This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.
We need work and work needs us.
Labor is what takes a harsh, brutist and difficult world and turns it into a livable, enjoyable and even meaningful place. Work is how we contribute to our civilization, our communities and, of course, our families. Work in a normal, functioning market provides value.
Work, in a very real sense, is what we contribute to civilization. The output of our labor is a legacy we leave behind. Our collective work is what builds everything around us, from the buildings we live in, to the roads that we travel on, the computers we type on, the electricity that we use, and pretty much everything else.
Yet this very basic equation of work — productive labor in return for money — is not working that well. You can see this in the massive layoffs that are currently happening all over the economy, particularly in tech. What is going on? How is it that tens of thousands of people in different companies can be let go and things still function? What were they all doing? Making inane TikTok videos?
In this article, I’m going to answer those questions and place the blame where it belongs. As usual, it’s fiat money’s fault.
Work Lets You Specialize
Markets work because people are willing to pay for goods and services they find valuable. Someone pays because it would cost them more in some way otherwise, say in convenience, quality, price or something else. Money, or the common medium of exchange that we all employ, allows us to specialize and do what we’re good at.
A fisherman can catch lots of fish, far more than he can eat. A cobbler can make shoes, far more than he can wear. But through trade, they can leverage their own skills to get everything they want and need. This is why fishermen are not making their own shoes and cobblers are not catching their own fish.
Civilization gets built because of this specialization of work. And, in a sense, everyone optimizes for value provided per time worked while minimizing the unpleasantness of the task. More colloquially, we try to make the most money we can while doing things that we dread the least.
This last point is important because there are things that pay very well, but people are loath to do, like collecting garbage or truck driving, which can offer a better per-hour rate than other tasks but with unpleasantness that keeps many away. The price of labor goes up to compensate for its unpleasantness. Similarly, rare skills are compensated better because fewer people can do them. Labor is like any good in the market, where the usefulness of what you produce and its relative rarity determine price. The people that make the most money should be the ones doing the work that’s most difficult and/or least desirable to do.
Clearly, something is wrong because many high paying jobs are definitely not that difficult (think tanks, administration, etc.) and many are very desirable (board member, venture capitalist, investment banker.) There’s something about our economic system that rewards the wrong things.
Fiat Adds Meaningless Work
Fiat money throws a wrench into a beautifully efficient market by adding another buyer. By creating money out of nothing, fiat money allows governments to create all sorts of work that does not add value. These are what we call rent-seeking jobs.
Money in a normal market pays for value provided. Inefficiencies are punished through less profit or even loss. Labor, therefore, has to create value. But in a fiat economy, there’s another buyer, who’s not particularly price-sensitive, the money printer. Generally, the people in power buy conspicuous consumption, national prestige, make-work jobs, bribes to loyalists and so on. These add less value than Roger Ver.
For the money printers, labor isn’t connected to creating value anymore, but to satisfying their desires, usually to maintain power. In a democracy, the money printers might spend to create valueless jobs, like the proverbial digging and filling back in of a ditch. In a military dictatorship, the money printers might spend more money on buying votes and paying for weapons or even social programs. Even jobs in such a government can be a thin veneer for bribes and nepotism. The money gets printed and used to staying in power and not creating value for anyone.
As the money printer in a fiat economy becomes a large customer of everything in the economy, almost all work gets mingled with fiat rent seeking. Work that’s valuable gets mixed with work that’s not. The further along the money printing path we get, the harder it is to disentangle what provides value and what doesn’t, what’s beneficial to civilization and what’s not. Rent-seeking has spread like fungus on an old sandwich.
For example, many large companies have human resources departments that specialize just in employment compliance. In typical bureaucratic fashion, each employee has to complete cringe-worthy training, whether they be on sexual harassment, race discrimination, interview questions that are allowed to be asked and so on. These are almost certainly unrelated to the business they’re in but nevertheless each new employee is forced to waste valuable time on them. These compliance requirements may not be monetary taxes, but they are time taxes. As such, our labor gets split between productive and non-productive work. In the last 50 years, the non-productive part has grown so much that entire positions are non-productive, even in very profitable companies.
Is it any wonder, then, that Twitter, Google, Facebook, Microsoft and many other profitable companies can lay off so many people and have everything run just fine? Layoffs are the equivalent of chemotherapy, surely hurting the companies that do them, but also excising the cancer underneath.
The blight of rent seeking slows down the economy, the same way a flat tire does to a car. Fiat money’s ubiquitous entanglement with politics is one of the many ways in which productive work gets slowed down, adding less value. The work that people strive for is not in providing value, but in becoming middlemen to valuable transactions. They slash tires and inconvenience everyone so they can sell more tires.
As a result, in a fiat economy, even if you wanted to, it’s difficult to provide value. There’s a lot of rent-seeking friction that needs to be overcome and these barriers prevent people from providing value. How hard is it to start a business in most places? How hard is it to open a bank account, get the right permits and comply with the many rules that enrich rent seekers? These are all taxes on not just entrepreneurs, but on civilization itself.
So why is rent seeking so hard to eliminate? The problem is that rent seeking is very attractive to most people. It’s a lot less volatile than the market and the income is guaranteed through the government in some way. There’s much less dealing with difficult customers, changing market conditions or ambitious competitors. Most people would take less money to have this long-term certainty. As a result, even those providing value slide toward rent seeking very quickly.
