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The decentralization revolution initiated by the arrival of cryptocurrencies and blockchain technology once again brought to the fore the thinking of a school of economics that dates back to the late 19th century. This is the so-called Austrian School of Economics, which owes its name to a series of intellectuals who lived in Vienna and severely questioned the widely accepted precepts of the classical schools. Although their ideas, in many cases, are very good and are presented as a guarantee of individual freedom, since they promulgate the use of critical thinking and not politics (force), using precisely critical thinking we must admit that all the assumptions of the Austrian School rest on a world governed by the gold standard, something that has not happened today since President Nixon's unilateral decision in 1971 to defenestrate that concept and make everyone dependent on their country's currency.
In any case, the Austrian School brought us light on many alchemical darknesses of the Middle Ages, many of which are still taught today in the universities of the world, producing mediocre and useless professionals to solve the problems of today's world. The problem is that these mediocre professionals, indoctrinated in temples of the past, are going to occupy positions of hierarchy in international organizations such as the IMF and the World Bank and end up designing economic policies for a world that only exists in the cloud of farts in which they live. On top of that, the corporations that benefit from their obsolete theories reward them with awards like the Nobel Prize, in which very few believe. I think that not even the old Nobel should believe in what degenerated this once prestigious institution.
The fundamental difference that distances the Austrian School from other schools of economic thought is the theory of value. The classical and neoclassical schools say that prices are determined by production costs and that the laws of consumer behavior are only a complement to price formation. But the Austrians say something completely different. For them, marginal utility, specifically the law of diminishing marginal utility, explains why the consumer obtains increasingly less subjective satisfaction when consuming additional units of a product, and in this way, they explain the formation of prices without including production costs. For the Austrians, based on the principle of marginal utility, it is not costs that determine prices, but on the contrary, it is the prices of products and services that determine production costs.
But, IMO, for the law of diminishing marginal utility to exist, two factors must be met:
- a) that the printing of fiat money is backed by an asset such as gold.
- b) that those who print money have some type of control and that they do not do it indiscriminately and at will so that there is some type of stability/trust.
Neither of the above two points actually occurs anywhere in the world.
The topic of diminishing marginal utility is very easy to explain. Let's call “utility” the satisfaction that a consumer has when consuming a product. On a scorching hot day, a consumer, after training hard, will surely value having a can of soda. Then he/she will have a second one, which will no longer give him/her as much satisfaction. Then comes the third that is already taken mechanically. The fourth or fifth will cause the opposite effect. Satisfaction decreases with the successive consumption of a new unit until there comes a time when the effect is reversed: far from producing satisfaction, it brings discomfort. With a fifth soda, you can explode due to excess liquid in your digestive tract.
This notably has a strange and curious correlation to what happens with the fiat money printing machines that governments operate through their Central Banks. One “stimulus” can be dangerously beneficial, but the second and third make economic agents get used to the little party that the government launched and begin to raise prices. Since fiat money has no emission limit, the decreasing marginal utility in this case quickly causes disaster and begins to produce the opposite effect to that intended. Consumers increasingly have less money to buy potatoes and tomatoes, although the government continues printing and printing to “stimulate” the economy. Some countries, like mine, know a lot about this.
Here you can clearly see the contribution and conceptual difference of decentralization, especially the contribution of Bitcoin with its PoW platform, which constitutes the most secure distributed computer network on the planet. The issuance of Bitcoin has a limit, and each new unit produces an increase in marginal utility, not a decrease, precisely due to the magic of the 21 million limit.
The Austrians fail here because they could not imagine at the end of the 19th century that there would one day exist an economy based on the exchange of value through assets like Bitcoin. They and all their predecessors and contemporaries imagined their models based on an economy that exchanges value through debt papers issued by States. The Austrians and all the schools that continue to be studied base their assumptions on the issuance of fiat money, which is a debt that the Central Bank has with the holders of those papers, and that at some time was backed by the gold standard. But that support is something that no longer exists and will never exist again. Now a new unknown technology is proposed, which the Nobel Prize winners and their bankers do not understand (or rather, they do not want to understand, because they are not stupid), and the known structures tremble. Fiat money is debt, and Bitcoin is an asset. To hell with all known economic models. We have to start over and explain it to the fat people at the IMF, World Bank, Davos, and other delights of the current financial elite system.
