You Cannot Hoard Your Way to Money
The unit of account follows whatever people actually spend.
The unit of account follows whatever people actually spend. That single result from Lawrence White’s monetary economics decides the contest between gold, fiat, and Bitcoin — and it disqualifies any coin engineered to be held rather than used. A close reading of Better Money (2023), White (1984), and the public-choice case against the fiat status quo.
Ask whether Bitcoin is “digital gold” and you have already lost the argument, because you have agreed to rank monies the way a portfolio manager ranks assets — by their return and their correlation with everything else. That is a question about investments. It is not a question about money. Lawrence White makes the distinction the organising principle of his book Better Money: Gold, Fiat, or Bitcoin? (2023): a monetary standard is judged not by what it pays its holders but by how well it performs the offices of money — being the thing people routinely accept in payment, and the thing in which prices are quoted. On the first page of his Bitcoin chapter he draws the line in one sentence: he is interested in Bitcoin “as a potential monetary standard, not as a personal investment” (White 2023, ch. 5).
The distinction is not pedantic, and the reason is a result White established forty years ago that the book leans on at every turn. It is the thesis of his 1984 American Economic Review paper, “Competitive Payments Systems and the Unit of Account,” and the most important idea in the literature for anyone reasoning about cryptocurrency as money. Stated plainly: the unit of account adheres to the general medium of exchange. Prices get quoted in whatever sellers routinely take in payment. Whoever wins the payments layer wins the pricing layer for free — and whoever loses payments cannot win pricing at any price. White’s book makes the bridge explicit: “Since the unit of account normally adheres to the commonly accepted medium of exchange (White 1984a), it follows that BTC is also unlikely to become a common unit of account” (White 2023, ch. 6).
1. Why the unit of account is not a choice
The “new monetary economics” of the early 1980s — Black, Fama, Hall, Greenfield and Yeager — imagined cashless systems in which the unit of account floated free of any medium of exchange: prices denominated in a numeraire commodity, or basket, that nobody actually hands over to settle a bill. White’s 1984 paper showed why these do not cohere outside a Walrasian blackboard. An abstract unit of account, divorced from any traded good, “can have no operational significance for market participants”; it is meaningful only to an auctioneer who does not exist (White 1984). In the real economy, where goods are unequally saleable, the unit of account is not selected by anyone. It emerges, wedded to the medium of exchange, by a Mengerian process: the most saleable good becomes the general medium of exchange because everyone can offload it, and prices then get posted in its units because quoting in anything else would impose calculation costs on every counterparty. “For this reason the unit of account remains wedded to the medium of exchange” (White 1984).
His decisive evidence is historical, because it shows the wedding surviving a change of regime. During Britain’s Bank Restriction of 1797–1819, gold coin stopped circulating and Bank of England notes became the basic money. The unit of account, the pound sterling, did not stay attached to its abstract gold definition; it stuck to the thing people actually paid with. The pounds-sterling price of gold fluctuated; the pounds-sterling value of a banknote stayed fixed at par. The unit followed the medium, not the metal (White 1984). The book repeats the pattern for the fiat transition: at no point in the move from gold to fiat does the unit of account cease to be defined in units of whatever currently functions as the basic medium of exchange (White 1984; White 2023, ch. 4).
Pull the result into the present and it becomes a filter that almost every cryptocurrency argument fails. A coin’s branding does not make it money. Its scarcity does not make it money. Its market capitalisation does not make it money. Its being “adopted” — in the sense that millions of wallets exist that hold it — does not make it money. White is brutally clear that opening a wallet to hold Bitcoin “is not the same as accepting or using Bitcoin as a medium of exchange,” and that rising asset value “is neither the same nor a pathway to monetization” (White 2023, ch. 6). An ever-rising Tesla share with an ever-thicker market does not thereby become a medium of exchange. The only thing that makes a candidate money is that people routinely take it in payment. Win that, and the unit of account comes with it. Lose that, and no amount of “number go up” will buy you the office. “Is it digital gold?” asks whether a thing is a good asset to hold; “what will people pay with?” asks whether it can become money. They are not the same question, and the White result says only the second settles anything.
