Hey everybody. Welcome back to TCB for another TCB short. For the short today, we're gonna be tackling the question, won't Bitcoin fall into a deflationary spiral? So one of the most common objections to Bitcoin is this: if Bitcoin becomes money, nobody will spend it, everyone will hoard it, prices will continually fall, and the economy will enter a deflationary spiral and eventually collapse. Now, this is a fair question. In fact, it's one of the most important questions anyone should really ask before supporting a Bitcoin standard. But I'd like to make a different case on Bitcoin and deflation. I wanna argue that deflation is actually the natural state of the free market, and inflation prevents ordinary people from fully receiving the benefits of productivity Artificial intelligence may become the most powerful deflationary force in human history. And Bitcoin doesn't create deflation, it simply reveals it. So as AI accelerates economic abundance, societies may eventually face a choice between monetary realignment and increasing economic centralization. So let's start with the fear itself. What is a deflationary spiral? A deflationary spiral is the idea that falling prices cause economic paralysis. So the theory goes like this. Prices fall, so consumers delay purchases, therefore businesses lose revenue, layoffs occur. That causes demand to fall further, prices fall again, and the cycle repeats. So most economists view this as dangerous because it can and has occurred during debt crises of the past. But there's a critical distinction of inflation that's often overlooked. Not all deflation is the same. So there is bad deflation and there is good deflation. So bad deflation comes from collapsing credit. So think of bank failures and debt liquidations and financial panic. This is kinda Great Depression-type stuff. Good deflation, however, comes from increasing productivity. So think about technology and automation and efficiency and, innovation gains. So, that kind occurs because society becomes better at producing things. Like, that is economic progress, and I would argue that that's the natural state of the free market. So if you imagine a society with a fixed money supply, imagine every year farmers produce more food, factories produce more goods, energy becomes cheaper, software becomes more capable, transportation becomes more efficient. Society is producing more wealth. So under that scenario, what should happen? Prices should fall, and that's not an economic malfunction. That's the purpose of economic progress. The entire goal of capitalism is to produce more output with fewer resources. If productivity doubles while the money supply remains constant, purchasing power should rise. The reward for innovation is lower prices The reward for consumers is greater abundance. And in many ways, deflation is simply the visible expression of prosperity. It's the free market at work. And we already celebrate deflation, constantly. Nobody complains when televisions become better and cheaper, computers become more powerful and cheaper, storage becomes cheaper, internet bandwidth becomes cheaper, our smartphones become dramatically more capable at a similar price point. And we don't call that economic collapse, we call it progress. And importantly, consumers don't stop buying these products because prices might be lower next year. Even though we know a TV might get better in the future or a phone might get better in the future, people buy things when those things improve their lives. So nobody postpones buying food forever. Nobody postpones houses forever. Nobody postpones vacations forever. Nobody postpones spending time with their loved ones forever. Human beings have a positive time preference. We kind of value today more than tomorrow, and that's the fundamental real- or that fundamental reality doesn't disappear under Bitcoin just because the money is gaining value. So just like we don't spend every dime we have when our money is losing value today, we wouldn't save every dime we have when our money is gaining value. So, let's take this one step deeper. Kind of what's like the hidden cost of inflation? If productivity naturally pushes prices downward, why don't we experience more falling prices? Why does our life seem to be getting more expensive? And the answer to that is monetary expansion. So every year, humanity becomes more productive. We build better tools. We automate tasks. We discover new technologies. We create more output with less effort. And in a hard money system Much of that progress should show up as lower prices. But in our current system, the money supply expands to offset much of this increasing productivity. So instead of allowing prices to fall naturally, new money enters the economy to offset it, and as a result, productivity gains never fully reach consumers. The gains do exist, but they show up somewhere else. So who is receiving these productivity gains? So let's imagine a society becomes five percent more productive. Under a hard money system, prices would fall five percent, but-- and everyone's purchasing power should rise. The benefits would be broadly shared. So who receives the gains? And typically, the first recipients of the gains are those recipients of the newly created money. This includes governments and large financial institutions and major borrowers and asset owners. So economists refer to this as the Cantillon effect. Those closest to the newly created money spend it before the prices adjust, and everyone else only receives it later after their purchasing power has already been diluted. So what does this mean for inflation and the working class? This is where it becomes kind of especially important. The working class creates enormous amounts of value. Workers build homes, they operate businesses, they provide services, they create products, they develop software, they move goods, they teach children, they care for families. They do all of the economy's actual work. They generate the real wealth. But when the money is continually expanded, a large portion of that wealth is quietly transferred upward through monetary dilution. And no vote is required for this to happen. No tax bill arrives in the mail. Your purchasing power is just reduced, and savings become harder to accumulate, houses become less affordable, asset prices rise faster than wages do. And people often sense this intuitively. I think even now people sense that something is wrong. They just can't put their finger on it. They feel like they're becoming more productive while somehow falling behind. And Bitcoin proposes a different relationship. If society becomes more productive, purchasing power should rise. The benefits should remain with those creating the value rather than being continually redirected upward through monetary expansion. And if we move this forward and we kind of introduce artificial intelligence to this scenario, historically, technology primarily automated physical labor, but AI is gonna be different. AI automates cognition itself. It can write software, it can analyze data, it creates content, it can design products, it can draft legal documents, it can perform customer service tasks, it can accelerate scientific research. So it kind of increases productivity across virtually every knowledge industry. And for the first time in history, large portions of intellectual labor may become dramatically cheaper. And the implications of this are enormous given our current economic setup. AI could create productivity growth unlike anything we saw during the Industrial Revolution. The pace of change is going to accelerate, and that changes everything. 