If Everyone Started Getting Rich from Their Bitcoin Investments, Wouldn’t That Cause Inflation?

00:02 hey everyone someone asked “What would
00:04 happen if everybody started getting rich
00:07 off of their Bitcoin investments would
00:09 that not cause inflation throughout the
00:11 entire economy?” Uh the short answer is
00:13 no but the uh the longer answer is
00:16 complicated which is why I’m doing a
00:17 video about it okay uh
00:22 in inflation is caused by a debasement
00:26 in the moni money supply when a money is
00:29 used as the measuring stick for the
00:31 economy and then whoever controls that
00:33 money prints too much of it that is what
00:36 causes inflation uh as Milton Freriedman
00:38 said inflation is always and everywhere
00:42 a monetary phenomenon that means if you
00:45 ever see inflation ever you kn you know
00:48 that I either someone is currently
00:51 printing too much money or that in the
00:53 past someone printed too much money and
00:55 it’s just taken some time to see the
00:57 effects of that money printing okay so
00:60 what happens when let’s say the price of
01:02 Bitcoin goes from $102,000 per coin
01:05 where it is this morning um 102,000 to
01:09 204,000 let’s say it doubles and the
01:11 total value of all the bitcoin in the
01:13 world goes from $2.1 trillion to $4.2
01:16 trillion okay what so what you got to
01:20 understand is the ratio of all of the
01:23 monies in the world and the ratio of all
01:25 the goods and services has to be has to
01:28 balance so as uh and the reason for that
01:32 is money the the purchasing power of
01:35 money is expressed in its ability to buy
01:37 stuff and the amount of stuff that could
01:40 be bought which is in economic call uh
01:43 terms it’s called goods and services
01:45 although the more sort of easier to
01:47 understand would be products and
01:48 services products meaning something you
01:50 can buy that’s a physical thing or a
01:52 digital thing or something and services
01:55 being services that someone provides for
01:58 you that you pay for for example
02:00 somebody serves you at a restaurant that
02:02 is service the the the food is a product
02:05 but the uh the service where you don’t
02:07 have to cook it yourself is a uh is a
02:10 service um so anyway so the the the all
02:13 of the money and all of the goods and
02:15 services or products and services have
02:17 to be in balance because the money
02:19 cannot have more purchasing power than
02:21 the goods and services it could purchase
02:24 and the goods and services that could be
02:26 purchased can’t be more valuable than
02:29 the purchasing power of all the money
02:31 that could purchase them otherwise you
02:32 know where does that value come from and
02:34 where does that purchasing power come
02:35 from um and all of this is massively
02:37 oversimplified so for all you economists
02:39 that are listening you know I know I’m
02:42 massively oversimplifying this you know
02:44 for the purpose of making it
02:45 understandable i do understand there’s
02:47 more moving parts to each of these
02:48 things but okay so if Bitcoin doubles
02:52 and it goes you know from 100,000 to
02:54 200,000 and all the Bitcoiners have
02:56 doubled the purchasing power the
02:58 question is where did that purchasing
03:00 power come from if the amount of money
03:03 in the economy and the amount of goods
03:05 and services has to balance and all of
03:07 the Bitcoiners you know are now twice as
03:09 rich that means that came from somewhere
03:12 so where did it come from well it it
03:14 came from a combination the primary
03:16 place it comes from is the people who
03:20 get new money from the government have
03:22 less purchasing power so there’s
03:25 something called uh it’s spelled C A N T
03:27 I L L I O N i’m not sure if it’s the
03:30 Contilion effect or the Canton effect
03:33 i’ve heard people say it both ways i’m
03:35 sure that only one of them is right but
03:37 whether it’s the Cilian effect or the
03:38 Canion effect I think that’s the right
03:40 technical term what it means is whoever
03:43 is the closest to the money printer gets
03:46 the most benefit from and the most
03:48 purchasing power from new dollars so if
03:51 you think about it during the 2008
03:53 recession uh the Federal Reserve printed
03:56 you know the total sort of mining and
03:58 circulation um the M1 I think money