2. Why a coin built to be held cannot win payments
If the medium-of-exchange contest is decisive, the operative question becomes mechanical: what makes one candidate a better medium of exchange than another? White answers with supply and demand, and the answer is where his framework turns sharply against the dominant “store-of-value” design.
The demand to hold any money is, in the standard picture, a demand to hold a certain real purchasing power. Plot purchasing power against quantity and the demand curve is a rectangular hyperbola. Now put the supply curve next to it. For the capped, programmed coin, the quantity in existence is fixed by the source code and is perfectly unresponsive to price: the supply curve is vertical, in both the short run and the long run (White 2023, ch. 5 and ch. 6). The consequence is arithmetic, not opinion. When the supply curve is vertical, every shift in demand lands entirely on price and not at all on quantity. White’s phrase is exact: “purchasing-power volatility is baked into Bitcoin’s design” (White 2023, ch. 5).
The numbers he assembles are not subtle. Bitcoin’s dollar-price volatility has run roughly 3.5 to 9 times that of major fiat currencies, gold, or the S&P 500; thirty-day volatility averaged about 4.5 percent over 2018–21 against roughly 1.2 percent for gold and 0.5–1.0 percent for major fiat currencies (White 2023, ch. 5, citing the World Gold Council and the Bitcoin Volatility Index). Between its November 2021 peak of $67,566 and its November 2022 trough of $15,709 the price fell by more than three-quarters in a year. A thing whose purchasing power can halve and double inside a year is hard to hold or accept for any obligation denominated in anything but itself — which is to say, hard to use as a medium of exchange at all.
Then comes the mechanism that ties the indictment together. The volatility is not an accident of immaturity that growth will cure; it is produced by what the demand is made of. The principal source of demand to hold the capped coin is speculation on its future price; transactional use is a small niche. Speculative demand is fickle and swings hard; transaction demand is comparatively stable. With a fixed supply absorbing none of the swings, the fickle component dominates the price. White states the corollary precisely: “If Bitcoin were only demanded as a medium of exchange and not at all as a speculative investment, then the volatility of the demand curve, and thus of purchasing power, would be lower than it is today” (White 2023, ch. 5).
The two demands are not merely different; they conflict. “Attracting investors who want an appreciating asset… conflicts with attracting everyday medium-of-exchange users, who normally seek short-term predictability of purchasing power” (White 2023, ch. 5). The investor’s optimum is to hold and never spend, lest he miss the run-up; the user needs to spend, and needs the thing worth roughly the same next Tuesday. J. P. Koning’s point, which White endorses, closes the loop: the niche payment role is not merely small, it is kept small by the coin’s popularity as a speculative bet. The maxim of one prominent holder, reported by White — “Spend cash, invest in Bitcoin. Cash is trash” — is not a slogan against fiat; it is a confession that the asset is designed to be hoarded, and an instruction not to use it as money.
The everyday-use frictions stack on top of the volatility. Visa averaged about 564 million retail transactions a day over the year ending mid-2021; confirmed Bitcoin transactions of all kinds averaged about 250,000 a day in December 2021, of which genuine retail spending was a sliver (White 2023, ch. 5). On-chain access is priced per transaction regardless of value, so for retail-sized payments the fees ran higher than for gold-payment services — White puts early-2022 miner fees mostly at $1.20–$2.70, with over 98 percent of miner revenue still coming from block subsidy, not fees (White 2023, ch. 5 and ch. 6). And in the United States every spend of an appreciated coin is a taxable disposal requiring record-keeping, a burden the code spares small foreign-currency transactions but not Bitcoin, which it treats as property (White 2023, ch. 6). El Salvador supplied the field test: it made Bitcoin legal tender in 2021, pre-loaded citizens’ wallets with $30, and removed capital-gains tax — and the public, in a former central banker’s words quoted by White, “continues to reject the use of bitcoin as legal tender,” spending the free $30 and going no further (White 2023, ch. 6). Even with legal privileges and subsidised onboarding, transaction use did not take hold.
The earlier working paper by Luther and White (2014) had already named the disease — “an inelastic supply in the face of volatile demand makes the value of bitcoin unstable” — and bounded its possible value from essentially zero to whatever it would be worth if it displaced the entire dollar currency, a span so wide that wild swings are unsurprising. That paper is more hopeful about engineering around the problem, and I return to its hopefulness below, because it points at the one design move that matters.
