Bitcoin Is Venice Capital Renaissance

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This article is part of a series of adapted excerpts from “Bitcoin Is Venice” by Allen Farrington and Sacha Meyers, which is available for purchase on Coin-Crypto’s store now.

You can find the other articles in the series here.

Is “money” a public good?

Bitcoiners may scoff at even the asking of the question and wonder if we have been drinking the modern Monopoly-money Kool-Aid. Surely money is private property? But the question is worth considering seriously if only to answer in the firmly negative with even greater academic precision than otherwise.

As George Selgin quipped on Twitter, in response to us noting that the Bank of International Settlements seems to think the answer is “yes”: “The argument that money is a ‘public good,’ is one of many unfounded claims made about it that serve as ‘debate stoppers’: by uttering those magic words, experts hope to avoid having to otherwise defend state money monopolies.”[i]

In her classic of political philosophy, “Governing the Commons,”[ii] Elinor Ostrom gives a rigorous analysis of what she calls a common-pool resource (CPR) and the “problem” of governing its use. To be completely clear, we treat the following as an interesting analytical exercise and in no way a tool for slipping a line of thinking into our discussion that is subtly opposed to private property. Even the title of Ostrom’s book is potentially misleading in this regard, by “governing” she means something more like “decision-making with respect to” rather than “enforcing a decided-upon rule,” as the cognates of “govern” might unfortunately suggest.

This would be a particularly inapt reading given her thesis — presented here so concisely as to absolutely not do it justice — is that there is a vast range of common-pool resource problems that are in theory, and have in practice been, better solved without government intervention and without even force of any kind but rather with effectively established communities, relations and incentives. Also, often the same class of such problems have been made much worse with government intervention — typically that arrogantly ignores exactly such alternative and likely already existing methods.

In fact, in the book’s very last page, Ostrom laments what seems to her to be the default instinct of her academic colleagues in first, and often only, thinking of a government solution to any collective action problem. She writes,

“The models that social scientists tend to use for analyzing CPR problems have the perverse effect of supporting increased centralization of political authority. First, the individuals using CPRs are viewed as if they are capable of short-term maximization, but not of long-term reflection about joint strategies to improve joint outcomes. Second, these individuals are viewed as if they are in a trap and cannot get out without some external authority imposing a solution. Third, the institutions that individuals may have established are ignored or rejected as inefficient, without examining how these institutions may help acquire information, reduce monitoring and enforcement costs, and equitably allocate appropriation right and provision duties. Fourth, the solutions presented for “the” government to impose are themselves based on models of idealized markets or idealized states.

“We in the social sciences face as great a challenge in how to address the analysis of CPR problems as do the communities of people who struggle with ways to avoid CPR problems in their day-to-day lives.”

So, with this critical clarification in mind, in what sense might money be a common-pool resource? The social utility of money is realized not in moving on from barter, but in moving on to capital, and that capital is very much a resource that needs to be cultivated, nurtured, grown, replenished and not strip mined! It is likely instructive at this point to be clearer about how exactly Ostrom defines a common-pool resource, and how she distinguishes it from a “public good.” She writes,

“The relatively high costs of physically excluding joint appropriators from the resource or from improvements made to the resource system are similar to the high costs of excluding potential beneficiaries from public goods. This shared attribute is responsible for the ever-present temptation to free ride that exists in regard to both CPRs and public goods. There is as much temptation to avoid contributing to the provision of public security or weather forecasts. Theoretical propositions that are derived solely from the difficulty of exclusion are applicable to the provision of both CPRs and collective goods.

“But one’s use of a weather forecast does not subtract from the availability of that forecast to others, just as one’s consumption of public security does not reduce the general level of security available in a community. “Crowding effects” and “overuse” problems are chronic in CPR situations but absent in regard to pure public goods. The subtractability of the resource units leads to the possibility of approaching the limit of the number of resource units produced by a CPR. When the CPR is a man-made structure, such as a bridge, approaching the limit of crossing units will lead to congestion. When the CPR is a biological resource, such as a fishery or a forest, approaching the limit of resource units not only may produce short-run crowding effects but also may destroy the capability of the resource itself to continue producing resource units. Even a physical resource, such as a bridge, can be destroyed by heavier use than was allowed for in its engineering specifications.”

This potentially gets dangerous again in terms of the blurring of what is and is not truly and unmistakably private property. But we think that a more pragmatic analysis of “money” forces us to move beyond what we might call its “ideal qualities” — beyond semantics therefore reality — and realize that, in real life, money has always been both private property and affected by the “subtractive” behavior of others, free riding in a manner that clearly harms the well-behaved.