04:01 supply was like $2 trillion and they
04:02 doubled it to like $4 trillion uh
04:05 there’s a bunch of different measures of
04:06 money so the question is well who got
04:08 that extra $2 trillion and the answer
04:11 was that bankers and insurance companies
04:14 and basically all the people who had
04:16 taken too much risk as a result of the
04:19 Fed keeping interest rates for too low
04:21 uh in the mid in the you know early to
04:23 mid 2000s all of those people got huge
04:26 bailouts so a huge amount of money got
04:29 pushed into the economy and the
04:31 purchasing power of those people went up
04:33 first now eventually all of that money
04:36 is going to cause inflation but it
04:38 causes inflation for other people later
04:40 so whoever is the closest to the money
04:42 printer gets the most benefit from new
04:45 purchasing power and whoever is farthest
04:48 from the money printer uh gets the the
04:50 the least benefit from the new
04:52 purchasing power so give me one second
04:54 i’ll explain that
04:59 so let let’s let’s assume that the
05:02 government instead of giving all that to
05:05 you know trillions of dollars to bankers
05:07 and insurance executives who took too
05:09 much risk again in a lot of ways it was
05:11 not their fault they took the risk based
05:13 on low you know low uh interest rates um
05:16 and cheap credit and the Federal Reserve
05:18 was the one responsible for that the low
05:20 interest rates and cheap credit so you
05:22 know essentially they got uh you know
05:25 enticed into their behavior there was
05:27 still bad behavior but a lot of it was
05:29 also sort of enticed into but anyway um
05:32 okay so let’s assume that the government
05:34 instead decided that I was the person
05:36 who should hand out the $2 trillion
05:38 instead of you know bankers and
05:40 insurance company executives and all
05:42 that sort of stuff and let’s assume that
05:43 they did that secretly of course because
05:45 nobody wants to know that I’m the one
05:46 who’s got the $2 trillion that the
05:48 government gave me so 2008 rolls around
05:50 they give me $2 trillion and they say
05:52 “Joel we need you to get this you know
05:54 this money out into the economy go spend
05:56 it as fast as you can.” Well initially
05:58 none of the prices are going to increase
05:60 because nobody knows that this money is
06:02 basically magic funny money that got
06:03 printed out of thin air so for a little
06:06 while I get to go buy stuff at the old
06:10 prices but then over time as I empty out
06:13 the store shelves and I buy stuff and
06:15 all of that over time what happens is
06:17 the prices start rising for everyone so
06:20 the people who are then spending the
06:21 money I gave them to buy their stuff
06:24 they have to buy things that are a
06:25 little bit more expensive and then the
06:27 people who get the money sort of the
06:29 third hand have to buy things that are
06:31 even more expensive than that and it
06:32 it’s like a ripple effect so when you
06:35 throw a big rock into a lake the biggest
06:38 effect is closest to the impact of the
06:40 rock and then it ripples out but the
06:42 farther you get from the rock the less
06:43 effect so it works the same way with
06:45 purchasing power if you drop a bunch of
06:47 new money into an economy or give it to
06:49 a bunch of bankers or insurance
06:50 executives or whatever uh they are going
06:53 to start with the most uh purchasing
06:55 power and the purchasing power they get
06:58 is being essentially pulled in from the
07:01 poorest people who are going to get the
07:03 money last so the canion effect or can
07:06 effect or however you say it is worst
07:08 for the poorest people that are farthest
07:10 from the money printer and it’s best for
07:12 the people that are closest to the money
07:14 printer so if the price of Bitcoin
07:16 doubles and the purchasing power of all
07:18 the Bitcoiners doubles the number one
07:20 place that they are getting that
07:22 purchasing power is from people who
07:24 would otherwise be closest to the money
07:26 printer because effectively purchasing
07:28 power has now concentrated around the
07:31 Bitcoin holders rather than around the
07:34 people who are getting money uh for free
07:36 uh from the government now this uh this
07:40 effect is common anytime there’s an
07:42 increase in productivity anytime a