The verdict of this section is not mine; it is White’s framework applied to the capped, store-of-value coin: such a coin manufactures the very volatility that deters the transactional use it would need to become money, and it does so structurally, by treating fixed supply as a feature. Wei Dai — whose b-money design White credits as a precursor — saw it at the start. As White reports, Dai judged the project a failure “with regard to its monetary policy,” because the volatility “imposes a heavy cost on its users,” and worried that by capturing the niche with a design that “can’t grow to very large scales,” it had “precluded a future where a cryptocurrency does grow to very large scales” (White 2023, ch. 5). That is not a hostile outsider; it is one of the field’s intellectual fathers warning that the wrong monetary design had won.
3. The honest counter — including White’s own verdict against the design I will defend
Honesty here requires three concessions — two against the optimistic reading, one a crack of daylight. First, the daylight, from White himself. If volatility is produced by speculative demand dominating under a fixed supply, the remedy is implied by the diagnosis: change the composition of demand. White writes it out — “Only if fickle investment demand is supplanted by stable transaction demand can we expect a decline in the volatility of Bitcoin demand,” and it is “defensible… to argue that Bitcoin’s purchasing power would become less volatile if the demand to hold Bitcoin as a medium of exchange were to grow relative to demand to hold it as an investment,” because transactions demand is more stable than speculative demand (White 2023, ch. 6). In the limit, where a coin is genuinely the world’s money and no longer a speculative vehicle, its demand would be roughly as stable as gold’s was when gold was money. The path is not closed by White’s own logic; it runs through transactional dominance.
Second concession, against me. White denies that transactional dominance alone would make the capped coin as good as gold, and the reason is the vertical supply curve again. Gold’s purchasing power is mean-reverting over the long run, because a rise in its value induces more mining and the conversion of jewellery into monetary stock, dragging the value back to trend; the capped coin has no such induced supply response, so its purchasing power behaves more like an anchorless random walk (White 2023, ch. 6). Higher market capitalisation does not fix this — which is exactly why, contrary to the standard advocate’s promise (White quotes Vijay Boyapati making it), volatility has not fallen as market cap has risen. Vitalik Buterin, whom White cites approvingly, drew the blunt conclusion: most people dislike volatility and are decently served by existing money, so “BTC will never become a substantially used unit-of-account” (White 2023, ch. 6).
Third concession, and the largest. White’s book does not end up endorsing a Bitcoin standard. Weighing the three, he dismisses fiat for its inflationary, business-cycle-prone record in central bankers’ hands, and then ranks gold above Bitcoin, precisely because gold’s elastic, mean-reverting supply gives it the more stable purchasing power money most needs; the reviews of Better Money read his verdict the same way. So the synthesis I will defend — that the route to monetary status is a payments-first, used-not-hoarded electronic cash — is built on White’s analytical machinery and his documentation of what Bitcoin’s designer originally intended, but parts company with his bottom line. I will not pretend otherwise, and I will not delete the inconvenient fact that the author whose framework I am using prefers gold to any cryptocurrency.
Where the daylight is wider than White allows is a point his own tradition raises, and which a reviewer of Better Money in The Review of Austrian Economics pressed directly: White treats the base-money supply as the whole story, but historically a money’s effective elasticity came from the fiduciary layer on top — notes and deposits issued against, and redeemable in, the base. White wrote the canonical history of exactly this. A capped coin used as a settlement base, with a competitive layer of redeemable claims as the actual circulating medium, would have a far more elastic effective supply than the vertical base curve suggests. He is right that this reintroduces trusted intermediaries and their assurance problems; he is not obviously right that it leaves the base coin no better than a random walk once a deep, transaction-dominated economy sits on top of it. That is a genuine open question his base-focused framing understates.