Lawrence White helpfully demurred on the above to the effect that surely money balances are not a common-pool resource, given that Alice cannot spend Bob’s balance and vice versa, except without clear appropriation. We agree, and, in fact, think this clarification bolsters our own claim. Money balances are private property but the institution of money is a common-pool resource, in arguably exactly the same way that a stock of fish might be a common-pool resource, even though fish fished by fishermen have clearly become private property. We see no reason to take “depletion” only literally. We do not mean that physical coins or notes depreciate, which would ironically have the opposite effect. We mean that the utility of the institution depletes with inflation. And why do we care about stocks of fish and their possible depletion if not for the utility of fish? Were there not an incentive in the first place to deplete fish stocks by fishing, there would be no need to classify it as a common-pool resource in need of effective governance.

What is seigniorage if not the depletion of a common-pool resource by a nefarious “crowder?” What is gold mining if not a less nefarious and admittedly costly activity (so not exactly “free riding” either) but nonetheless a depletive interaction with a common-pool resource? And what is this common-pool resource if not something ultimately psychological and reliant on subjective value? Is it not an implicit consensus amongst economic actors to use the same language in their economic exchange?

Bitcoin is logos. But really, money is logos. Bitcoin is just the best logos. It is the economic language in which it is by far the most difficult to lie. This is perhaps the cleanest and quickest way to dismiss modern Monopoly-money theory, albeit in a marginally cryptic and highbrow manner: The MMM theorists and an assortment of larping “crypto-influencers” believe money is a public good, but they are mistaken; it is a common-pool resource. Case closed.

Money is not the coins, or the balances, or even the UTXOs, but the consensus around economic behavior and reality these “tokens” capture. We think it is neither a philosophical stretch nor an authoritarian backdoor to say that, yes, money literally is a common-pool resource and that what money is or should be is therefore a common-pool resource problem. It may be the single most important common-pool resource problem; hence Bitcoin is the most important solution and by extension the most important enabling technology for the management of a common-pool resource.

This obviously distinguishes money, for example, from a far more prosaic private good like a mug. Allen using Sacha’s mug clearly prevents Sacha from doing the same. The good is rivalrous. Sacha can prevent Allen from using his mug by stealing it, breaking it, etc. (in effect, incurring a tort). However, money occupies a nebulous middle ground between cleanly rivalrous and nonrivalrous: If Allen prints his own money, Sacha is likely none the wiser as he hasn’t stolen his coins and there is clearly no comparison to be made to Allen printing Sacha’s mug. And yet Sacha’s money has been affected, because it is not the token that matters, it is the consensus the tokens represent. Which is, of course, to say that money is not a private good, but a common-pool resource.[iii]

Why is this the case? Is there anything more we can say about money, capital, or Bitcoin that explains this connection more deeply, or is it just a coincidence? We believe the seeds of an answer have been sewn throughout “Bitcoin Is Venice,” and in many previous extracts in this series. In Chapter 3, we discuss the importance of distinguishing between stocks and flows, as much for the sake of intellectual clarity as to more practically appreciate their interaction and application in the creation of capital.

In Chapter 4, we stress the importance of local, individual, actionable knowledge in forming a dynamic consensus as expressed in market prices. In Chapter 5, we elaborate on why capital specifically — the more complex and evolved form of money that taps into larger mechanisms of social and legal consensus — is necessary to act on this information and crystallize productive capability beyond mere handiwork and barter.

In Chapter 6, we discuss the all-important conception of Bitcoin as a form of language. As mentioned just prior, Bitcoin is arguably (or perhaps inarguably) the best such language given it is a language in which it is nearly impossible to tell economic lies. In each case, those that were not treated with a purposefully long-term outlook were predictably subjected to disaster and disintegration.

The “answer” to the question posed is, as far as we can tell and as concisely as we can manage, that money has a unique property as a social institution — as a common-pool resource — that may seem philosophically tantalizing in its significance. It is the maximally universal consensus required for maximally local flourishing. By mandating synchronization, it enables autonomy. By banishing uncertainty within its delineated realm, it lets uncertainty proliferate everywhere else. Moreover, it encourages uncertainty by offering itself up as a ballast. We do not intend to convey any kind of spiritual or religious authority, nor to be in the least sarcastic, but we must admit it is perfectly clear to us why this series of realizations could be seen to have metaphysical import.

We will leave the exploration of the potential spiritual significance of these claims to others and focus instead on the bare bones of economic localism. The heart of the claim, when stripped of emotional resonance, is that money, via capital, enables individuals to better be a part of the whole; to behave more responsibly, to contribute more effectively and to make choices more purposefully. These cannot be effectively dictated top-down.

We think this reconciles our rejection of apparently all economic universals with our previous strong endorsement of Hernando de Soto’s advocacy for coherent and consistent legal recognition of property; his goal in doing so is to better enable capital, but of course there is a tension. And note there may well be more than one dimension at play, given a total lack of legal property is as much a universal as any other.

