The Nashian Re-Solution to Saifedean’s Bitcoin Standard and George Selgin’s Complaint For an Elastically Supplied Domestic Money

On Fractional Reserve Banking

This is the important part of the argument where we can understand why the two views seem irreconcilable but also immovable. George is pointing to the local view and explanation that if there was a great deflationary spiral it would be quite detrimental if the banking system could not be inspired to counter the looming credit contraction . The basic idea is that the gold supply was more elastic than bitcoin and did not impose such a deflationary mandate as a Bitcoin standard would:

What is the Fractional Reserve Banking debate All About?

Let’s look at the common accepted definition of fractional reserve banking from wiki:

A Re-turn and Re-visit to Ruritania

The resolving point can be found in Selgin’s thought experiment about Ruritania which is a narrative of an economy that evolved from a free market (and retained that freeness). In his explanation of how a free market would evolve the lending practices self optimize and the demand for money is perfectly and properly served.

A Central Banking Re-solution

A Bank of Canada Research paper I recently did a review and summary on is also very relevant. The paper explains that having an internationally held settlement unit creates a floor and a ceiling by which a monetary authority can influence money supply using monetary tools:

The Nashian Orientation: Re-Solving Selgin and Saifedean

Nash’s work highlights the difference between a locally observed inflation rate and an international (or Olympian or Nashian etc.) view. That there could be observed a local value trend of X while the international valuation of that currency is not X.

An Ideal Money Standard

I wrote the first line to the wiki entry for Ideal Money but the second line was not written by me. I could not get the author to explain how they came to understand this but I basically agree with it (although the Helen Rey explanation I link to later seems more accurate and up to date):

On Mismatched Maturities

I intuitively understood Helene Rey’s talks about how the mismatch in balances of the US in regard to the global economy has set up the world for a potential global run on the US as a world bank:

Where Saifedean and Selgin Agree

It is a simple re-solving point that both Selgin and Saifedean agree that free markets are self optimizing. Saifedean believes there will be no fractional reserve banking but I think what he really means is that banks won’t be able to increase the credit supply to a point where the local money used is observed to be inflationary from an international orientation (ie otherwise why not just hold bitcoin?). George is simply arguing that the Fed would need to be able to increase its money supply if it were to hold a strong international valuation comparable to Bitcoin’s expected deflationary nature.

What is Nick Szabo’s view?

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