It is worth giving White’s gold argument its full force, because the honest thing is to make the opposing case as strong as it really is. Gold’s purchasing power mean-reverts because production responds to it: when the metal’s value rises above its marginal cost of mining, existing mines lift output, prospectors open new ones, and jewellery is melted into monetary stock, until the value falls back to trend. Hugh Rockoff’s history, which White cites, shows even the celebrated supply shocks were often equilibrating — the Klondike strike of the 1890s and the cyanide-extraction process of 1887 were themselves induced by gold’s high purchasing power at the time. The largest uninduced shock, the California and Australian rushes, produced only about 6.4 percent annual growth in the world gold stock across 1849–59 and under 1.5 percent annual inflation in gold-standard countries (White 2023, ch. 6). The upshot was a near-zero secular inflation rate and a purchasing power that, over ten-year-plus horizons, was more predictable than the post-war fiat dollar’s has been — White points to the work of Selgin, Lastrapes, and himself for the comparison. A capped digital coin has none of this; its supply answers to no price signal, so its purchasing power has no anchor to revert to. On the narrow question of supply-side stabilisation, White is simply correct, and the electronic-cash case does not contest it. It contests the weight of that point once transaction demand — which White concedes is the stable kind — comes to dominate a large and deeply used network.
There is a further honest complication that bites any fixed-supply standard, the electronic-cash design included. If the quantity of money eventually stops growing while real output keeps rising and velocity is roughly constant, prices must fall: the same dynamic equation of exchange that explains fiat inflation predicts mild deflation under a capped coin — White works it out at about 2.1 percent a year on recent US growth (White 2023, ch. 6). Foreseen deflation need not be harmful; Milton Friedman’s case for an “optimum quantity of money,” which White rehearses, holds that gently falling prices can be efficient. But it can also collide with the zero lower bound: if the equilibrium real interest rate sits below the deflation rate, no one will hold bonds yielding less than the zero-nominal, positive-real return on simply holding the money, and intertemporal markets cannot clear. This is not a knockdown objection — it is a design parameter to be reckoned with — but it is the kind of thing a serious proposal states rather than buries, and it cuts against glib “fixed supply is obviously sound” maximalism as much as against fiat.
4. Why fiat survives anyway — and what a rules-based money would actually displace
A reader could accept all of this and still shrug: fiat rules the world, inflation is usually in single digits, and people are “decently served.” White concedes the shrug has force — incumbent monies are protected by network effects, and parallel standards struggle to bloom unless the incumbent’s inflation runs well into double digits (White 2023, ch. 6). But why is the defective incumbent so entrenched? The answer is not that fiat is efficient. It is political economy — the contribution of the strongest peer-reviewed paper in this set.
Rouanet and Hazlett, in Public Choice (2023), model monetary institutions not as the work of benevolent technocrats nor of a single wealth-maximising Leviathan, but as the outcome of competition between interest groups trying to capture wealth transfers. Their engine is the Cantillon effect, named for Richard Cantillon’s 1755 observation that newly created money does not raise all prices at once and evenly; it enters at specific points and spreads outward, so the first receivers spend at old prices and gain, while the last receivers — wage-earners and savers holding cash — find prices already risen and lose real purchasing power (Rouanet and Hazlett 2023). New money is therefore a redistribution, always, even when it shows up in no inequality statistic.
Their crucial move is to notice an asymmetry of visibility. The winners from a given operation can identify themselves precisely — the firms whose mortgage-backed securities the central bank buys, the dealers it transacts with, the borrowers whose spreads it compresses. The losers are diffuse and, worse, cannot easily tell that they have lost or who did it to them; the redistribution is buried inside a general price level. Concentrated, identifiable benefits on one side; dispersed, unidentifiable losses on the other. By the ordinary logic of collective action — the logic Mancur Olson set out, which Rouanet and Hazlett invoke — the side that can see itself organises and lobbies, and the side that cannot, does not. “Cantillon effects are a matter of public choice” (Rouanet and Hazlett 2023). Hence their sharp prediction: proposals to make operations neutral — buying a broad, representative basket of assets rather than picking favourites — will not emerge, because neutrality disperses the benefits incumbent winners are organised to defend.
They put the framework through three cases, and the cases are the evidence. The first is the Federal Reserve’s response to the 2007–08 crisis. Open-market operations run through a small set of designated primary dealers, and the Fed’s choice to buy mortgage-backed securities rather than confine itself to Treasuries de facto allocated credit to the housing sector — Di Maggio and co-authors, cited in the paper, estimate the choice produced an extra $600 billion of refinancing. When the Fed hired BlackRock to grant loans on its behalf, that firm gained advance knowledge of what the central bank would buy and which way policy would lean — an informational rent unavailable to anyone else (Rouanet and Hazlett 2023). Researchers have even constructed an “economic distance from the Fed” index across industries, with measurable advantages to the proximate. None of this is conspiracy; it is the predictable shape of a process whose gains are concentrated on the identifiable and whose costs are smeared across everyone holding the currency.
