Cheaper to make, more expensive to buy
Twenty five years ago, to share 50 photos with friends you had to buy the film, pay to develop it, and pay for the postage. Call it £25. Today you can take 500 photos on your phone and share them with the world for nothing. The same is true of maps, music, calculators, international calls, a torch, a stereo. It’s all on one device and it’s mostly free.
But your weekly shop, your rent, and your energy bill tell the opposite story. Coffee, for example, is vastly more efficient to grow, ship, and brew than it was decades ago and yet it costs more today. Houses take two incomes and a longer mortgage than they used to, where one income once did it. Something doesn’t add up. We’re clearly getting better at making almost everything, and yet life feels more expensive year after year.
Why?
It’s the result of two forces colliding. One force drives prices down. The other force can’t let them fall.
The first force: technology pushes prices down
In any open market, an entrepreneur only wins by offering more value for less. Wherever someone charges a fat margin, a competitor copies the idea and undercuts them. Run that process for years and the price of almost anything should fall toward its marginal cost, the cost of producing one more unit once the system is running. For software that cost is close to zero, which is why the calculator app that once cost a pound is now free.
This force is speeding up. Software took over work that needed a person thinking, and the cost of that work collapsed. Robotics is now doing the same in warehouses, farms, and factories. And AI writes the software, so the tool doing the work on everything else is improving itself. Each improvement compounds on the last, because better tools build better tools. So the natural direction of prices in a free market is down, and the natural rate of that fall is accelerating.
Prices falling because we get better at producing things is what progress looks like. That’s deflation. But the word gets used for something else, an economy seizing up, people too poor or too frightened to buy. The second kind is a genuine disaster, and it’s where the word got its reputation. The good kind inherits a fear it never earned. It’s the natural state of a free market. Left alone, it means your money buys more year after year, and your saved hours of work grow in value while you sleep. That’s what technology has been trying to deliver to you your entire life.
The second force: money that’s built on debt
Nearly all money today is created through lending. When a bank issues a mortgage, it doesn’t hand over other people’s savings, it creates a new deposit, new money, matched by your new debt. Repeat that across every bank, add what governments borrow, and the money in the system is roughly a mirror of the debt in the system. If the loans were all repaid, most of the money would vanish with them.
Falling prices are the one thing that design can’t tolerate. Your mortgage is fixed in pounds. If prices across the economy fall, wages eventually follow them down, but the mortgage payment doesn’t shrink, so the debt takes a bigger and bigger bite of your income. Multiply that across every indebted household, company, and government, and broad falling prices set off a cascade of defaults. Borrowers fail, so banks fail, so the lenders to the banks fail. In 2008 we saw a preview. Trade finance froze so hard that fully guaranteed shipments sat on docks because no bank trusted another bank’s paper.
That’s why central banks target rising prices, usually 2% a year, forever. The debt structure dies without them.
The collision
So technology drives prices down, faster each year, but the money system can’t let them fall at all. The gap between them has to be papered over, and the paper is new money and credit.
And because technology compounds, the papering has to compound too. This is why each rescue is bigger than the last. The 2008 response was measured in hundreds of billions. The 2020 response was measured in trillions.
Everything that comes next is caused by those two forces colliding.
What this does to your money
The most direct effect is the one you never see, the price fall that never arrives. Technology made the things you buy cheaper to produce. In a free market that saving would reach you as lower prices. Instead, new money and credit push prices back up, so the price tag holds or rises. You worked just as hard, production got cheaper, but the saving never reached you.
It’s an invisible pay cut. If prices rise 5% but your pay only rises 2%, you’re working more hours for less life. So, inflation and a wage that buys less are the same thing. When Malawi devalued its currency by around 44% in a day, supermarkets closed to re-price everything. Everybody took a pay cut. Richer countries do the same thing, just slowly.
And your savings lose value too. When the safest account in the country pays 2% while lived costs rise 6%, the system promises you a guaranteed loss on the money you already earned.
The official inflation number makes the theft look small, because it starts counting from zero. Imagine technology would naturally have made life 3% cheaper this year, but instead prices rose 2%. Measured from zero, that’s a 2% rise, and 2% is what the official number reports. Measured from the 3% fall you were owed, it’s about 5%. Picture a moving walkway sliding backwards. If you have to walk forward five steps a minute just to stand still, the effort is real even though you get nowhere.