07:44 company like Google decides to make
07:46 search engines more effective and
07:48 becomes incredibly help uh wealthy and
07:50 you know a bunch of billionaires are are
07:52 born as a result of Google or something
07:55 like that the same thing happens those
07:57 they have a lot of purchasing power and
07:59 it’s a result of human productivity they
08:00 made the world more productive therefore
08:02 the world has more purchasing power um
08:04 you know therefore uh they they do that
08:07 so if somebody gets more purchasing
08:09 power as a result of smart investing
08:11 like buying Bitcoin or as the result of
08:14 making the world more productive but
08:16 like Google and actually buying Bitcoin
08:18 actually does make the world more
08:20 productive as well because as the world
08:21 moves to a a hard money standard a sound
08:24 money standard which is Bitcoin the
08:26 entire economy becomes more efficient
08:28 and so uh part of that purchasing power
08:30 comes from the fact that the economy is
08:32 more efficient and we are on basically
08:35 everybody’s using you know yard sticks
08:37 that have you know 36 in in them instead
08:39 of everybody using you know you know
08:41 rulers and some of rulers have 11in
08:43 measurements and some have 13 which is
08:45 what we’re doing with our current money
08:46 supply so uh so when Bitcoin becomes
08:48 more valuable the people who lose the
08:51 people who would normally get free money
08:53 under the old standard which is you know
08:55 the closer you are to Wall Street the
08:57 closer you are to Washington DC and the
08:60 closer you are to the uh you know the
09:02 Federal Reserve are the people who are
09:04 getting the extra purchasing power
09:06 before inflation sort of eats it up for
09:08 the rest of us uh so those people are
09:10 losing bit uh purchasing power as we
09:12 move to bitcoin the other people who
09:14 have the less purchasing power benefit
09:17 um so the losers are the people who get
09:18 to print the money that’s the losers so
09:21 where does the purchasing power come
09:22 from if you know bitcoin increases in
09:25 value from $2 trillion to $4 trillion
09:28 one it comes from it comes away from the
09:30 people who otherwise would be able to
09:33 magically print money out of thin air
09:35 those are the people who are like the
09:37 losers of the Bitcoin appreciation um
09:41 the people who win less the purchasing
09:43 power shifts toward the Bitcoiners and
09:46 away from the late adopters so everybody
09:49 on a Bitcoin standard eventually wins
09:52 except the people that were getting free
09:53 money from the government as a result of
09:55 you know their proximity to the
09:57 government meaning they could they could
09:58 their they could use their power to get
10:00 the government to give them money
10:02 whether in the form of subsidies whether
10:04 in the form of handouts tax breaks that
10:07 are unique to them or their industry
10:09 that don’t apply to the rest of us those
10:11 are the losers the people who just
10:13 benefit less than the Bitcoiners are the
10:15 late adopters so everybody eventually
10:17 benefits because everybody moves to a a
10:21 you know a yard stick that’s got 36
10:23 inches on it everybody benefits from
10:25 using a measuring system uh you know a
10:27 unit of weights and measures that is
10:29 uniform and that is solid and that you
10:32 know imagine how hard it would be to
10:34 build a house if um if every year uh the
10:38 uh the the the length of a of a ruler
10:40 that is supposed to be 12 in if they
10:42 added a quarter of an inch every year
10:44 and of course the point would be we’re
10:46 doing this to make you wealthy because
10:48 you know everybody’s house is getting a
10:49 little bit taller every year um or I
10:52 guess a little bit shorter if you like
10:54 you know taller if you like you know
10:55 made it less anyway um so regardless if
10:59 you manipulate it you can make it feel
11:01 to people like hey your house is getting
11:03 bigger but the truth is the measuring
11:05 stick is getting smaller um the same
11:07 thing’s happening with money everybody
11:08 feels like the house the price of their
11:10 house is going up and their stock
11:12 portfolio is going up most of that is
11:14 not true your house your house and your
11:16 stock portfolio are mostly not getting