It may be something of a fudge, but we feel that de Soto’s point is far more sensibly understood as being that property rights must universally exist, but not that one scheme of property right must itself be universal. Property, capital and further abstractions of economic behavior must be bottom-up phenomena — or, at the very least, if top-down they must be invisibly so and enable bottom-up shaping and utilization to the maximum possible extent. For example, it might be extraordinarily helpful for a nonlocal authority to recognize and credibly enforce property rights.[iv] Lee J. Alston, Gary D. Libecap and Robert Schneider make this point well in their article “Violence And The Assignment Of Property Rights On Two Brazilian Frontiers,” writing,

“Title also adds value to land. Formal, state-enforced title represents the most secure form of property rights to land. Title signals government endorsement of an individual’s land claim; that is, with title, ownership is enforced by the courts and the police power of the state. Under these circumstances, title provides claimants with the long-term security of ownership and collateral necessary to access formal capital markets for land-specific investments. Formal, enforced title also reduces the private costs of defending claims, such as private marking and patrolling of claims, because the state assumes many of those responsibilities. Finally, by signaling government recognition of current land ownership, a title increases the exchange value of land by widening the market. Those buyers from more distant areas, who may have higher-valued uses for the land and access to capital markets, have the assurance that the land exchange contracts will be recognized by the courts and enforced by the state. Absent title, land exchange occurs in more narrow markets among local buyers and sellers who are similar with informal local property rights arrangements. These regional practices typically are not enforced by the courts or understood by potential buyers from more distant areas.”

This may seem to constitute an endorsement of state involvement in essentially local affairs. But notice that what is being argued for is not state dictation of what is and is not a property right, but subtly and importantly different, state recognition of this already locally-existing and locally-known and understood fact: what specific person owns what specific piece of land. Moreover, the intention is precisely to disincentivize violence and incentivize capital formation, both by lowering the costs of defense. Alston, Libecap and Schneider add a few pages later,

“In general, exclusive rights to land provide the collateral necessary for farmers to access capital markets; promote land-specific investment by providing long-term security of ownership; reduce the private costs of defending the claims; and increase the exchange value of land by widening the market. When inherent land values are low and not changing rapidly on the frontier, informal tenure arrangements are appropriate, and violence is unlikely. Such arrangements are of minimal cost and serve to demarcate individual claims and to arbitrate local disputes.”

Ideally, enforcement would follow in the form of credible threats of violence that add value to the landowner precisely on the basis of extending to would-be violators of this right beyond the locality. Exactly how these threats manifest is not of economic concern. The aim of all of this is, therefore, to widen the market for this capital good beyond the locality also. This is very minimally a “top-down” enterprise, and is absolutely not a high-modernist one, to once again borrow from Scott’s “Seeing Like a State.”

We quote from one of the book’s more vivid passages and involved and diagnostic analyses; that of the aftermath of the 19th-century experiment in so-called “scientific forestry” in what is now Germany. What Scott is describing here is the depletion of an important source of capital due not to malice but simply incompetence, and in particular the kind of high-modernist arrogance of which the book is a scathing critique.

It is an attitude which, seemingly, tempts its proponents to think they can reorganize complex systems at will, with only macroscopic knowledge, if even that, and face no unintended consequences whatsoever — scientism, essentially, except as applied to fields not quite themselves scientific, but which rely on practical knowledge and heuristics. On so-called “scientific forestry,” Scott writes,

“Only an elaborate treatise in ecology could do justice to the subject of what went wrong, but mentioning just a few of the major effects of simplification will illustrate how vital many of the major effects bracketed by scientific forestry turned out to be. German forestry’s attention to formal order and ease of access for management and extraction led to the clearing of underbrush, deadfalls and snags (standing dead trees), greatly reducing the diversity of insect, mammal and bird populations so essential to soil-building processes. The absence of litter and woody biomass on the new forest floor is now seen as a major factor leading to thinner and less nutritious soils. Same-age, same-species forests not only created a far less diverse habitat but were also more vulnerable to massive storm-felling. The very uniformity of species and age among, say Norway spruce also provided a favorable habitat to all the ‘pests’ which were specialized to that species. Populations of these pests built up to endemic proportions, inflicting losses in yields and large outlays for fertilizers, insecticides, fungicides, or rodenticides. Apparently the first rotation of Norway spruce had grown exceptionally well in large part because it was living off (or mining) the long-accumulated soil capital of the diverse old-growth forest that it had replaced. Once that capital was depleted, the steep decline in growth rates began.”

The strip mining of capital is obviously at play and need not be belabored, but there is an even more insidious issue lurking in the background: To whatever inane extent “the economy” can be considered a noun rather than a verb, “forests” are but a tiny, tiny part of it. And everything else is surely at least as complicated.