Who gets the new money
New money arrives in some places before others. It comes in through banks, government spending, and cheap loans. The people closest to that money get it first, and they spend it before prices catch up. This has a name, the Cantillon effect. Asset owners [the people who already own houses, shares, and land] are first in line. Wage earners are last.
Being first or last changes how everything else works.
Houses stop being homes and become savings accounts
When money leaks value, people put their savings into whatever holds value instead, and property is the one an ordinary family can borrow to buy. So a house does two jobs now. It’s a place to live, and it’s a savings account. You pay for both in one price, and the price of that second job has a name, a monetary premium. A landlord with three mortgaged properties gets richer in his sleep while a paramedic saving for a deposit falls further behind year after year, and neither of them changed how hard they work.
Everyone is forced to become an investor
If cash loses value every year, you’re forced to become an investor just to stand still, whether or not you have the time, skill, or stomach for it. The system makes safety hard to come by. But in a free market with a money nobody can make more of, an ordinary saver can simply hold it and get richer as prices fall.
Money goes to the wrong places
When borrowing is kept cheap, a project only has to beat the interest on its loan to look worth doing. Hold that interest near zero and almost anything clears the bar, including projects that use up more in wages, materials, and energy than their output is worth. Firms that should fail don’t. They take out new loans to pay off the old ones and carry on. That ties up the staff, the customers, and the premises a new firm needs to get started. Cheap credit also favours whoever is biggest and closest to it, so the firms already on top buy their rivals instead of making something better. Competition stops being about serving customers and becomes about getting the cheap money. A market has one way of fixing its own mistakes, which is letting bad businesses fail. That’s the part that stops working.
Automation happens faster than it would have
Every year new money pushes up rent and energy, and pushes staff to ask for more, because their own bills have risen. Every year the law raises the minimum wage on top of that. And every year the machines get cheaper. Take a café. It can’t just charge more, because the one across the road would undercut it. So it puts in self-order screens, years sooner than it would have. The screens were always coming. The pay rise sold as saving those jobs brought the day forward.
What this does to people and politics
Give those effects a decade or three and they start reshaping society.
Resentment becomes the political weather
Asset owners pull ahead of wage earners because of where each stands in the line for new money, and neither of them worked any differently. It doesn’t feel like a place in a line, it feels personal. Renters watch landlords get richer for doing nothing and decide the game is rigged. It is rigged, just not by the neighbour they can see. So politics turns into a fight about who to blame, the rich, the immigrants, the boomers, the bankers, whoever your side points at. The one thing never on your ballot paper is the money system that decides where everyone stands in that line.
The help works, then makes things worse
All of that squeezes voters, and squeezed voters demand help. The help arrives as rent controls, subsidies, minimum wage rises, and eventually direct cash payments. The subsidies and the cash payments are paid for with newly created money. That new money pushes costs up again, so the squeeze tightens, and voters demand the next programme. The loop feeds itself, and with every turn more of who gets what is decided by politics instead of prices.
Trust decays
Money loses value every year, so everyone holding it is losing, and passing that loss on pays better than absorbing it. Firms shrink the chocolate bar instead of raising the price, so the number on the shelf holds while the thing in your hand shrinks. Service gets worse because pay buys less and morale follows it down. Lobbying beats building, because changing a rule pays better than making a better product. People sense that cheating pays, and what counts as normal drifts toward what pays.
Time horizons collapse
Money is stored time. You trade hours of your life for it, to spend later. When the store leaks, waiting costs you, so people grab value now, borrow now, and spend now. A society’s patience runs on its money. People save less, gamble more, and plan less far ahead, in everything from business plans to saving for a deposit.
Control creeps in
The whole system runs on belief. Money is created as debt, and a debt is only worth something while people believe it will be repaid. So a system that has to keep that belief alive ends up managing what gets said and, eventually, what gets spent. Money outranks law in practice. When the money system itself is threatened, laws bend to protect it, and so does the way they’re read. Speech rules tighten and payments get watched. Each step is justified by an emergency, and the emergencies keep coming, because policy can’t fix arithmetic. A democracy where you can vote on everything except the money is voting on less than it thinks.