11:19 more valuable the measuring stick that
11:21 you’re using to measure them is getting
11:23 shorter and so you’re like “Wow my house
11:26 you know used to be you know two stories
11:28 tall or one story tall 10 years ago but
11:31 now I you know there’s an extra little
11:33 story in my house.” It’s like no it’s
11:35 just the ruler went from you know 12 in
11:37 to 6 in so now your foot you know
11:39 instead of your house being you know
11:40 whatever 16 feet tall now it’s 32 feet
11:43 tall but that’s only because we changed
11:44 the unit of weights and measures um so
11:47 that’s what’s going on there so uh as a
11:49 result of everybody benefits by moving
11:51 to a sound money standard like Bitcoin
11:56 the only actual losers are the people
11:58 who are no longer able to print free
11:60 money out of thin air and the people who
12:02 are close to those people who get the
12:04 money first those people are the ones
12:06 that lose the purchasing power the rest
12:08 of the purchasing power shipped comes
12:10 from uh late adopters to early adopters
12:13 and but everybody ultimately benefits so
12:15 if somebody said you know if somebody
12:17 said and I’ll get back to the question
12:19 of inflation in a minute here but if
12:20 somebody said if Bitcoin increases from
12:22 $100,000 a coin to $200,000 a coin
12:25 someone has to lose i would say you are
12:28 correct someone does have to lose the
12:30 loser is whoever can’t print money out
12:32 of thin air anymore which is the Federal
12:34 Reserve and the companies that are
12:36 closest to the Federal Reserve and all
12:38 the the grifters that are making money
12:39 off of this money printing system that
12:42 exists in Washington that’s facilitated
12:44 by Wall Street and all of that to the
12:46 losers and somebody said “Yeah but
12:48 there’s not you know somebody the
12:51 purchasing power of other people has to
12:52 be changing also.” I would say yes other
12:55 than the losers everyone else wins in
12:57 the long term but the earlier adopters
12:60 of Bitcoin win more and now if somebody
13:03 says that’s not fair I would say well
13:05 that’s the way everything works the
13:07 first adopters of the internet to do
13:09 accounting and finance and audit became
13:12 way more efficient than the people who
13:13 stuck with paper systems and therefore
13:16 they had purchasers of any technology of
13:20 more purchasing power than the late
13:22 adopters of the technology the early
13:24 adopters of any new money monetary
13:26 system more purchasing power than the
13:29 late adopters of any new money monetary
13:31 system
13:33 the the people who get education earlier
13:35 in their life make more money than the
13:37 people who get education later in their
13:38 life so anything that increases your
13:41 productivity or that involve you moving
13:43 to more you know a better unit of
13:46 weights and measures or more
13:48 sophisticated tools anything that moves
13:51 you forward gives you more purchasing
13:54 power as compared to a later adopter so
13:56 Bitcoin is not unfair in that way it’s
13:59 just operating the exact same way any
14:01 other technology uh works and the same
14:04 will be true of artificial intelligence
14:06 artificial intelligence is amazing it’s
14:08 extremely powerful i use chat GPT
14:11 probably dozens of times a day everybody
14:14 that uses chat GPT or one of the other
14:17 AI engines to do their job becomes more
14:19 effic more more efficient and over time
14:22 gets more purchasing power eventually
14:24 everybody uses AI and everyone’s better
14:27 off but the people who are
14:30 the result of the productivity gains
14:32 from AI are the early adopters the
14:34 people who are late adopters to AI will
14:37 not have the same productivity that the
14:40 that the early adopters do because by
14:42 the time the late adopters get around to
14:43 it uh you know everybody else has
14:45 already adopted okay so getting back to
14:48 inflation how does it affect inflation
14:50 well so what happens is the the Canilian
14:53 effect or Canton effect or whatever it’s
14:55 called um you know again it means you’re
14:59 you’re better off if you’re closer to
15:01 the money printer so those people are
15:03 harmed meaning they have less purchasing
15:05 power they’re not actually harmed they
15:06 just you know the they don’t get free
