Copernicus’ Lost Secret: The Quantity Theory Of Money
This is an opinion editorial by Bitcoin Graffiti, a software developer and graffiti artist.
“Those things which I am saying now may be obscure, yet they will be made clearer in their proper place.”
In the annals of history, Nicholas Copernicus is celebrated as the groundbreaking astronomer who toppled the geocentric view and unveiled the heliocentric model, placing the sun at the center of our solar system. However, there is a lesser-known facet of Copernicus’ genius that remains shrouded in obscurity: his profound contributions to monetary thought.
While his astronomical achievements have captivated generations, his insights into the nature of money and its effects on economies have largely been overlooked.
As the medieval era drew to a close, marked by transformative inventions like the Gutenberg printing press and the disruptive force of gunpowder, Copernicus’s groundbreaking work challenged not only the prevailing astronomical beliefs but also the accepted notions of money.
The emergence of the printing press ushered in an era of unprecedented knowledge dissemination, gradually eroding the information monopoly of the Catholic Church. Concurrently, the widespread adoption of gunpowder rendered knights and their armor powerless, signifying the decline of the feudal system. Amid this backdrop of change, Copernicus emerged as a visionary, his mathematical calculations eventually proving that the Earth was not the center of the universe.
While we may look back on our geocentric ancestors and marvel at their supposed ignorance, we must acknowledge that most of us are quite incapable of proving the heliocentrism ourselves. We generally accept the current belief. If that is true, mustn’t there be obvious things we could be missing today? What if our assumptions about money, the lifeblood of economies, are flawed as well and the study of economics is still in its infantile stage? Perhaps, just as Copernicus shattered the prevailing astronomical narrative, we are on the cusp of an intellectual revolution that will expose the shortcomings of contemporary monetary belief.
It is here, amid these profound reflections, that Copernicus’ hidden expertise in monetary matters resurfaces. Unbeknownst to many, this visionary mind not only revolutionized our understanding of the heavens but also made lasting contributions to the field of monetary thought.
Copernicus the Monetary Scientist
Born in 1473, Copernicus was a citizen of Prussia (now part of modern-day Poland) and lived most of his life in Frombork, where the polymath was employed in the royal court as an accountant and advisor on monetary reform after King Sigismund I requested him to look at the nation’s depreciating currency.
His first monetary contribution was to strengthen a theory we now know as Gresham’s law. The law describes that when there are two currencies in circulation, and the government decrees a fixed exchange rate, the bad money drives out the dearer. In such a scenario, it is profitable to exchange the debased coin and hoard the harder one. In 1526, his findings were bundled into a booklet titled “Monetae Cudendae Ratio” — the “Monetary Minting Ratio.” Copernicus opened his treatise in Hayekian style, emphasizing the surreptitious nature of monetary degradation:
”Although there are innumerable plagues by which kingdoms, principalities, and republics tend to decline, yet these four (in my judgment) are the most powerful: discord, mortality, the barrenness of the land, and cheapness of money. The first three are so evident that no one knows that it is so, but the fourth, as regards money, is considered by a few and only by the most earnest, because it did not happen all at once, but gradually, in a kind of secret way. It overthrew republics by reason… Therefore, money is like a measure of some common estimation. It is necessary, however, that what should be a measure should always be firm and maintain a state of order. Otherwise, it is necessary to confuse the organization of the republic, and to defraud the buyers and sellers in many ways, as if the cubit does not hold a certain weight.”
In a pressing tone, he argued for a repair of currency, to destroy the old and bring full-weighted silver coins back into circulation. Prussia had just suffered a war and subsequent currency debasement. The amount of copper in the coin increased at the expense of the precious metal and finally reduced the money to pathetic puce pennies. Since a fixed exchange rate was in force, it became more profitable to melt down the coin and extract the silver.
In the end, Prussia’s currency became worthless, leaving the inhabitants unable to trade abroad since nobody would accept the tangled money. The good money was gone. Hoarded, melted and exported — a Gresham’s law by example. Though this mechanic was previously known to other civilizations, Copernicus was the first European to properly pen it down. Unfortunately for Prussia, the king didn’t heed his advice.
The Quantity Theory Of Money
Murray Rothbard, the American economist of the Austrian school, even claimed that the Polish polymath theorized an early version of the quantity theory of money (QTM). Rothbard summarized Copernicus’ thoughts in “Economic Thought Before Adam Smith Vol. 1”:
“The causal chain began with debasement, which raised the quantity of the money supply, which in turn raised prices. The supply of money is the major determinant of prices. We in our sluggishness do not realize that the dearness of everything is the result of the cheapness of money. For prices increase and decrease according to the condition of the money.”
While contemporary man is still monetarily illiterate, Copernius, half a millennium ago, already elegantly theorized a linear relationship between the supply of money and market prices. Somehow we take our unit of account to be fixed in supply, and never conclude that higher prices are the result of currency depreciation. Like the geocentric paradigm, it’s hard to detach from this immersive and slanted point of view.
Today, QTM is quantitatively defined in Fisher’s formula. Here, the money supply (M) times the average velocity (V), equals the sum of all transactions in the economy (q) times their respective price (p). Given that spending behavior remains stable (V) and goods and services production remains level, we conclude that an increase in the money supply varies directly with all prices in the economy.
Subsequently, let’s highlight that price (p) is a vector of all prices which individually respond differently to inflation, but on average increase linearly with the money supply. For example, a digital service might decline during monetary expansion through technological deflation, while scarce real estate appreciates. This is a point not lost on Michael Saylor, CEO of MicroStrategy and the largest corporate holder of bitcoin, as shown when he responded in a tweet to Keynesian Paul Krugman in May 2021 on monetary expansion:
“Inflation is a vector. A scalar index can be biased by choosing certain items. Your index assumes human beings don’t need food, energy, or home ownership, nor desire assets such as property, equity, bonds, or commodities. It’s obvious much of the inflation has been in assets.”
End Of An Age
Copernicus basically finished “De Revolutionibus Orbium Coelestium” in 1532, but only published his heliocentric thesis on his deathbed in 1543 fearing the church’s scorn. The seed had been sown, but the theory took flight a century later following the arrival of the spyglass. Galileo Galilei was an early telescope adopter who produced the first anomalous celestial observations that could only be explained by embracing Copernicus’ paradigm.
Rejection is easy in the absence of appliances that falsify the current model. Heliocentrism remained merely an abstract idea prior to telescopy. But then, what about Copernicus’ monetary findings? Did we simply lack the tools to turn this view into reality?
With Bitcoin still in its early days, it appears that Copernicus is still way ahead of Keynesian economists and could be considered a Bitcoiner avant la lettre. Bitcoin, with its fixed supply of 21 million coins, is a digital telescope for anyone willing to peer deeply into the economic machine. We may now all observe what the polymaths of yesteryear had been saying all along — that a sound economy revolves around sound money. And though it may be designed by humans, Bitcoin shines bright as the natural center we’ve all been searching for. For this time might be that proper place, where simple monetary laws will refuse to remain obscure anymore.
“At rest, however, in the middle of everything is the sun.”
–Copernicus, “De Revolutionibus Orbium Coelestium”
This is a guest post by Bitcoin Graffiti. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
16 July 2023 12:00