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From Smith to Rothbard – The Philosophy Behind Bitcoin

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Rooted in the motto “homo homini lupus”, we have favored an economy focused on the “all against all” war. It is said that our economic system, defined as capitalist-financial-neoliberal-globalized, is based on the selfishness of the human being.

The evolution of the economic system

Modern political economy, drawing on neoclassical knowledge, takes for good the configuration of man as a rational individual. This rationality implies a drive to achieve one’s goals as efficiently as possible. This belief is mainly taken up by game theory, the mathematical science that allows us to predict the effects of any strategic interactions between human beings.

According to game theory, the individual is rational, in addition to achieving his goal with the resources at his disposal, takes into consideration the behavior of other factors – economic or not. So, through a simple syllogism, we can say that if each one pursued his own personal interest, he would achieve the most efficient situation for everyone – a concept already expressed by Adam Smith. The philosopher, in the “Inquiry on Nature and the Causes of the Wealth of Nations”, postulating the Invisible Hand Theory, already highlighted how in the long run personal interest converged in the higher collective interest.

These mathematical-economic paradigms regarding the markets were inaccurate. Adam Smith has never considered a multitude of variables such as: unemployment, the centrality of the human being in society, etc …

In response to Smith’s invisible hand theory, John Maynard Keynes, in 1936, published the “General Theory of Employment, Interest and Money”.

According to the British economist, state intervention in the markets, through the setting of price limits and market regulation (but above all through an increase in public spending) would have avoided crises such as the “Great Depression” of 1929 and therefore made the most efficient company.

The current economic model

As previously stated, the current system, the result of the transformation of the planned economy (subject to central decisions, feudalism style) into a market economy, is based on the paradigm of capitalism-financial-neoliberal and globalized.

 

Capitalist: centric conception of the company as a productive model, headed by private individuals with large capitals
Financial: as some point out, the current financial system highlights, in many cases, social subordination to the banking system. Our economy appears no longer focused on production systems (tangible assets), but on financial systems of transferability of capital (intangible assets).
Neoliberal: is to identify the thought of natural law derivation, according to which the protagonists in the markets are private individuals who, in competition with each other, efficiently satisfy the demand and supply of resources.
Globalized: an adjective that highlights the tendency towards an increasingly open and unregulated market, in which individuals can interact to satisfy their own interests.

The Keynesian model against the Austrian school and von Hayek

“Capitalism is not intelligent, it is not beautiful, it is not fair, it is not virtuous and it does not keep its promises. In short, we do not like it and we are beginning to despise it. But when we ask ourselves what to put in its place, we remain extremely perplexed. »

(John Maynard Keynes, National Self-Sufficiency, 1933)

Starting from this quote – which curiously recalls Churchill’s concept of democracy: “the worst form of government, with the exception of all the other forms experimented so far”, it is easy to imagine how capitalism is currently the only economic model to fit perfectly humans, and which allows technological and economic progress. Nevertheless, even according to Keynes, it is not right.

The British economist has always tried to show the perplexities and flaws in the capitalist system. Keynes, identifying the absence of state intervention (investment) in the American economy as the cause of the depression of ’29, came into conflict with the theories of the Austrian economist Von Hayek.

The latter, trying to discuss the thesis of the British colleague, showed how in the previous luster (1923-1928) the US had widely increased public investment in its economy, arriving at the dawn of ’29 with an insufficient budget to face the cycle negative economic. According to the Austrian school’s father, in fact, the problem of economic cycles was to be found in state interventionism: the only system capable of allocating resources as efficiently as possible is the price system that springs from the free market. Hayek was not the only one to support this theory and his convictions were supported  by Milton Friedman and Martin Rothbard.

From Smith to Rothbard and anarcho-capitalism

Anarcho-capitalism arises from the elaboration, on the part of Rothbard, of the theories of the Austrian school (von Hayek). It is based on the anarcho-individualist principle of libertarian matrix according to which the markets, in the absence of state intervention, autonomously reach the most efficient economic situation. For everyone.

Paraphrasing Smith’s invisible hand theory, which, as we have seen, had already been criticized for the lack of polyprospectivity, the anarcho-capitalists claim that the achievement of an equilibrium price, due solely to the relationship between the demand curve and the supply curve, it would maximize the economic surplus by creating new investment opportunities, incentives for improvement and greater social welfare.

This vision, which leaves many social variables unconsidered and does not take into account the centrality of man within society, is the theoretical matrix of Bitcoin and Blockchain.

Bitcoin and Blockchain, the tool to make anarcho-capitalism effective

Although the true identity of Satoshi Nakamoto is not known, his propensity for anarcho-capitalism is certain. Indeed, Bitcoin’s “governance” is notoriously inspired by Rothbard’s theories. From the Bitcoin manifesto we can see how, through the blockchain, Nakamoto tried to build a completely decentralized system, free from interventions of central powers, subordinated to a consensus majority and regulated only by the markets.

Precisely for this reason the bitcoin offer is fixed (21,000,000 coins). With this limit, the price of money, not being subject to monetary policies or changes in interest rates, depends solely on market demand. Therefore, with cryptocurrencies individuals will no longer have to present themselves to an intermediary, to a bank; they will have the possibility to manage their own funds and access a market that, as decentralized, is global.

A global market would favor the sharing of almost perfect information among economic agents, who, in accordance with the principles of the social division of labor and comparative advantage, could compete with each other, creating the most efficient social situation.

Currently, unfortunately or fortunately, they are only speculations on hypothetical scenarios. What is certain is that the world is changing: we are the first generation that really reasons, according to a perspective of lack of resources (not only environmentals); technological development is growing exponentially, societies are bending to globalization and progress. Perhaps even human thought will evolve into a completely decentralized conception of power without intermediaries.

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