Where the road ends
The same collision that squeezes one household squeezes whole countries, and then sets them against each other.
Between countries, a race to the bottom
Governments caught in the same trap reach for the same lever. A cheaper currency makes a country’s goods cheaper for foreigners to buy, so exports hold up and the factories keep their workers. But one country’s cheaper currency is its neighbour’s lost sales, so neighbours retaliate and cut their own. Currency wars become trade wars, and history is blunt about where trade wars lead when the pressure underneath keeps rising. Printing also makes war itself easier to start. A government that can create money doesn’t have to send its citizens the bill up front. A war paid for by visible taxes runs into resistance fast. A war paid for by quietly shrinking everyone’s savings can go on for years before people connect the two.
When the money gets rewritten
When confidence finally breaks, the state rewrites the money’s rules and the pattern starts again. Weimar Germany is the famous case. Savings wiped out, a population humiliated, and a strongman welcomed by people who a few years earlier had dismissed him. It doesn’t always look that dramatic. America ordered its citizens to hand in their gold in 1933, and in 1971 it ended the promise that dollars could be swapped for gold. Both were the same move in a gentler form. When the money’s promise can’t be kept, the rules change by decree, and the citizens take the loss.
Money the state can turn off
This time the control tools are stronger. Today your money is held by a bank, and a bank is a private company. A central bank digital currency moves it to the state itself, so your balance becomes something the state can watch and program directly. Combine that with AI and the state gets abilities past regimes only dreamed of, money that expires if you don’t spend it, payments that fail because of what you bought or where you stood, a kill switch on any business that steps out of line. No one has to play the villain for that to arrive. The next crisis, and a population asking to feel safe, are enough. And AI under this system concentrates power instead of spreading it, because AI’s gains flow to whoever stands nearest the money, while the workers it replaces are managed with benefit payments and rules.
Even the planet is caught in it
A money system that must force prices and consumption upward forever can never let the world use less. Every gain in efficiency should mean less material used, but new money arrives to keep the numbers growing, so the amount we use keeps rising anyway. You can’t demand more from a finite planet every year and expect it to keep up.
A depression, or the long road to war
So the current design leaves two doors. Door one is to stop creating money and let prices fall. When prices fall across the whole economy, businesses take in less for what they sell, so they can’t afford to pay their staff as much, and wages fall too. On its own that would be survivable, because the things you buy are getting cheaper at the same time. The debt is what breaks it. A debt is a fixed number of pounds, and that number doesn’t move when prices do. The same squeeze hits every level at once. Your mortgage payment stays the same while your pay falls. A company’s loan repayments stay the same while its takings fall. And a government still owes what it owes, even as tax receipts drop. Every borrower is caught, so defaults spread. Then the layer above goes, because banks hold those loans as their assets, so failing borrowers mean failing banks, and whoever lent to the banks fails after them. That’s the bad kind of deflation, a depression. Door two is to keep printing, and take widening inequality, deepening control, and rising risk of conflict. One end of that road is an arrangement where the interest on savings is held below rising prices, so money moves from savers to borrowers year after year. That has a name, financial repression. The other end is war. Most of the policy debates you watch are arguments about which door to edge toward. Neither door fixes it, because the design is the problem.
The way out
You can’t fix this by electing better people, because the design does this regardless of who’s in charge. Any leader who tried to stop the money creation would set off door one on their own watch, a depression with their name on it. They’d lose the next election to someone promising rescue, and that rescue would be the biggest expansion yet. Every politician watching learns not to try. Incentives beat intent. So the fix has to be built into the money itself. Money that nobody, however powerful or well intentioned, can make more of.
Why gold failed
We tried that once with gold, and the way gold failed is the thing to watch for again. Gold is heavy to move and hard to check, so a whole economy couldn’t trade the metal itself. The gold went into vaults, and people traded paper claims on it instead. Nobody outside could count what was in the vault, so whoever ran it could issue more claims than there was metal. And when the pressure came, governments changed the rules for swapping paper back into metal, or seized the metal outright. The scarcity was real, but the gold had to be held by someone else, and whoever holds it can change the rules.