15:08 money anymore under a Bitcoin standard
15:10 um so those people you know are they
15:14 lose purchasing power and the Bitcoiners
15:16 gain it prices in US dollar terms do
15:20 rise over time on a Bitcoin standard but
15:22 that is because the value is not gained
15:24 so that’s going to happen anyway and
15:26 whether people move to a gold standard a
15:28 Bitcoin standard any standard you move
15:31 to that does not involve um you know
15:34 somebody magically money printing uh is
15:38 going to result in prices rising and the
15:40 existing system that does involve magic
15:43 money printing in prices rising so you
15:45 have to look at what prices are rising
15:47 the prices are not rising as measured in
15:50 ounces of gold prices are not rising as
15:53 measured in Bitcoin so on any all of the
15:57 prices in the world are already falling
15:59 over time as measured by scarce money
16:02 the only reason the prices are rising is
16:04 because they’re measured in US dollars
16:06 that are not scarce so as we move to a
16:08 hard money system um the US dollar
16:11 prices will continue to rise but that is
16:13 not the fault of Bitcoin or of gold or
16:16 of any sound money that is the fault of
16:18 the US dollar and the people who control
16:20 it because they will not stop printing
16:22 money and that’s just going to keep
16:23 happening so uh back to the original
16:25 thesis is does Bitcoin cause inflation
16:28 the answer is no uh it shifts purchasing
16:32 power away from the money printer and
16:34 toward the adopters of new technology um
16:38 it shifts that purchasing power but it
16:40 does not Bitcoin does not increase
16:41 aggregate purchasing power in the near
16:43 term it does in the long term because
16:45 the economy works way better on a sound
16:47 money system um so and will prices in US
16:52 dollar terms rise under a gold standard
16:55 or under sorry I should say under a gold
16:58 standard where gold is not tied let me
17:01 back up most people think gold standard
17:03 means the US dollar is based on gold so
17:04 let me use my words more carefully will
17:07 the prices rise as measured in ounces of
17:09 gold no will the prices rise as measured
17:13 in Bitcoin no will the prices rise as
17:16 measured in US dollars yes unless the US
17:20 dollar is tied to gold or to bitcoin or
17:22 to something scarce so as long as uh the
17:25 uh dollars are not tied to something
17:27 scarce the prices will rise in dollar
17:30 terms but again that’s not a problem
17:32 because all you have to do is switch to
17:33 a a sound money so that doesn’t apply to
17:36 you so if somebody said “Yeah but as
17:38 Bitcoin’s purchasing power increases the
17:40 US dollar cost of everything is
17:42 increasing.” I would say “Yeah there’s a
17:44 very simple solution to that whoever has
17:46 a problem with that should switch to a
17:48 Bitcoin standard because then their
17:50 prices are falling with the rest of us
17:52 so um it’s it’s the same way again with
17:54 AI somebody said “Well this is not fair
17:57 it’s uh you know my friend who hates AI
17:59 keeps having a harder time making ends
18:01 meet.” I would say “Yeah that’s going to
18:04 keep happening if you don’t adopt AI and
18:06 everybody else is then it’s going to be
18:08 harder and harder for you to make
18:10 money.” And there were you know the
18:12 response would be “Well that what is my
18:14 supposed to do?” The answer is
18:17 like it’s not hard if if if your life is
18:21 getting harder to live because other
18:23 people are adopting new technology the
18:25 answer is not to stop the new technology
18:28 the answer is to adopt the new
18:29 technology by the people who are having
18:31 a hard time living on the old technology
18:34 so if people are having a hard time
18:35 making ends meet
18:38 using US dollars because the prices keep
18:40 going up in US dollars the solution is
18:43 well why don’t you change to the
18:44 technology that doesn’t be you know
18:47 inflate that way that’s the solution so
18:50 if you’re getting left behind by AI get
18:52 on the AI train if you’re getting left
18:55 behind because the whole world switched
18:56 to computers and you’re stuck using
18:58 paper systems the answer is switch to
19:00 computers like that is the answer and if
19:03 the answer is you’re getting left behind
19:05 because the US dollar price of
