Time Preference

Time preference is the extent to which people value current consumption over future consumption. If people enjoy current consumption so much, that the promise of an increased future consumption cannot bring them to save (and sacrifice the current level of consumption), the production will not be improved.” As I’ve written about previously, easy money raises our time preference relative to what it would be on a hard money standard.

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Easy money makes present consumption and satisfaction in the here and now far less costly than they would be on a hard money standard. Why bother saving your dollars for future consumption when their purchasing power falls over time? While critics of the West often decry our consumerist culture, they rarely assign blame to the culprit: several consecutive generations of fiat money. In short, the Federal Reserve makes saving costly and consuming cheap.

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Money’s Impact on Investment

Easy money’s degrading impact on our collective time preference is not merely culturally toxic. It also profoundly changes the structure of our economy’s production process. As economist Murray Rothbard detailed in his book, Man, Economy, and State, most of the goods and services that we consume had to be produced via a process of converting Nature’s raw materials into producer goods, which are then employed to create consumer goods. Often, there are several intermediary steps between raw materials and the final consumer good: producer goods are used to create other producer goods an arbitrary number of times. The more steps required in the economic recipe for a given consumer good, the longer the entire bout of production is.

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Consumer goods that require longer, more complex bouts of production require not only larger initial investment, but also lower time preference: such consumer goods will take longer to yield a profit than consumer goods that require shorter, simpler bouts of production. 

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Because easy money raises our time preference relative to hard money, the Federal Reserve is directly responsible for pricing out long-term investments that would be profitable under a hard money standard.

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Only Hard Money is Green

Humanity can afford longer, more complex bouts of production by increasing our net savings. This, in turn, requires innovation and the creation of wealth. More wealth means more savings, and more savings means the ability to invest in technologies that solve problems on ever-longer timescales. 

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Next to perhaps defense against asteroidal impact, environmental issues are the issues with the longest time horizons. That is, global warming is a problem whose solution will not yield a net profit until long after the solutions have been invested in. This is especially true to the extent that a ‘green’ solution involves replacing current energy infrastructure with more environmentally-friendly infrastructure. 

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Following our discussion about time preference, the length of production, and money, it follows that easy money necessarily makes long-term investments in climate solutions far less profitable and achievable than they would be on a hard money standard. Put another way, short-term profits are more appealing than long-term profits under a fiat regime, since fiat currency is worth more now than later. On a hard money standard, the opposite would be true, and entrepreneurs would be relatively more incentivized to pursue the long-term projects necessary to combat climate change.

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HODLing Bitcoin as an Energetic Efficiency Gain

The soundness of our money has implications for civilization’s energy efficiency with respect to output per unit of energy. This follows directly from the fact that, as discussed above, easy money incentivizes consuming now while hard money drives saving now and consuming later. This dynamic, combined with the assumption that humanity’s productivity increases in the long run, implies that humanity satisfies relatively more wants per unit of energy on a hard money standard than on an easy money standard. 

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From an environmental perspective, this means that, on a hard money standard, we will get more ‘bang for our buck’ for every atom of carbon we release into the atmosphere than we do on an easy money standard. Thus, to the extent that there are tradeoffs between ‘greening’ our energy production and the efficiency of our energy production, these tradeoffs will be mitigated on a hard money standard.

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In Part Two of this series, we will explore data that corroborate these hypotheses.