Easy and Hard money

In his groundbreaking book The Bitcoin Standard, Saifedean Ammous introduces the concept of easy and hard moneyand how stock to flow is an effective barometer of how hard money is.

Stock to flowis a ratio that compares the new issuance of a commodity or money with the existing stockpile. A low stock to flow indicates an easy money. A high stock to flow indicates a hard money.

The dollar has a relatively low stock to flow ratio. It is easy for the Federal Reserve to add a large amount of dollars in proportion to circulating supply. In 2020, the Federal Reserve printed 18% of the supply. So out of every five, nearly one dollar was newly minted. In just a decade, the dollar supply hasdoubleddue to irresponsible money printing. The only limiting factor to the incoming flow of dollars is the desire for the government not to hyperinflate the currency.The US dollar is the perfect example of an easy money.

On the other side of the coin,gold has a high stock to flow ratio, because the stock of gold that exists above the surface of the earth is considerably greater as a proportion to what gets dug up and is added to the supply over any period of time. For this reason,gold is a hard money.*

Easy money like the dollar has no tie to real-world energy expenditure. Since 1971, the dollar has not been backed by any scarce resource that requires energy to obtain. All fiat currencies are just numbers on a screen. A billion dollars can be issued with the same physical effort of a hundred.

**Who stands to gain and lose by easy money?**Generally speaking the state, as issuers of fiat money, enjoy the privilege of being able to manipulate the money as it allows them to quickly and without fuss fund their capital intensive propositions. The fiat issuing central bank is duty-bound by the state to create new money to buy government debt, a process known as money printing. The state would feel no obligation to their citizens like they would if the source of money was tax receipts.

**Money printing causes debasement,**which is what makes tangible goods so much more expensive. More units of currency in circulation chasing the same amount of goods. The inflation caused by monetary debasement by the hand of government is often described as a hidden tax.

Because of inflation, regular tax paying citizens stand to lose by holding easy money like fiat currency, and gain from holding hard assets like gold or bitcoin. Gold because it’s a scarce metal, bitcoin because it’s backed by immutable computer code and the shared incentives of the decentralised network of nodes, who ensure the hard cap of 21 million coins is never breached.

Bitcoin is digital gold, a digital hard money for the 21st century.

* Introducing the aforementioned 18% of the supply would require a ramp-up of mining efforts that would be unrealistic without some kind of technology that only Douglas Adams could imagine — a machine at the hands of the Vogons that could split the earth open like cracking an egg and suck out all the nuggets of gold whilst humanity is incapacitated by their dreadful poetry.