 Thank you everyone for coming I'm happy to be here. My name is Ben Kaufman and today I'm going to talk about The Austrian theory of the business cycle and how I believe we could use Bitcoin to transform the economy From such recurring booms and busts to more sustainable economic growth So let's start by understanding how how the economy grows What it really looks like this process so as manuals as manual said The division of labor is a critical critical part special specialization is a critical part in economic growth As Adam Smith also suggested, but I believe that the main driver for economic growth Also, as Carl Manger said that is the availability of capital for production So economic growth, I believe is all about the availability of capital goods It's our factors of production For from simple tools like this fishing rod to the more complicated Tools like the huge vessels that we have today The more capital that we have the more capital goods that are available for production The more productive and efficient labor is and the more that we can produce as society But in order to have such capital goods those factors of production We need to first take the time to produce them. That is we need to use what? Bombard called more roundabout processes of production That is first producing the the capital goods and only later producing with them the consumption goods In short it is like We need to move from short-term and From short-term view to a more longer-term view and longer are our processes of production So for example, we can think of a primitive fisherman He could either catch fish using his bare hands Just a few fish today, or he could first take the time to build a fishing rod And catch no fish at first, but later use it to catch much more fish But how does the how does a fisherman decides between these two processes of production? Well, he does he does that according to his time preference in simple terms time preference as Professor Poliet said before time preference is the extent to which a person values the present more than the future So in our example, if the fisherman has a high time preference, it means that he values the present much more than the future and he won't find the increase in productivity which a fishing guard could give him Enough to compensate for delaying his consumption today of fish But if it's low enough He will prefer to take the longer process of first producing the fishing guard and only later Use it to catch much more fish But while our fisherman is working in isolation, this is not the state of the market economy, which is about the vision of labor So how this thing work in the market economy? Well as people start saving more and lowering their time preference it will affect the interest rate the interest rate in the market is The reflection of time preference of people The Lord the time preference of people the more capital there is to borrow from and the lower the time preference of people will be And the Lord the interest rate will be Now as the interest rate is lowered Entrepreneurs can obtain capital much more and much less costly capital is much less costly for entrepreneurs to obtain and So production will become more profitable This is This is sorry entrepreneurs will then start loan taking on more loans and use this funds to expand their production processes to take Processes which are more around about of producing Increasingly more complex processes Yeah So as the production expanses entrepreneurs start taking more loans and use them to buy the goods that were saved in the first step When people started increasing their savings, they will integrate the new saved capital into the production structure they will use it to enhance the production structure and Get the capital which was saved in the first step into the actual structure of production This is how the division of labor works in in the market in a sense and so as As they start producing more eventually, they will be new goods available and use a greater supply of goods available Which creates kind of a positive feedback loop? in a sense of people being able to Produce and say to save even more capital without diminishing their consumption And use this extra capital to produce even more Lowering their time preference even farther and so on well, but now know how do we get from such such Positive loop of economic growth to to the business cycles or according to the Austrian theory Developed first by the economist von Mises The problem starts when governments and banks start to expand credit Essentially in the present they do so in various methods quantitative easing or fractional reserve banking, which is Practically insured by the taxpayers Or other accounting tricks, but the essential point is that they all Bring money into the economy essentially out of finair But how this new money affects the the process that we just discussed So as first the credit expansion will reduce the interest rate Since credit is more of a abundant now money is more abundant banks can loan More in at cheaper rates without diminishing the the money that they still hold So the first consequence is that the interest rate will be lower As we have seen as the interest rate is lower entrepreneurs will start expanding their production Production will become more profitable for them Sorry as so as they start They will start taking out more loans and use and use them to buy capital goods But as we've seen the new money that they obtained was created essentially out of finair it was not because New savings were Accumulated and no new capital is is actually available And therefore they will not actually be enough Enough capital to match this new demand. So in a sense, there will be more demand for Production goods, but not more supply Which will cause their prices to rise and So as the prices of production goods start rising Entrepreneurs will have to take more loans in order to finish their productions processes that they've started In a sense, there is an illusion that there is more capital available than actually there is It is as if our fishermen if you continue our example Would try to build a huge fishing vessel While it doesn't have the capital to finish to finish such production is in his lifetime He will essentially be wasting his time and effort to build something which will remain unfinished And so when entrepreneurs need have to start take on more loans The interest rate will start to draw it will start to rise There will be a new demand for loans to complete all production processes which will push the interest rate back up This is when all the investments which were made during the boom period during the Period when a production is started to expand will be exposed as and unprofitable so in a sense the the boom basically induced investments in projects which were unprofitable in the a Real interest rate in interest rate which corresponds to the actual time preference of people As there is not enough capital to actually complete all the projects do and this Shortage of capital will become apparent And you will not entrepreneurs will not be able to complete their projects They will not have enough capital and there will be massive Collapse of businesses and of course I had employment which we known as which is known as a recession during the recession all what means is called malinvestment are liquidated and capital left is either lost or Move to other and more profitable businesses in a sense. It is if we continue our example even farther it is our fishermen realizing