What would actually work
So write down what the fix requires. Every item on it removes someone you’d otherwise have to trust. Money with a fixed supply, so nobody can make your savings worth less by creating more. Money anyone can check cheaply, so you never have to take an institution’s word for it. Money anyone can hold themselves, so there’s no vault to lean on. Rules that no company, government, or majority of insiders can change. And a record of payments that’s too expensive to fake, so you don’t have to trust anyone to be honest.
That list describes Bitcoin. There will only ever be twenty one million coins. Anyone can check the money themselves. Ordinary software on an ordinary computer, called a node, checks every transaction against the rules, so you can see for yourself that the rules are being kept. Anyone can hold their own keys, and whoever holds the keys controls the coins, so no custodian stands between you and your savings. New coins are issued through proof of work. Miners spend real electricity to add each block of transactions, so faking the record costs more than it pays. The base layer stays small and boring by choice, and speed runs on layers built on top of it. One of those layers, called Lightning, settles small payments in seconds for fractions of a penny.
Technology is what makes prices fall. An expanding money supply absorbs that fall before you ever see it. A money that can’t expand doesn’t.
How it could still be lost
I’d be making this argument if bitcoin had never been invented. The problem is a money system fighting technology, and that’s true either way. What bitcoin offers is a way out, and it depends on ordinary people holding the coins themselves. The obvious way for it to fail is the way gold failed. The coins end up in a few big regulated companies, those companies issue more claims than they actually hold, and everyone carries on pricing their life in pounds. Twenty one million would still be the limit. It just wouldn’t protect anyone, because almost nobody would own a coin, only a claim on a company that owns some. So what protects it is what people do with it. Hold your own keys and your coins never sit in someone else’s vault. Run your own node and you can check what you own without asking anyone. Price your life in bitcoin, and the pound stops being the unit you measure by.
What it would be like
If bitcoin stays in ordinary people’s hands, every effect above runs in reverse. Prices fall as fast as we get better at making things, so your savings buy more year after year. Houses drift back toward what they’re worth as places to live, because money itself stores value again. The forced scramble into speculation winds down. Credit shrinks to what genuine projects can pay back. Governments fund themselves through taxes people can see and contest, which means wars must be argued for and paid for in the open. Energy gets cheaper, because miners will buy electricity nobody else can use, from power stations too far from a city or producing at the wrong time of day. A guaranteed buyer makes new power plants worth building. And AI becomes good news instead of a threat, because its gains land as falling prices for everyone rather than concentrated control for a few.
Some of it is already visible if you change the unit. Priced in bitcoin, a laptop, a year of energy, and a house have all cost less over recent years, even as their pound prices rose. The whole of that fall is bitcoin strengthening, not those things getting cheaper, because in pounds they got dearer. So it’s a preview and not the finished reversal. The abundance underneath is real. It’s just invisible in the old unit.
Nobody has to wait for their government. Between countries this transition is uneven and slow, but for a person it’s immediate. The day you start saving in bitcoin, checking prices in it, and spending some of it, saving starts to pay you instead of costing you.
Why this is so hard to see
The thesis isn’t hidden. Every piece of it is public, and still most people, including most economists, look straight through it. Here’s why.
1.You’re measuring with the thing that’s being changed
Every price, every wage, and every savings balance you’ve ever seen is measured in money someone can always make more of. When your house “rises” in pounds, you can’t tell how much of the rise is the house getting more valuable and how much is the pound losing value. The pound is the ruler, but it changed length while you were measuring with it. That never feels wrong from inside. It just returns numbers, and the numbers look like facts.
2.The two forces hide each other
Technology keeps making things cheaper to produce. New money is created faster than that, so the price you pay rises instead of falling. You can’t notice a fall that never happened. The money creation is hidden in turn, because in a normal year you see only the difference between the two, 2 or 3%. That makes the printing look mild and responsible, and it makes the whole thing feel like weather.
3.The baseline is wrong
We judge inflation against zero. A 2% rise sounds mild and a flat year sounds like a success. But zero was never neutral. In a market that keeps getting better at making things, neutral is prices falling, so even a flat year is a loss. And you can’t look up the number it should have been, because that world never happened. It’s a theft with no crime scene.