The second case is the COVID response, where the Fed extended its balance sheet into corporate credit and municipal debt through named facilities, again selecting which asset classes and which borrowers to relieve. The third case is the one that proves the rule by inverting it: the euro. Establishing the single currency eliminated cross-country bond spreads and so transferred cheap borrowing to peripheral states that had previously paid high rates; when Lehman fell and spreads blew back out, the ECB built programmes — the Securities Markets Programme, then Outright Monetary Transactions — to compress them again, cutting two-year yields by, on one estimate the paper cites, roughly two points in Italy and Spain, five in Portugal and Ireland, and ten in Greece. Here, crucially, the losers were identifiable — Germany and the fiscally conservative north, who could see exactly who was borrowing on their credit — and so, exactly as the theory predicts when losses are concentrated and visible, they organised and lobbied, extracting non-bailout clauses and treaty constraints. Hans-Werner Sinn’s observation, quoted in the paper, captures the rent-seeking in one statistic: in 2017, 63 percent of ECB Council votes were held by countries with a negative net foreign-investment position. And when ECB president Christine Lagarde said in 2020 that she was “not there to close spreads,” Italian yields spiked within hours and she walked the remark back (Rouanet and Hazlett 2023). The redistribution is real enough that denying it moves markets.
The mechanism survives even the post-2008 shift to paying interest on reserves. As the paper notes (drawing on George Selgin), paying interest on reserves lets the central bank create base money by buying assets without expanding the broad money supply — but that does not abolish Cantillon effects; it merely relocates them to the choice of which assets to buy against the new reserves. Whoever’s securities get bid up still wins. The redistributive channel is not a bug of one policy regime that a better regime would close; it is intrinsic to discretionary money creation, which is why Rouanet and Hazlett’s prediction that genuinely neutral operations “will not emerge” is the load-bearing claim.
Set this beside White’s history of how fiat standards actually arose and the two accounts fuse. Governments did not adopt fiat to spare the public the resource cost of mining gold — the textbook rationalisation. They suspended gold redemption to finance wars and to escape the discipline gold put on expansion; no country switched after an open public debate on costs and benefits (White 2023, ch. 4). He notes that ending redemption is, in cryptocurrency vernacular, a “rug pull,” and that fiat money is one unit of itself and nothing more — the fake “President of Russia” tweet declaring “1 RUBLE = 1 RUBLE” was, he observes, an accurate definition. And he invokes the public-choice logic Rouanet and Hazlett formalise: following Brennan and Buchanan, the profit from controlling seigniorage attracts rent-seeking that dissipates it, and the real remedy is constitutional — a rule that removes money creation from discretionary control (White 2023, ch. 6).
The historical record White assembles shows how weak even constitutional restraints have proved. The quantity theory of money — the price level moves proportionally with the quantity of money, given the stability of velocity and real output — applies straightforwardly to a fiat standard, and the recent record obeys it: when the Fed let the broad money stock surge in 2020–21 and was slow to rein it in, US consumer-price inflation reached 9 percent by mid-2022, a forty-year high (White 2023, ch. 4). The seigniorage temptation is sharper still in poorer states; White cites a tally finding thirty-four nations that financed more than a tenth of their spending by money creation between 1971 and 1990, ten of them more than a fifth, with Argentina and Yugoslavia ending the period in hyperinflation. Even the strongest written rule has bent: the ECB’s founding charter made price stability its sole mandate — “the last great hope for constitutionally constrained fiat money,” in White’s phrase — and Eurozone inflation still ran above 10 percent in 2022. The lesson the two works share is that a rule a legislature can suspend is a rule a legislature will suspend once new money is the faster way to finance spending than new taxes. A monetary rule worth the name has to be one no committee can vote to override.
