Is Bitcoin Racist?

Further, if you really do try to infer anything about the purchasing power of a currency unit in relation to investment gains from investing it, the relationship is inverted. If the asset goes up in value then the purchasing power of the currency relative to it is declining. This is what purchasing power actually measures: how much “stuff” a unit currency can, you know, purchase.

In other words, the returns earned on investments and assets (this includes savings accounts) tell us about the assets themselves and almost nothing about the purchasing power of the unit used to acquire them. I say “almost” here because those times when the return on assets do reflect on purchasing power of the currency unit it is because said purchasing power is in decline, perhaps rapidly – and capital is fleeing into assets, away from the currency. This is what happens in high inflation or hyper-inflationary events.

In 2007 the  Zimbabwe had the highest performing stock market in the world in nominal terms while their currency collapsed.  There is no difference between what happened there (or in any other hyper-inflationary event) and what Golumbia is trying to call the preservation of purchasing power of a currency unit, other than the speed and time horizon over which it is happening.

Golumbia expands on this premise that purchasing power hasn’t gone down if wages have gone up (an idea promulgated by MMT proponents such as Cullen Roche):


“Labor that earned US$1 in 1913 is likely to have earned around US$21.67 in 2009; and US$21.67 in 2009 buys about what US$1 did in 1913. This is no disaster, “hidden tax,” or “destruction of value”; but viewed in isolation and taken out of context, it can provide a completely distorted view of both labor and economic history.


I’m not sure where people like Golumbia and Roche think wages actually come from. Maybe out of a money unicorn’s ass or something. Everybody’s wages are somebody else’s cost. If it used to take $1 to purchase a unit of labour and it now costs $21.67 then your currency units have lost purchasing power. The idea that wages rise at the same pace as inflation is a nice try by progressives and politicians to make it all seem “cost neutral”, but according to pretty well everybody keeping tracking of this, wage growth is chronically lagging both inflation and productivity gains. Just go out on the street and ask anybody if their wages are rising as fast as their cost of living. For the most part, no, which is why household debt is precipitously rising across most Western countries.


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