19:07 everything is rising the answer is stop
19:10 using the US dollar as the way you price
19:12 things use Bitcoin so that your prices
19:14 start falling like that’s how all
19:16 technology works that’s not unique to
19:18 Bitcoin that is the way all technology
19:19 works is the answer is you know get on
19:22 the train and the faster you get on the
19:24 train you know the easier it is to uh to
19:26 keep up i’ll make one last point one
19:28 second
19:32 all right so there’s an important
19:33 concept that’s hard to understand but
19:34 worth thinking about which is there’s a
19:37 famous saying that when the money is
19:39 plentiful the goods and services are
19:42 scarce and when the money is scarce the
19:45 goods and services are plentiful okay so
19:48 let me give a you know very brief what
19:50 that means what that means is the more
19:53 money you print the poorer everybody
19:55 gets so look at every country Venezuela
19:58 Turkey you know Argentina before Javier
20:01 Malay every country where the money is
20:04 plentiful meaning they’re printing lots
20:06 of it is very is getting poorer by the
20:10 day so if money printing made people
20:13 wealth wealthy the wealthiest countries
20:15 would be Zimbabwe Venezuela uh Cyprus
20:19 like these all you know these countries
20:22 are in a horrible way with extreme
20:24 poverty and everybody having a really
20:26 tough time and the reason is because the
20:29 money is plentiful the money is
20:30 plentiful so the goods and services are
20:32 scarce because you can’t run an economy
20:35 where the measuring stick of value is
20:38 constantly being inflated the same way
20:40 you cannot build buildings if the
20:42 measuring stick of distance and space is
20:46 constantly being inflated and it’s the
20:48 same way you cannot run an economy if
20:51 time you know let’s say the government
20:54 woke up one day and said the problem is
20:56 there’s not enough hours in a day so
20:58 from now on every single year we’re
21:00 going to add one hour to the day it
21:03 would throw the entire system into chaos
21:06 productivity would drop massively as a
21:09 result of the government trying to add
21:12 time to the day by defining the second
21:14 as 70 seconds instead of 60 or defining
21:17 a uh a uh a day as 25 hours instead of
21:21 24 it would throw everything into chaos
21:23 night and day would all get mixed up
21:25 because you know the sun would start to
21:27 set at the 24hour mark but the
21:29 government would have mandated that the
21:31 day was 25 hours and so you know if we
21:34 end up working during currently 90 it
21:37 would be chaos so if time is plentiful
21:40 productivity is scarce if money is
21:43 plentiful goods and services are scarce
21:46 if distance is plentiful it gets hard to
21:49 travel if measurement is plentiful it
21:53 gets hard to build things you have to
21:55 have a finite unit of measure of time of
21:59 energy of space of value and Bitcoin is
22:03 that measure of value so does Bitcoin if
22:07 everybody got rich on Bitcoin does their
22:11 does that mean inflation no it just
22:13 means that the the US dollar price of
22:15 everything is rising but that is not
22:18 inflation as a result of people having a
22:21 hard time buying things that is just the
22:23 purchasing power shifting from US
22:26 dollars to Bitcoin and the same thing
22:28 would happen if we went onto a gold
22:30 standard that was not connected to the
22:31 US dollar if we started measuring
22:33 everything in um ounces of gold the same
22:36 thing would happen the prices in ounces
22:38 of gold would go down just like they’re
22:40 going down in Bitcoin but the uh the
22:42 prices in US dollars would go up but
22:44 again I guess I don’t call that
22:46 inflation uh in the same way uh the US
22:49 dollar is going to lose purchasing power
22:50 no matter what you do i mean that’s
22:51 inevitable routines
22:54 because they’re never going to stop
22:55 printing money the question is do you
22:56 stay on that standard or do you switch
22:58 to a standard where that is not
23:00 happening to you so complicated issue
23:03 i’ve attempted to massively oversimplify
23:04 it sorry for the where the areas where
23:07 I’m not exactly technologically and uh
23:10 economically precise due to the
23:12 complexity of the issue but hopefully
23:14 this was still helpful thanks everyone