But returning to the topic of value, according to the theory of value of the Austrian school, no one would be willing to pay a higher price for the factors of production than the consumers would pay for the final product, from which it is concluded that the costs are the result of the existence of expected prices of goods and services and not the other way around.
Another failure of the Austrian School. Those brilliant intellectuals could not imagine at the end of the 19th century when they proposed their theories that the “value” of a good or service was going to be totally influenced by a mega-mechanism of propaganda and misinformation that is transmitted globally through a cancer called global communications corporations, managed by four mega groups that control all the disinformation media on the planet. That is, what the Austrian School calls “value”, unfortunately, today is what corporations want people to think. There has never been such blatant manipulation directed towards the great mass of consumers. Consumers today give value to garbage invented by advertising, by social networks, and by a group of characters euphemistically called “influencers.” There is no subjective value that the Austrians imagine in their theory of value, but rather a value awarded by the amount of money that is allocated to the global network of disinformation so that the herd constructs that fictitious value.
The Austrian School sparked the marginalist revolution at the end of the 19th century. Friedrich Hayek, a recognized disciple of Mises, the latter being, for many, the founder of the School, affirms that information in the market economy is imperfect, thus incorporating uncertainty into economic analysis, before other schools. Regarding the expansion of the money supply, Hayek demonstrates that this does not generate a growth effect in the real economy, but rather a structural distortion of relative prices that leads to misallocation of resources. Inflation only serves to finance corporate elites, at the expense of the increase in prices suffered by the final consumer. The distortion of relative prices is the cancer that world economies have suffered since 1971 with the abandonment of the gold standard.
Now, in a previous post, I referred to the fact that the growth model that is based on the growth of the issuance of fiat money has alternatives, such as the circular economy. The circular economy does not need growth, because it is based on the rules of nature, and nature does not accumulate anything anywhere, nor does it hoard resources for use only by some of the nearby actors. Nature does not make mistakes, and it does not fight, it triumphs. The circular economy is a system of resource use where the reuse and recycling of products work, and also the use of resources at a lower rate.
The law of diminishing marginal utility is meaningless in nature. It was imagined to explain the disease of consumption that was seen coming at the end of the 19th century with capitalism that began to indiscriminately exploit natural resources for the benefit of the elite who were close to the money printing machine. Of course, it is still valid in the model of indiscriminate growth, which produces more and more cans of soda and has to sell them more and more every month, tormenting its sellers who, if they do not reach the sales quota set by the corporation, they are fired for being useless.
The paroxysm of consumption produces stress, deterioration, and frustration. On the other hand, nature does not know those terms. Everything is simpler and more efficient. There is no utility that must decrease, there is only efficiency in the use of resources.
Reduce, reuse, and recycle. The paradigm of the current linear model that consists of extracting, producing, consuming, and throwing away is frustrating for everyone, because capitalism is so poorly armed that all its actors end up shattered, stressed, and in the hands of psychoanalysts and medicinal laboratories that sell pills for sleep, and also in ultra-complex medical treatments.
These malformations do not exist in nature, because everything is harmonious and follows a dynamic of efficiency, reuse, recycling, and reduction. This is what is called the circular economy model. In nature, there is no garbage or landfills. All elements fulfill a function continuously and are reused by nature itself for use in different stages. Unlike linear growth models, the circular economy proposes a substantial improvement for all actors, companies, and consumers. Waste becomes resources. Products that do not satisfy the initial needs of consumers are reintroduced into the economic circuit. Certain waste or certain parts of it are reused, which can still be used to make new products. Products are repaired, not discarded when they break. Materials found in waste are recycled. In many cases, the circular economy proposes implementing a system of renting products, instead of selling them. When the product is no longer used, it returns to its owner who will disassemble it to reuse its parts. Nature and the circular economy use renewable, non-fossil energy, and establish an industrial organization model in the same territory, to avoid transportation costs and to implement an optimized management system for stocks and flows of materials, energy, and services.
In Argentina, solutions based on the circular economy are being implemented for Bitcoin mining. The model already operates successfully in some other places in the world.