The Slippery Slope To Rent Seeking
Not all rent seekers start out that way. Many fall into rent seeking slowly and almost unnoticeably. You can see this in some of the most “successful” tech companies of the last 20 years. Amazon, Facebook and Google were very good services. Of course, part of why they were perceived that way is because they sold their goods and services at a loss. In the case of Amazon, it lost money on a lot of sales early on. Facebook and Google gave their services away for free. Incidentally, this was only possible because of the large amount of money available for investment, which is a side effect of an inflating fiat currency. Thus, the services that you got for the cost were a great deal for customers.
But that was part of their long-term strategy. Like a drug dealer giving the first hit for free, their convenience hooked the users. Then they started selling ads to “monetize” their audience. Monetizing is really a euphemism for becoming middlemen in transactions that their users want to engage in. Thus, Amazon, Google and Facebook started becoming brokers for third-party merchants, either through ads or through becoming monopolistic platforms.
As soon as the users were hooked, they made the terms attractive for the other side of the transaction, the merchants. Lead generation on Facebook or Google were much cheaper than what existed before. Soon, merchants became addicted to their platforms and then they were exploited to monetize further. Auctions for ads were manipulated and fees for listing became more expensive. They used fiat money to be middlemen in a market they entirely controlled. At each step, these companies inserted themselves deeply in the value being provided to capture the profit. In other words, they became rent seekers.
What’s worse is that this was their plan all along! This is the plan for nearly every startup and has been for many years. Grab a lot of users, grab a lot of merchants and become the middleman. Every venture capitalist talks about this as a desirable outcome: to capture lots of value and be able to defend that monopoly. This is the path to profitability that every venture backed startup strives for and hence why there’s so much emphasis on growth.
This is not an isolated story since 1971. Once Nixon ended the gold standard and every currency pegged to the dollar suddenly became fiat currency, the market incentives changed. Rent seeking was much more profitable and unsurprisingly, we’ve gotten a lot more rent seekers. There are few businesses that are creating significant value anymore. Many large businesses rely on some form of government spending, fiat loans or both. Many tech companies relied on a lot of venture capital (VC) money which are really, fiat loans, to become rent seekers. The fiatization of the economy has been ever-present and growing for the past 50 years and even the most productive companies have become infected.
Glorifying Rent Seeking
Why is it that so many people coming out of business school now want to be wealth managers? Because they’re imitating the Warren Buffets of the world. He’s a guy that hasn’t created anything in his entire life, he has just managed other peoples’ money. He’s the ultimate rent seeker which has made him fabulously wealthy. Because of the primacy of money, rent seeking has become extremely prestigious. The heroes of this generation are guys like Buffet and not Thomas Edison or Nikola Tesla, who actually made things.
Bitcoin, thankfully, starts shaming rent seekers for who they are. Altcoiners are so obviously rent seeking and creating no value. Hence they’re rightfully condemned strongly by Bitcoiners. You can see the obvious rent seeking in the “free money” altcoins use to bribe people to market for them. The main attraction of altcoins is that they let you be a rent-seeker without the gatekeeping of top-tier business schools, political connections or media approval. It’s really rent-seeking for all, which really means no one’s doing any real work.
In a sense, altcoins are the natural end of fiat rent seeking. They are all completely non-productive and have no redeemable quality whatsoever. The aspiration is that you can make money for doing nothing valuable. That’s what’s so attractive, but also what’s so unsettling. Most people can sense that there’s something extremely wrong about people making money for doing nothing. Something doesn’t add up and even a 5-year old can sense it. The value has to come from somewhere and hence there’s always a bit of dread with most altcoiners. Even in bull markets, they know at some level that they’re playing with house money that they didn’t earn. So many altcoiners go broke like lottery winners because deep down, they know they didn’t provide any value.
Indeed, the value being extracted by all this rent seeking is from the capital that civilization has built up over many generations. In Western countries, there’s a culture of trust that’s starting to disintegrate. Trust is a capital good that takes a long time to form. Trust is why you saw an economic miracle in Japan and Germany after World War II but not one in the Soviet block. Abusing that trust for monetary gain reduces communal trust. These rent-seeking frauds are eating our seed corn.
Thankfully, there’s no rent-seeking in Bitcoin as there’s no centralized entity that can hand out rent-seeking positions. Bitcoin is building up capital again because Bitcoin rewards people who add value. The toxic maximalism that everyone complains about is really just a reaction against rent-seeking, value-subtracting behavior. VCs are experts in being rent-seeking middlemen. Influencers are as well. These are the people who, when they come in trying to extract value from Bitcoiners, get roasted.
Bitcoin companies are harder to create than any other because there’s no room for rent seeking. The Ethereum Foundation isn’t giving you a grant, nor is the “crypto” VC going to give you money because you don’t have a new token they can pump. But that’s what makes for better, more honest companies and why Bitcoiners are much more likely to support them. The value add is obvious because there’s no fiat or altcoin subsidization.
Bitcoin builds capital through making work about adding value again. And work is harder, but less scammy. In other words, instead of being scammy rent seekers, we can do honest work again.
Reject rent seeking. Build.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.