Tho Bishop – November 18, 2022
Check out this clip from Caitlin Long of Custodia Bank at a Bitcoin conference last year, explaining the dangers of highly leveraged crypto exchanges like FTX. Long calls out the practices of Sam Bankman-Fried, while sharing a stage with the disgraced crypto trader.
Why was Caitlin able to see what most of the financial world, including major financial institutions, couldn’t? She’s read her Ludwig von Mises. As she explains, there is a fundamental difference between “commodity money” and “circulation money,” which Mises calls “fiduciary media” in his treatise A Theory of Money and Credit.
Written over 100 years ago, the consequences of leveraged fractional reserve banking and the artificial increase in credit remain. Mises’s work remains vital in a world of hedonistic central banks and a financial world shaped by the dangerous fallacies of bad economics.
In the case of FTX, we have an exchange without the backing of the state, though one whose CEO attempted to gain regulatory capture with donations to powerful politicians and their pet ideological causes. In classic beltway-style, Bankman-Fried’s failings are now being used by power-hungry politicians to promote the very legislation he advocated, at the expense of responsible actors like Long. Ultimately though, the same dangerous economic views underpinning his approach to crypto continue to guide the globe’s traditional financial system.
The only way out is an ideological revolution into how civilization considers the vital topic of money and banking.
As Mises noted in this important work, “No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as an attempt to remedy a present ill by sowing the seeds of a much greater ill for the future.”
Get your copy of Theory of Money and Credit today from the Mises Bookstore.
Originally published at Mises.org. Tho is an assistant editor for the Mises Wire, and can assist with questions from the press. Prior to working for the Mises Institute, he served as Deputy Communications Director for the House Financial Services Committee. His articles have been featured in The Federalist, the Daily Caller, and Business Insider.