The Re-Solution of the Orientation of George Selgin’s Ruritania and John Nash’s Ideal Money: Addressing the Problem of Bitcoin’s Finite and Inelastic Supply

From Bailments to Fractional Reserve Banking

Selgin divides his writing into four parts and the first three go from the “storing” of people's wealth for safekeeping to the CONSENSUAL lending of the savings in return of interest to be earned:

Where Fractional Reserve Banking Becomes Possible

Such a system evolves to have transferable receipts:

Thinking about Bitcoin

This section is a little tricky but I can explain it if we think about bitcoin as the commodity money. If the economy and population grows there would be an increase for the new paper money that has evolved (to represent claims to the underlying stored bitcoin or commodity money). This becomes a service to be filled in regard to matchmaking people’s savings to investments through loans etc.

What is Fractional Reserve Banking?

That is the benefit of fractional reserve banking:

From Commodity Money to Paper Money to Clearing Houses

The commodity money births an evolution in transferable receipts creating a greater efficiency and this efficiency evolves again. Competition and the usefulness of banks accepting rival banks paper notes inspires the birth of a real “paper money” standard.

“From Clearinghouses to an Ideal Money Equilibrium”

George defines an ideal money equilibrium with two conditions (on the assumption that ”free-bank liability issues run up against increasing marginal costs” which he means to show later):

Another Consideration Relevant to Bitcoin

Considering a finite supply of commodity money:

A Relevant Side Note

On Say’s Law

This monetary equilibrium is an expression of a money supply which perfectly elastically serves the demand for it:

In Comparison to John Nash’s Ideal Money

The orientation of Nash’s Ideal Money is slightly different but it is because it does not function on the caveat that central banking does not arise or exist. Instead Nash’s argument is built on that premise that it has arisen and does exist.



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