4.Everything is moving faster than it feels
Technology, the force that pushes prices down, is improving exponentially, which means it’s doubling over a set interval. That forces money creation to grow at the same rate, just to keep prices rising. And that’s hard for humans to grasp, because we tend to think linearly, adding a bit at a time. Stack 50 sheets of paper and you’ll have a pile about a fifth of an inch high. Now fold one sheet in half 50 times, so every fold doubles the layers, and the stack would reach most of the way to the sun. Most people guess a few inches. So both forces are far bigger than they feel.
5.The official instruments can’t see it
GDP is the number governments watch to judge the economy, and it counts paid transactions and nothing else. When your phone replaces hundreds of pounds of cameras, maps, and stereos with free apps, your living standard jumps and GDP falls, because nobody is paying for any of it any more. So the better technology gets at giving you things for nothing, the worse the economy looks in the official numbers. That invites policy to fix a weakness that isn’t there. The fix is more money, which pushes prices up and absorbs the abundance the numbers couldn’t see. The measure was built for an economy where doing better always meant spending more.
6.The language is loaded
In everyday speech, inflation is normal and deflation hardly ever appears except next to “spiral” and “depression”. And there’s no everyday word for the good kind, prices falling because we got better at making things. It’s hard to think clearly about something when the only word for it means disaster. So people file the natural state of a free market under catastrophe.
7.Everyone has a reason not to look
The homeowner needs the house price story to be true, because his retirement is inside it. The politician gains nothing by understanding any of this, because “your pay will fall while your costs fall faster” loses to “your pay will rise”, and a leader who did it anyway would be blamed for the depression that followed. The pension system needs asset prices up. The economist was trained in this way of thinking, hired for it, and promoted inside it, so questioning it means questioning his own career. Each person defends their small piece sincerely, and nobody’s own position gives them a reason to doubt the whole. People even live the contradiction daily, hunting bargains all afternoon and cheering their house price all evening, and never notice.
8.Money beliefs are tribal badges
People pick positions to belong, and once a belief becomes a tribe’s badge, evidence feels like an attack. Labels do the thinking. “Crypto bro” and “gold bug” and “money printer conspiracist” each end the conversation before anyone gets to how the money works.
9.Nothing ever makes you question the pound
Someone measuring life in pounds sees rising prices and blames greed or supply chains. An investor measuring bitcoin in pounds sees a volatile asset that soared or crashed depending on when they looked.
And measuring in pounds, they’re both right. Property, the stock market, and the weekly shop really do go up in pounds. Bitcoin really does rise and fall in pounds. Nothing either of them sees contradicts what they already believe. Seeing the problem means questioning the unit you measure your whole life in, and nothing in ordinary life ever pushes you to. Ask a fish what the water’s like and it’ll say “what water?”. The water we swim in is the pound.
Those nine are why people find it hard to see the problem. Nothing needs to be hidden, and there doesn’t need to be a villain or a conspiracy to stop people working it out. The unit moves while you measure with it, the price fall you were owed never happened so there’s nothing to point at, the official numbers don’t count what’s free, and there’s no everyday word for the good kind of falling prices. Your own interests give you no reason to look.
The objections
“Deflation is dangerous. Look at the 1930s.”
People point at the Great Depression and say falling prices are dangerous. Prices did fall in the 1930s, and it was a catastrophe. But what collapsed was a banking system built on borrowed money, and prices came down with it. Prices also fall when we get better at making things, which is why sharing fifty photos went from twenty five pounds to nothing. Both get called deflation. And falling prices really would wreck today’s economy, for the same reason. Nearly every pound exists because somebody borrowed it, so when borrowers fail the money fails with them. A money nobody can create more of isn’t made of anyone’s debt, so falling prices have nothing to bring down. Things just cost less each year, the money in your account buys more than it did, and nobody has to take risks to stand still. An economy that can’t survive things getting cheaper is the thing worth objecting to.
“If prices fall, people will delay every purchase and the economy stops.”