This is what a credible, non-discretionary, non-debaseable money would displace: not merely “inflation” as a macro nuisance, but the Cantillon redistribution machine itself — the channel by which proximity to the money spigot is converted into wealth at the expense of everyone too far from it to notice. That is a far larger claim than “fiat sometimes runs hot,” and the strongest positive case for monetary reform in this body of work. Note that it is a case for rules — and that Bitcoin’s source code is, whatever else one thinks of it, a working automatic monetary rule free of discretion; White says exactly that, calling it “a valuable object lesson in how to write a constitutional monetary rule” (White 2023, ch. 5). The defect, on his analysis, is not the rule’s automaticity. It is the particular rule chosen — a fixed quantity that maximises volatility — and the culture that grew up to celebrate hoarding the asset rather than using it.
5. The fallacy of composition — used honestly, both ways
The oldest paper in the set earns its place here, where honesty cuts in two directions. Richard Lester’s 1938 American Economic Review essay, “Political Economy Versus Individualistic Economics,” is the canonical statement of the fallacy of composition: the error of reasoning from what is true of one individual, firm, or industry to what is true of the economy as a whole. His examples are durable. The hard-up individual rightly thinks more money would solve his problem; the mercantilist wrongly concludes the nation gets rich by piling up money. A single firm with inelastic demand can raise its income by restricting output; a whole economy cannot enrich itself by general restriction. A single banker sees that his bank can lend only what it takes in; he wrongly disputes that the banking system as a whole multiplies reserves into a far larger volume of deposits (Lester 1938).
That blade cuts straight through the “store of value” case for a capped coin. The individual holder reasons: the coin stored value for me — number went up — therefore it is good money for the economy. But what is individually rational for the holder — hold, never spend, because the appreciating coin is “too good” to part with — is exactly the behaviour that, generalised across all holders, keeps the coin from becoming a general medium of exchange, and therefore (by the White result) a unit of account, and therefore money at all. It is a Gresham-shaped trap in reverse: the “good,” appreciating money is hoarded, not spent, so it never circulates widely enough to price anything. The individual store-of-value experience does not aggregate into monetary status; it forecloses it. Read through Lester, White’s whole investor-versus-spender analysis is a fallacy-of-composition argument — the digital-gold thesis mistakes a fact about the holder’s balance sheet for a fact about the economy’s medium of exchange.
Now the honesty that cuts the other way, because Lester is not a witness for hard money and I will not pretend he is. His own policy conclusions in 1938 run against the grain of everything White and the public-choice tradition argue: he was defending discretionary government macro-management — deliberate deficits, expansionary money, a central government using “its control of the currency” to “buck the general movement” of a depression — against “individualistic” economists who wanted the state to behave like a thrifty household (Lester 1938). His sympathies are with the activist, discretionary state White wants to bind and that Rouanet and Hazlett show gets captured. Taken whole, Lester is partly a witness against the position this essay builds toward. I will not drop him for it.
The answer is not to suppress the contradiction but to meet it. Lester’s methodological point — beware reasoning from the particular to the general — is correct, accepted on all sides, and the sharpest tool against the digital-gold fallacy. His policy conclusion rests on a premise the later literature dismantles: that the discretion he would entrust to government is exercised by something like a benevolent planner aiming at aggregate welfare. That is the premise Rouanet and Hazlett deny on evidence — the discretion is exercised by an institution embedded in interest-group competition, allocating Cantillon gains to those organised to capture them — and the premise White denies on the historical record of why fiat was adopted and how seigniorage behaves. Lester wrote before public choice gave economists the tools to ask who operates the levers and in whose interest. Ask his own question — does the conclusion that holds for the model planner hold for the real, captured central bank? — and Lester’s method turns against Lester’s policy.
6. The design the analysis implies (this section is the author’s, and is labelled as such)
Strip the argument to its beams. The unit of account follows the general medium of exchange (White 1984), so the medium-of-exchange contest is the whole contest. A coin wins it only if transactional demand dominates speculative demand, because only then does its purchasing power stabilise enough to be usable — and White concedes this corollary in his own words (White 2023, ch. 6). The capped, store-of-value design structurally prevents transactional dominance: it rewards hoarding, prices everyday access too high, and manufactures the volatility that deters use (White 2023, ch. 5; Luther and White 2014). The design the analysis points to — and here I state a conclusion White does not draw, marked plainly as mine — is the opposite of digital gold. It is electronic cash: a coin optimised so ordinary people use it to pay, not hold it to wait.