Argentina is the 4th largest producer of beef in the world, with a production of 3 million tons, only behind the United States, Brazil, and China. Argentine meat continues to be recognized as the best quality in the world. There are between 55 and 60 million heads of cattle, widely distributed in a territory of 3.8 million km2, with Argentina being the 8th country in the world in terms of land area. The distance between La Quiaca, the northernmost city, and Ushuaia, the southernmost city, is greater than the distance between Madrid and Moscow.
Several companies are installing and beginning to scale Bitcoin mining farms, using the methane gas produced by biodigesters from cattle excrement, collected in manures. The waste is processed by bacteria, generating methane gas in the process that is used to power an engine that generates electrical energy. This energy is used to power thousands of computers that mine Bitcoin. After the pandemic, the process has gained wide acceptance among owners of farms, large agricultural operations, factories, and intensive animal farms.
Crypto Farms Project in Argentina
The process, in addition to generating profitability for miners, solves the problem of pollution and becomes a banner of the circular economy. The model is also being analyzed in breweries and establishments that, in general, have a large amount of organic waste as a result of their processes. There are small cities in the interior of the country that receive electricity produced by methane from biodigesters, corn, rye, and manure waste. The equation, according to some local businessmen, says that, with about 5 million dollars, a 2,000-kilowatt plant can be installed that can supply a farm of about 600 computers to mine Bitcoin. For this, about 4 thousand tons of organic waste are needed per month. A 450-kilo steer produces approximately 30 to 35 kilos of excrement per day. In a month, he produces 1,000 kilos. In this way, 4,000 steers are needed to produce 4,000 tons per month.
To propose a model, a scientist must start from a certain scenario, that is, from a reference framework with predetermined rules and operating guidelines. When the scenario changes, the scientist must review his/her model and often must discard it, because it is not good at predicting an expected output in the changed scenario.
The global finance scenario is changing dramatically with the arrival of Bitcoin and the new blockchain technology that allows us to unshackle ourselves from the financial elites. The models that were used to predict the global financial scenario are no longer useful. This is what the IMF, the World Bank, the BIS, and other malignant tumors that have entrenched themselves in the skin of all economic operators are understanding, and that is why they are trying to stop the rising tide with a woven wire fence. Some enjoy these tumors, but most of us suffer from them. The explanations of the economic models defended by the “Nobel Prizes” bought by corporations are of no use. The linear model of consumption and indiscriminate waste belongs to another era and will be remembered as a cancer of the 20th century.
We are used to seeing and being fascinated by the profound change that Bitcoin, blockchain technology, and decentralization are operating in the obsolete, centralized, and dictatorial international financial system. But sometimes, when we delve deeper into topics that seemingly have nothing to do with economics and money, we see a new universe of possibilities appear. The change proposed by blockchain peer-to-peer value exchange technology is a cultural, ethical, and philosophical change, it is not just economic.
The example of mining farms fueled by methane from waste shows us that Bitcoin stimulates the development of the circular economy, mainly due to its founding characteristic of emission caps. There will never be more than 21 million Bitcoins, and that will be all the money that will be used in a short time on the entire planet. This fundamentally changes the philosophy and economic policy modeled by our ancestors and taught even today in colleges and universities, some of which boast of being very prestigious.
The course of the next few decades will lead humanity to a new concept of value transmission, based on the exchange of assets, and not debt issued by politicians, from the linear economy of exacerbated and meaningless consumption, towards a circular economy of recycling and use, in which the law of diminishing marginal utility will not make any sense. Because no one will need to consume one more unit of anything.
Thank you for reading! Decentralize yourselves as much as you can, and much more! Work for yourselves, not for others. When you work for someone else, they pay you what YOUR POSITION is worth, when you work for yourself, they pay you what YOU are worth. No one achieves financial independence by working as an employee. Live long and prosper!
Never forget:
As usual, none of the things written in this post are financial advice and are not intended to replace personal research. My sole intention in writing this post is informative. Several of the things discussed here could be wrong, so in no way can this post be construed as financial advice, and in no way should it replace your own research.
If you have any questions or comments, please feel free to leave them down below
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