Throughout history, there have various iterations of sound money, from the Rai stones of the Yap islands to the gold standard.
However, sound money has remained elusive over the last century following the proliferation of credit expansion through central banking fractional-reserve policies that lead to endemic inflation.
Sound money is consistently touted as a necessary prerequisite to a prosperous society and a stable price mechanism in free market economies by the Austrian School of economics.
Eminent figures such as FA Hayek, Ludwig von Mises, and Carl Menger detailed the root causes of ‘boom and bust’ economic cycles as the extended inflationary monetary policies that have come to dominate government direction since the 1930s.
FA Hayek even went so far as to presciently describe a new kind of currency that would be free from government control in 1984 as the only true means of achieving good, sound money again.
Since then, Bitcoin has emerged not only as sound money but perhaps exists among the hardest currencies created, made for the digital age.
Adequately understanding sound money is vital to comprehending the fundamental advantages of Bitcoin and why its novelty is often challenging to accept or comprehend after a prolonged period of global fiat dominance.
As a side note, if you have a chance to read The Bitcoin Standard by Saifedean Ammous, I would highly recommend it, no matter what your background is, as it provides some crucial context on sound money and Bitcoin’s place in monetary history.
What Defines Sound Money?
The history of money is both enormously impactful on today’s conception of value and how sound money emerges naturally in a civilization. Examples of such sound money extend back to ancient societies, including the Yapese Rai stones and the gold Solidus of the Byzantine Empire.
Nick Szabo provides an excellent analysis of the ancient beginnings of value systems with his distinguished piece; Shelling Out: The Origins of Money.
Szabo details how…