A theoretical objection has to be cleared first, because it is the one that says no such coin can have value at all. Ludwig von Mises’s regression theorem holds that a money’s purchasing power today is inherited from its purchasing power yesterday, traced back ultimately to a moment when the stuff had a non-monetary commodity use; on the strict backward-looking reading some take from it, nothing lacking prior non-monetary use could ever become money. Bitcoin had no prior commodity use and acquired value anyway — a “bootstrap equilibrium,” puzzling on that reading. White records the resolution at length. Don Patinkin’s point is that a non-commodity money has multiple equilibria, one of them always zero; Nick Szabo’s complaint, which White quotes, is that the libertarian reading mistakes Menger’s account of how money could arise for an account of the only way it could arise; and William Luther’s distinction between a “use-value” view and a “coordination” view supplies the mechanism — early adopters coordinated, with or without collaboration, on the forward-looking expectation that others would accept the coin in payment (White 2023, ch. 5). The significance for the present argument is exact: value can be bootstrapped on the anticipation of payment use, which is precisely the Mengerian feedback loop Nakamoto described, and precisely what an electronic cash sets out to do. The same multiplicity carries a warning the maximalist should heed — zero is a standing equilibrium for any non-commodity money, fiat or crypto, so the live question is never “will it be scarce?” but “which payment network do people coordinate on?”
This also disposes of the “backing” rhetoric on both sides. White distinguishes the technical sense of backing — a reserve held to redeem the money — from the vernacular sense of mere “support.” In the technical sense Bitcoin is unbacked, but so is a floating fiat currency, and so is a gold coin; all are base monies (White 2023, ch. 6). To say a coin is “backed by mathematics” or “by the blockchain” is, in White’s terms, an incomplete account of its value, because value requires a limit on supply and a source of demand. An electronic-cash case therefore cannot lean on backing slogans any more than the digital-gold case can. It has to rest on demand to use — the one foundation the analysis says is load-bearing.
What “optimised for use” means is not mysterious, and it is exactly what Bitcoin’s designer originally said the project was for. White preserves the receipts. Nakamoto named three problems the design was meant to solve: inflation from central banks, loss of privacy to commercial banks, and “the high cost of bank-mediated payments that made online micropayments infeasible” (White 2023, ch. 5). The third is a payments problem — fees so high that small transactions cannot happen. And Nakamoto’s adoption theory, which White also records, was Mengerian and transactional: develop a niche payment use where the coin beats existing mechanisms, get a core group accepting it, and let a positive-feedback loop of acceptance build. That is a medium-of-exchange strategy from the first move. The “digital gold” turn — fixed supply reframed as the whole point, appreciation as the reason to hold, second layers bolted on because the base was kept small — is a later overlay on a design whose stated goal was to be cash.
So the design the analysis implies is one whose engineering is bent toward cheap, reliable, high-volume transactions: per-transaction fees driven toward zero so micropayments — Nakamoto’s own benchmark — become feasible; throughput scaled so a real economy’s payment volume can settle on it rather than queue behind a fee auction; and a culture that treats the coin as a medium to spend, not an asset to hoard, so transactional demand can grow large relative to the speculative float. Luther and White (2014) gestured at the entrepreneurial half — services that let a buyer spend and a seller receive without either bearing exchange risk, payments that “carry no chargeback risk and need no centralized clearing and settlement node,” so fees can run “possibly much lower” than card rails. The technological half is simply to make the chain itself a cheap, high-capacity payment rail rather than a scarce settlement layer rationed by fees.
In this author’s view, that is the design intent of the “peer-to-peer electronic cash” lineage — and, to be concrete about where I stand, of Bitcoin SV’s insistence on unbounded on-chain scaling and sub-cent fees. It is also the only configuration on which White’s own escape clause can be reached: the one in which stable transactional demand can come to dominate, pull volatility down toward the level White concedes it would reach, and let the coin contend for the medium-of-exchange role that drags the unit of account behind it. White does not endorse this conclusion; he prefers gold, and doubts any fixed-supply coin gets there because of the residual elasticity problem of Section 3. The honest statement is that his framework leaves the door open exactly the width of the transaction-demand argument, that whether a payments-first coin can walk through it is an empirical question not yet answered either way, and that White himself ends the book calling these markets “an ongoing discovery process” whose future transaction use none of us yet knows.
