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Jamie Dimon Is Right That Bitcoin Is A Fraud, But Doesn't Know Why – Forbes

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“The sole use of money is to circulate consumable goods.” – Adam Smith, The Wealth of Nations

Regularly absent in the discussion of money is the simple truth that it is not wealth.  Money is not an investment either.  Money is an effect of wealth that facilitates its exchange, while also facilitating investment in the creation of future wealth.

Money can’t be eaten, nor would any reasonable person stuff it in large amounts under a mattress.  Money is just a way for the producers of actual wealth – meaning goods and services – to exchange it with other producers.  That’s why the obsession with so-called “money supply” is a wasted one.  Where there’s production there’s always money simply because we produce goods and services (wealth) with an eye on exchanging them.  Money is the medium that makes trade – the reason we produce – much easier, and much more frequent.

It should never be forgotten that with trade, it’s products for products.  Nothing more, nothing less.  And since it is, money that is stable in value is the best trade facilitator.   Logically so.  Stable money enables producers to quickly and reliably receive commensurate value in return for their production.  If money is unstable, winners and losers are created by exchange despite trade by its very name signaling an even exchange that elevates both sides.

Interesting about all this is that the Chinese were the first to introduce paper, or fiat money.  Since heavy gold coins had made trade somewhat difficult, paper money exchangeable for gold would fill in as a way to enable the exchange that is the driver of all economic activity.

So while China moved to paper money out of convenience before the Song dynasty (960-1279), the initially enlightened Songs understood that money’s only purpose was as a ruler, or measuring rod.  From that a debate ensued as to whether “money” should be a public or private creation. As Cornell professor Eswar Prasad put it in his 2017 book Gaining Currency, the Songs resisted private money given their belief that “only the government could ensure a reliable supply of a currency stable enough to support economic activity.”

Most interesting here is that the Confucians of the time disagreed.  They desired private paper money given their belief that “the market would compel private issuers of money to maintain its value.”  Ultimately the government won on the matter of who would issue currency, but that’s almost immaterial when we consider how correct both sides were.  Each saw money as David Ricardo did.  To be perfect, its value should be as close to invariable as possible.  Money is to varying degrees deprived of its singular purpose as a facilitator of wealth exchange, the storing of wealth, and investment in the creation of wealth when its value is uncertain.

Which brings us to J.P. Morgan CEO Jamie Dimon’s recent assertion that the private currency known as Bitcoin is a “fraud.” What’s important is that Dimon is half right.  He perhaps doesn’t know why he’s half right, but he is for the exact reasons that private money has grown in popularity in modern times.  To state what’s obvious, the demand for alternative, privately issued money has grown in concert with government mismanagement of the money it issues.  Since 1971, the dollar has had no definition, or no golden anchor.