'Cause if you think about what AI actually does, it reduces the cost of creating valuable things. So as AI improves, software should become cheaper, research becomes cheaper, education becomes cheaper, design becomes cheaper, professional services become cheaper. So knowledge itself will become more abundant, and many goods and services may trend toward near zero marginal cost And in economic terms, this means accelerating deflationary pressure. It should push prices down. And that's not a problem. That is abundance. That's exactly what technological progress is supposed to accomplish. The challenge is whether our monetary system can handle this accelerating efficiency. So can AI break the debt-based system is really the question. So our modern economies are built on debt. Governments carry debt, corporations carry debt, consumers carry debt. And debt functions most comfortably in an inflationary environment. So inflation slowly reduces the burden of debt obligations over time as the money gets debased. But what happens if AI pushes prices downward faster than policymakers can push them upward? What happens if productivity grows faster than monetary expansion grows? And what happens if technological abundance becomes stronger than the inflation itself? At that point, the existing system begins to experience significant stress, not because society is becoming poorer, but because society is becoming wealthier too quickly for a debt-based framework designed around perpetual monetary expansion. So I think this may become one of the defining economic challenges of the 21st century. There's kind of a choice coming our way on the horizon. Historically, when deflationary pressure emerged, governments responded with larger monetary interventions. So more debt, more stimulus, more monetary creation, more market management, more economic coordination from the center. But if AI-driven abundance accelerates dramatically, those interventions may need to become increasingly large to just to maintain the existing structure. And at some point, society is going to face a choice. Continue expanding intervention to preserve a debt-based monetary order or realign the monetary system itself to economic reality. So allow prices to fall naturally, allow purchasing power to flow directly to the citizens. And this is where, Bitcoin enters the conversation because Bitcoin doesn't cause deflation. It doesn't create productivity. Bitcoin doesn't create innovation. Bitcoin doesn't create abundance. It's technology that does that. It's human ingenuity that does that. AI will do that. Bitcoin simply will measure the natural state of the economy honestly. It's a monetary ruler that does not change in length. So if society becomes twice as productive, Bitcoin allows prices to reflect that economic reality. The economy grows, but the measuring stick remains fixed. So for the first time, abundance can be expressed directly and appropriately through increasing purchasing power in the money. So if we just take this through a thought experiment. Imagine it's the year twenty fifty and AI has dramatically reduced the cost of producing goods and services, energy is abundant, robotics are widespread. Many necessities we need cost a fraction of what they cost today. Would that be an economic failure? Of course not. It would likely be the most prosperous civilization in human history. The real question becomes, what kind of money best reflects that abundance? A currency that must continually expand to maintain inflation or a fixed supply money that allows purchasing power to rise alongside that productivity? So Bitcoin proposes the latter. Um, so let's return to the original question. Won't Bitcoin fall into a deflationary spiral? I don't believe so. You know, people don't stop living because money gains value. They won't stop eating, they won't stop traveling, they won't stop building businesses or raising families. We have unlimited wants. It's just a matter of our ability to meet those wants. So what might change is who receives the benefits of that progress. So for over a century, monetary expansion has absorbed a significant portion of society's productivity gains, and Bitcoin proposes that those gains should remain with the people who actually create them. So as AI accelerates abundance, the stakes are gonna become even larger. So throughout history, periods of monetary strain have often produced greater centralization of economic power. And if AI creates unprecedented abundance while institutions remain dependent on perpetual debt expansion, we're gonna face a choice. One path leads toward ever larger monetary intervention, increasing economic management, and kind of growing dependence on that central authority And the other path is we break free of the debt-based system and we kind of realign the money, have a monetary realignment, a system where the money accurately reflects productivity of the free market economy, where purchasing power rises with our innovation gains, and where the rewards of that progress flow directly to individuals. So Bitcoin is ultimately a bet that humanity can embrace the abundance to come without surrendering our economic freedom. So it's not merely a new form of money, it is a proposal for monetary realignment in an age where technology may create more abundance than our historical monetary system was designed to handle. So we free the money, we free the markets, we free the people. So let's go in that direction, would be my proposal. So I don't think we're heading for a deflationary spiral. I think we're just going to realign the system so that the benefits of the system flow to the people and don't flow upward in an exploitative, centralizing way. So I hope that helps y'all. Take care till next time, and we'll see you