Those who attempt to operate without web tech infrastructure are left behind. Someone who refuses to use or understand web tech infrastructure is like someone who refuses to learn English, use roads, and rejects the reality of the internet today entirely. It is foolishly self-limiting.
Cryptocurrency is another factor preventing us from seeing the effects of hyperinflation despite the constant money printing effects. It is absorbing billions and trillions of dollars of fiat currency every day as people invest using USD into ethereum, bitcoin and all of the other coins. This means that as USD is printed, tokens are being absorbed into newly mined cryptocurrencies.
The inescapable and uncomfortable reality is: even cryptocurrencies are ultimately tokens. This means their value is also referential and depends on the goods and services that they can buy. Those investing in cryptocurrencies will eventually attempt to use it to purchase things of actual value and this is where this ever-enlarging bubble of inflation will explode like a supernova.
USD has tied the whole world together and once we are tied like this, decisions made by the US government will have consequences for the whole world. This means that the postponed consequences of hyperinflating USD will catch up not just with the US, but the entire world. All. At. Once.
Those who are earning and saving in USD by trading their time for their money today, are enormously vulnerable to the government printing money to pay its own expenses. The government writing a blank cheque to itself devalues the savings of ordinary people. Conservative talking heads with a materialistic mindset about the world will say that this is "fair" because people who do something so stupid as craft the very things that we use in our day to day lives deserve to suffer for choosing not to build Instagram or Twitter. Nurses, teachers, carpenters and electricians are not valuable to society in a model where governments writing itself a blank cheque can be protected (albeit indirectly) by tech companies worldwide.
The latest Polymarket trend predicts inflation of 0.6% in the next few months. This number, close to 0, now makes complete sense. Despite the net value of almost zero, there is a significant, worldwide devaluation of currencies.
Every system eventually rights itself. Web tech infrastructure and cryptocurrencies may have absorbed a lot of the effects of inflation for now, but the dam has cracks in it and the deluge will be enormous. The money you save today may not be enough to buy you food, shelter and protecting in the future because of massive hyperinflation. Invest intelligently. Build skills that can scale. Participation in web tech infrastructure and making money from it is an important way to insulate yourself from the damage that ordinary workers will incur. Ensuring access to food and security independent of institutions insulates you from their inevitable failure.
There is much to be learned from ancient stories. Build your ark.
You are an incredibly talented writer.
In the recent past, productivity mitigated the effect of the printing press. Once productivity fell the effects of inflation is felt. Government in control of currency is a dangerous thing. It was not always so. Great exposition.