The worry is that if prices keep falling, nobody buys anything today when it will be cheaper next year, so spending stops and the economy with it. But some things already get cheaper every year. Phones, laptops and televisions are better and cheaper each time, and people buy them constantly. You buy a winter coat because you’re cold now. You buy food because you’re hungry now. Having a thing you need or want today beats a discount on it next year, so what gets put off is the spending you barely cared about anyway. A system that needs your savings to leak so you’ll spend faster is forcing you to spend and calling it policy.
“A little inflation is needed for growth.”
The argument is that a bit of inflation is needed to keep the economy growing. But the growth worth having is people getting more for the same work, and that comes from getting better at making things. Falling prices are how it reaches you. Inflation adds nothing to that, and it stops the gains arriving. What needs inflation is the debts. A 2% target means a nurse’s savings buy 2% less every year, on purpose. The argument says the economy can’t work without that happening to her, every year, forever. No saver wants their money to buy less.
“Governments will just ban Bitcoin.”
The obvious move for a government that doesn’t want Bitcoin is to ban it. It can certainly lean on the parts it can reach, the exchanges and the banks where bitcoin touches the old system, and some will. It can’t change the rules of the network itself, because those rules run on thousands of ordinary computers in different countries, with no head office to raid and no CEO to drag into court. And banning is expensive. When China banned mining, the network’s computing power recovered within months as the machines moved elsewhere, and the industry’s taxes, jobs and capital moved with them. Every ban is an invitation somewhere else. Hostile states mostly succeed in exporting their most mobile and capable citizens.
“It’s far too volatile to be money.”
Bitcoin’s price swings look wild. That’s measured in pounds, and calling bitcoin the volatile one treats the pound as the fixed point. Something with a fixed supply is taking on the world’s savings one saver at a time, and every new buyer moves the price, because the supply can’t stretch to meet them. People arrive as they work out what the money is doing, and working that out takes most people years. So they arrive in waves, and the price moves in waves with them. The swings have got smaller as it has got bigger. And weigh the alternative. The pound is steady from week to week and loses value every year, reliably. Ask anyone in Malawi, or Argentina, or 1923 Berlin. I’d rather hold the volatile thing that buys more every decade than the calm one that buys less.
“It’ll be captured exactly like gold was.”
This is the serious one, and I’ve already said the attack is realistic. It’s the gold story again, the coins gathered into a few regulated companies with paper claims stacked on top. What’s different this time is that you don’t have to let it happen to you. Gold couldn’t be checked at home or carried across a border in your memory. Bitcoin can. You can hold your own coins, check the money on your own computer, and pay through systems nobody can lock you out of. Handing gold to a vault was a physical necessity. Handing bitcoin to a company is a choice. Whether enough people make the other choice is still open, which is why it comes down to what people actually do.
Where this leaves you
The natural state of a free market is deflation, and nearly everything broken in our economics and politics flows from a money system that must fight that natural state to survive. Your gains are taken at the till and the payslip. The takings pile up with whoever stands nearest the new money. Society reshapes itself around the resentment, and the state tightens its hold to stop the debt system failing. Left alone, this ends with payments watched, the money’s rules rewritten by decree, and war.
What breaks that chain is money nobody can make more of. Bitcoin is that money for as long as it stays open, decentralised, secure and bounded by energy. Open, so anyone can own it and anyone can check it. Decentralised, so it runs on computers in every country with no switch anywhere to turn it off. Secure, so the record can’t be rewritten. Bounded by energy, so breaking the rules would burn more electricity than it could ever be worth. Take away any one and it slides back into the thing it was built to escape.
Whether it stays that way is up to us. It’s a choice each of us makes. Will you hold your own coins, or leave them with a company? Will you check the money yourself, or take someone’s word for it? Will you measure your life in a money nobody can print more of, or keep saving your time in one that loses value every year?
You can start measuring today, without owning any bitcoin at all. Pick a few things you care about, a house, a year of energy, a laptop, and look up what they cost in bitcoin ten years ago, and what they cost now. Then keep tracking them alongside the pound, over years rather than months, because a year or two either way will tell you nothing. The pound chart will keep telling you they’re getting more expensive. The bitcoin chart will show you the abundance that was there all along.