This hopefully gives the reader some sense of the truly profound folly of economic planning, as seems to have been entirely normalized under the dominant regime of political economy. If this is what happens to but one forest under bullshit scientism, imagine such top-down management of everything, with multiplied irrelevant data, fresh high-minded arrogance and greater insulation from natural negative feedback.

Money gives a universal consensus of value in part because time is universal. It may be the only such economic universal. All else is local, heuristic, practical, individual and creative. Economics is resolutely not a science and anybody who claims otherwise is a charlatan.[v] One cannot run controlled experiments in economics and one cannot consistently measure outcomes of uncontrolled experiments.

Economics is, at best, four loosely-related disciplines: applied logic, statistical analysis, social theorizing and historical analysis. And, to be frank, the final three are variations in approach to the same core task: practical analysis of real economic behavior, differentiated only by the intellectual toolkit chosen. The first we might call exclusively theoretical analysis of abstract economic behavior. All are certainly worthwhile and create clearly useful knowledge if practiced rigorously and with adequate humility. But none are science. Economics makes no predictions. It might generate wisdom but it does not generate facts.

In “Bitcoin Is Venice” and this series we have focused mainly on alternating between applied logic and historical analysis, with what little social theorizing we offer tending to be outsourced to the likes of Ostrom and Scott. We include no statistical analysis whatsoever, not because we have anything against the practice but purely out of intellectual honesty: Neither author has relevant academic training in this area, nor did either have points that could only be made in this language.

Part of the thesis of this extract, and in a sense the entirety of “Bitcoin Is Venice,” is that Bitcoin will, slowly but surely, gradually then suddenly, bring us back to an understanding and practice of economics in which the scientism just described will be acknowledged to be ludicrous, and will be impossible to enact besides. The future is bright; the future is orange.

But to look forwards, we ought to first look backwards. Some elements of Bitcoin are unprecedented, for sure. The discussion that follows on programmable money and sovereign digital identity will hopefully make that strikingly obvious and undeniable. But the ideas of sound money, low time preference, heuristics, localism, methodological individualism and the like, are very, very old. They may be the oldest ideas of all. They are encoded in the customs of the world’s oldest continuously surviving cultures; their traces are in the common law, the English language, the King James Bible and the works of William Shakespeare. Predicting how the very old and the very new will interact is no easy task. It is likely impossible, in fact, and we make no pretensions of being able to see the future. But hypothesizing is fun, frankly, and the more bounteous the hypothesized future the more fun the act.

Unfathomably complicated on the one hand, we see fit to characterize Bitcoin’s effect with an analogy so holistic as to be glib: We stand at the precipice of a new renaissance. Time will tell if art and culture will flourish once again as we still, to this day, cherish the culture from Florence and Venice in the late Middle Ages. But we do strongly predict what we might call a capital renaissance. Bitcoin will make us lower our time preferences. Everybody. Whether we like it or not. This will make us take capital more seriously; nurture it, replenish it and grow it, in all its forms.

[i] “CBDCs: An Opportunity for the Monetary System,” BIS Annual Economic Report 2021,

[ii] Cited in multiple earlier extracts but all pointing to the following more in-depth treatment!

[iii] The reader may also be interested in pondering that this schema readily debunks so-called “intellectual property.” The standard defense of this legal regime, although clearly never openly advertised as such, is to imply that “ideas” are common-pool resources, even though they clearly are actually public goods, as ought to be clear from the analysis presented in the main text. Even though this error essentially follows from definitional sloppiness, the proponents nonetheless immediately go further with their slipshod analysis and demand what Ostrom specifically cautions against, even if they had previously been correct in their starting assumption, that the only way to save society from catastrophe is to make these common-pool resources private goods that belong to the government, on which legalized monopolies may then be issued to favored patrons. Continuing this train of thought is outside the scope of this extract, but curious readers are encouraged to source “Against Intellectual Monopoly” by Michele Boldrin and David K. Levine, as well as the many writings and talks of Stephan Kinsella, of which a natural starting point might be, “Against Intellectual Property,” Journal of Libertarian Studies,

Please note, we practice what we preach in this regard: “Bitcoin Is Venice” has been fully open-sourced, meaning the authors retain no nonsensical “rights” to its content. It may be reproduced or referenced by anybody, in any way. We ask only that anybody doing so properly credit the source material, but of course even this we cannot compel anybody to obey.

[iv] This touches on the idea of local knowledge and competence in tension with global authority, which is discussed in much more detail in Chapter 9 of “Bitcoin Is Venice.”

[v] The reader is encouraged to look into dynamic stochastic general equilibrium, if only for comedic value. Just don’t spend too long on it: Time is scarce, after all.

This is a guest post by Allen Farrington and Sacha Meyers. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Coin-Crypto.

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