that his plans were unrealistic and stopping to aces time and money on this on the ambitious construction of a vessel and actually moving to build something more realistic like the fishing rod And so essentially during the boom all these malinvestments that are liquidated are basically curing the market from the expansion or that happened in the first step It is the readjustment of the market to real conditions of time preference of people and so eventually as all the malinvestments are liquidated and and the capital that is being moved to According to the real-time preference of people the economy can go back to its actual tweets on the right track The economy can continue again to grow To actually grow and function But it is so how do we stop such such business cycles Well, it is true that we can Stop the we can delay the business cycle by returning to the first step and expanding credit even farther It is not possible to completely prevent it by expanding credit Eventually either resources run out or hyperinflation begins So while central banks and governments now try to postpone such a crisis a crisis all they do is just Enlarge the the bubble which is created They keep the illusion of more capital available than and you're actually is and allow for the malinvestments to squander scarce capital for a longer time period So what can we do? well the The prescription by the Austrian economists is to try and stop credit expansion from happening in the first place And this is where Bitcoin comes in So Okay, so I believe that Bitcoin could actually fix this as well first of all Bitcoin is non-inflationary it is limited to 21 million units as you know and it is produced by proof of fork So essentially nothing out of free narrow This limits the inflation in the M zero supply in the base Supply of money and prevents credit expansion from beginning in those In those levels, which is the first critical Task to stop the credit expansion at all Yes Yes, sure. So as Bitcoin is non-inflationary It is Created by proof of work and is limited to 21 million units. There is no inflation of the base layer There's no credit expansion in the there's no sorry. There's no monetary inflation in the first step There's no lender of last resort available It forces Rigidity in the money supply in the base money supply and so second point Yes, short answer is yes, but I will return to that later. Okay, yes, we will have a Q&A later or During the dinner. Yes, you can discuss this in more detail. Thank you. Thanks So the next point is that Bitcoin is a peer-to-peer cash is a chronic cash system as a Satoshi called it in the white paper This means that there are no and there's no necessary intermediaries in order to send and receive payments in Bitcoin You don't have to rely on banks or other institutions in order to send Bitcoin anywhere in the world This allows for much clearer separation of Cash, which is used for payments and cash, which is intended for lending for investments And allows more control of the people over their own funds and limits the power of banks to expand credit irresponsibly So the last point is that Bitcoin is a digital asset and as a digital asset it requires much less Central as it benefits much less from centralization of Ownership over it. So Bitcoin unlike gold doesn't benefit that much from having such a huge ford knocks for example it reduces the barriers of entrance for competition in In banking for Bitcoin Which I believe could In addition to be it to Bitcoin having no lender of last resort I believe this could force banks to be much more responsible With credit expansion and limit their ability to cause such booms and busts But so how how can we how can we achieve such such a transition such a system? Well, first we have a few obstacles. Sorry. It's wrong slides So first we have few obstacles I'm talking about mostly some politicians and central bankers and Economists So there is no important It is not important right now to deal with why these people like professor crewman think that Bitcoin is evil This is irrelevant for us right now And the only important thing to note is that they will not adopt Bitcoin on their own They will not allow Bitcoin to be part of the present financial system And so the the good news is that Bitcoin doesn't ask for permission It's already there It doesn't wait for politicians or central bankers to approve it or to integrate it It's already available for everybody to use And so And so as for example A congressman Patrick McHenry said Bitcoin is an unstoppable force It is something outside of the fine if the present financial system which allows companies today to start building a new infrastructure This is just a small example Of such companies, but it allows businesses and individuals to start a parallel financial system Which does not depend on the only present one sir So I believe that of course this change to such a new a new system such a young system Also cannot be an immediate change and nobody should expect Bitcoin to just Serve everybody right now. I believe but this transition can be done very gradually So already now there are many businesses that start accepting very small amounts of their entire Transactions in Bitcoin they don't rely on it for everything, but they already start interacting with it There is already many Already many individuals that put a fraction of their incomes and fraction of their savings into it And it is already the change has already begun. I believe and As again as say McHenry said it is an unstoppable change an unstoppable force I Sorry Yeah, so I believe that the Last thing I want to say is that my hope for the future for all this change for all this new system is to change public opinion to care more about political and financial freedom and more on our Subject here on the business cycle I believe that Bitcoin could change the public opinion that there is an in a so-called inherent tendency in the market economy for such booms and busts I believe that Bitcoin could Prove to people that a free market money a free competition a free market competition for money is both beneficial and Allows for much more sustainable economic growth So thank you everyone and are there any questions? Yes Yes, we had a few questions already during your talk. Would you like to catch up with us? Would you like to continue a question? perfect Any more questions? Yes, wait. I have a microphone Concerning inflation. It's right. You have a limited amount of bitcoins So this is not inflationary But you are importing inflation from the real money into Bitcoin Assuming that the exchange rate stays the same and the US dollar for example has 5% inflation Also Bitcoin has 5% inflation. So there are inflationary effects as long as this coin is not accepted as a mm-hmm Payment system Yeah, thanks for the question. I don't I mean I don't think that well right assuming that inflation from That the inflate the price doesn't change There it will be inflation price, but I don't see any reason to believe that the price will not change I mean the price is changing Constantly I don't see why why it shouldn't match the actual inflation But again, I think that build coin if we go to volatility I believe that it will be much less volatile as it goes more and more mainstream and have more and more users but I Also believe that it is counting for the for the inflation of the national currencies Very good one more question or okay perfect. Thank you, Ben. Okay. Thank you very much. Really interesting. Thank you very much Thank you