The author reflects on an event from the early 1970s, likely 1971 or possibly 1972, during his kindergarten years at the age of five. The educational staff implemented a behavioral incentive system wherein a large display board featured the names of all students. Positive behavior, characterized by kindness, helpfulness, or politeness, was acknowledged with a black dot next to one’s name, while misbehavior resulted in a red dot. This transparency in the system effectively motivated the children to adhere to established kindergarten norms.
At one point, the introduction of a tangible reward—a small piece of fabric—was instituted for students exhibiting exemplary behavior. From the perspective of the group, this piece of fabric held significantly more value than merely accumulating black dots on the board, as it conferred a status that could be proudly displayed even while playing in the sandbox.
Subsequently, a trading system emerged among the children. A piece of fabric could be exchanged for a bucket of sifted sand, and two pieces could procure a piece of candy. This development allowed the children to trade their efforts (in sifting sand) for items perceived as status symbols or treats.
However, the dynamics shifted dramatically with the arrival of a new teacher who altered the distribution rules for the fabric scraps, making them more readily available. As a result, students found themselves needing four pieces of fabric to obtain a piece of candy instead of the previous two. This led to discontent among certain students, who felt that their once hard-earned fabric scraps had lost value, prompting demands for increased quantities.
Over time, the fabric scraps became so freely distributed that they lost all value; they were encountered everywhere, rendering them worthless. The author experienced first-hand the phenomenon of hyperinflation at the tender age of five.
This anecdote raises a pertinent question: what relevance does this experience have in the context of Bitcoin?
In this scenario, the rules governing the distribution of fabric were simply modified by the new teacher, who aimed to appease the students’ complaints. In stark contrast, the fundamental principles of Bitcoin are immutable.
Fiat currencies, while similarly governed by established rules, lack the critical oversight necessary to ensure compliance. For instance, the European Central Bank is prohibited from directly financing governments through bond purchases, yet it has routinely breached this guideline without consequence. The question remains: who would intervene to enforce these rules?
Another illustration is found in the Maastricht Treaty’s Stability and Growth Pact, which mandates that EU member states maintain budget deficits below 3% of GDP, coupled with specific exceptions. Yet, from 2000 to 2010, this stipulation was repeatedly flouted, not only by Greece but also by larger economies such as Italy, France, and Germany, without any sanctions being enforced. Although the Maastricht Treaty provides for serious consequences for rule violations, none have ever been applied.
While this may have appeared politically expedient at the time, it serves to highlight the inherent difficulty in adhering to established rules—akin to New Year’s resolutions that are often abandoned shortly after being made. The inevitable outcome of such inflationary practices is the depreciation of currencies, leading them towards worthlessness. For instance, the U.S. dollar has lost approximately 97% of its value over the past century, a fate similarly experienced by the British pound, once representative of a pound of silver. This decline is attributed to the incessant creation and circulation of new dollars, euros, or pounds.
The result is uniform: when items such as the fabric scraps lose their value, it is the holders who endure the loss of wealth.
Conversely, Bitcoin stands apart. Its rules are fixed, with no central authority capable of altering the system.
Discover more in Bitcoin: The Honest Money!
The excerpt presented herein offers merely a glimpse into the exploration of how inflation erodes monetary value, savings, and time within the pages of Bitcoin: The Honest Money by Dr. Alex von Frankenberg. The paperback is currently available for acquisition.
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