What to watch — and what not to
The discipline this literature imposes is a discipline of metric. Because money is won at the medium-of-exchange layer and the unit of account merely follows, the thing to watch is not the price or the market capitalisation. White says it directly: holding a coin is not using it, and rising asset value is not a path to monetisation (White 2023, ch. 6). The price chart is a chart of the speculative demand that, on his analysis, is the obstacle. The metric that would signal a coin becoming money is the boring one: are real people paying rent and buying coffee in it, at volumes and fees that make “store of value” beside the point? Adoption is wallets opened; monetisation is bills paid.
That reframing survives every disagreement within the set. White (1984) tells you the unit of account is downstream of payment. White (2023) tells you, with the numbers, why a hoarded coin cannot win payment — and concedes the one condition under which a used coin might. Rouanet and Hazlett (2023) tell you why the defective incumbent is entrenched anyway, and what a rule-bound money would dismantle. Lester (1938) hands you the tool to see the store-of-value case as a fallacy of composition, even as his own politics warn against the discretionary state the others want to bind. And Luther and White (2014) name the disease — inelastic supply meeting volatile demand — and point at the moves that would let transactional demand grow.
Put them together and the conclusion is not a prediction about price. It is a standard of judgement. You cannot brand your way to money, you cannot litigate your way to money, and above all you cannot hoard your way to money. You can only be spent into it — by enough people, cheaply enough, often enough, that the prices of the world quietly start being quoted in your units. Everything else is portfolio talk.
Keywords: unit of account; medium of exchange; monetary standards; gold standard; fiat money; Bitcoin standard; electronic cash; peer-to-peer payments; purchasing-power volatility; inelastic supply; speculative demand vs transactions demand; Cantillon effects; redistributive monetary policy; public choice and money; seigniorage; network effects in money; fallacy of composition; free banking; synthetic commodity money; Lawrence H. White; Better Money.
References
Lester, Richard A. 1938. “Political Economy Versus Individualistic Economics.” American Economic Review 28 (1): 55–64. (Peer-reviewed, Tier 1. Full text analysed.)
Luther, William J., and Lawrence H. White. 2014. “Can Bitcoin Become a Major Currency?” George Mason University Department of Economics Working Paper No. 14-17. SSRN abstract 2446604. (Working paper, not peer-reviewed. Full text analysed.)
Rouanet, Louis, and Peter Hazlett. 2023. “The Redistributive Politics of Monetary Policy.” Public Choice 194 (1): 1–26. (Peer-reviewed field journal, Tier 1–2. Full text analysed.)
White, Lawrence H. 1984. “Competitive Payments Systems and the Unit of Account.” American Economic Review 74 (4): 699–712. (Peer-reviewed, Tier 1. Full text analysed.)
White, Lawrence H. 2023. Better Money: Gold, Fiat, or Bitcoin? Cambridge: Cambridge University Press. ISBN 9781009327473. (Scholarly monograph. Chapters 4 (”How a Fiat Standard Works”), 5 (”How a Bitcoin Standard Works”), and 6 (”Comparing and Contrasting Gold and Bitcoin Standards”) analysed in full.)
A note on sourcing, for transparency. Every claim above is drawn from the full text of the five works listed, not from abstracts or summaries. Secondary figures named in the essay — Carl Menger, Richard Cantillon, Geoffrey Brennan and James Buchanan, George Selgin (”synthetic commodity money”), Wei Dai, Ronald Coase, J. P. Koning, Vijay Boyapati, Vitalik Buterin, and the Review of Austrian Economics reviewer of Better Money — are cited as they appear within these works (chiefly within White 2023 and White 1984), and are not independently verified primary citations. They are reported as White and the others report them, and should be treated as such. Where the essay draws a conclusion the cited authors do not endorse — specifically, the “electronic cash” design verdict in Section 6, which departs from White’s own preference for a gold standard — that departure is labelled in the text.