This is an opinion editorial by Bitcoin Graffiti, software developer and graffiti artist.
“These things I say now may be obscure, but they will be made clearer in their place.”
In the annals of history, Nicolaus Copernicus is celebrated as the groundbreaking astronomer who overturned 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 accomplishments have captivated generations, his insights into the nature of money and its effects on economies have been largely ignored.
As the medieval era drew to a close, marked by transformative inventions like the Gutenberg printing press and the disruptive force of gunpowder, Copernicus’ groundbreaking work challenged not only prevailing astronomical beliefs, but also accepted notions of money.
The emergence of the printing press ushered in an era of unprecedented dissemination of knowledge, gradually eroding the information monopoly of the Catholic Church. At the same time, the widespread adoption of gunpowder rendered knights and their armor impotent, signifying the decline of the feudal system. Against this backdrop of change, Copernicus became a visionary, his mathematical calculations ultimately proving that the Earth was not the center of the universe.
While we can look back to our geocentric ancestors and marvel at their supposed ignorance, we must recognize that most of us are quite incapable of proving heliocentrism ourselves. We generally accept the current belief. If that’s true, shouldn’t there be some obvious things we might miss today? What if our assumptions about money, the cornerstone of economies, were also wrong and the study of economics was still in its infancy? Perhaps, just as Copernicus shattered the mainstream astronomical narrative, we are on the cusp of an intellectual revolution that will expose the flaws in contemporary monetary belief.
It is here, in the midst of these profound reflections, that Copernic’s 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 Poland) and lived most of his life in Frombork, where the polymath was employed at the royal court as an accountant and adviser on reform. coinage after King Sigismund I asked him to examine the depreciation of the national currency.
His first monetary contribution was to reinforce a theory we now know that Gresham’s Law. The law describes that when there are two currencies in circulation and the government decrees a fixed exchange rate, the bad currency drives out the more expensive one. In such a scenario, it is profitable to trade the degraded coin and hoard the hardest one. In 1526, his discoveries were collected in a booklet entitled “Ratio Monetae Cudendae– the “currency minting ratio”. Copernicus opened his treatise in Hayekian style, emphasizing the surreptitious nature of monetary debasement:
“Though there are innumerable plagues by which kingdoms, principalities, and republics tend to decline, these four (in my opinion) are the most potent: discord, mortality, barrenness of the earth, and cheapness of money. The first three are so obvious that no one knows they are so, but the fourth, with regard to money, is considered by a few and only by the most serious, because that it did not happen suddenly, but gradually, in a kind of secrecy. It overthrew the republics by reason… So money is like a measure of a certain common estimate. It is necessary, however, that what should be a measure should always be firm and maintain a state of order. Otherwise, the organization of the republic must be confused, and the buyers and sellers must be defrauded in many ways, as if the cubit does not didn’t hold a certain weight.”
In an urgent tone, he pleaded for a repair of the currency, to destroy the old one and to put back in circulation the weighted silver coins. Prussia had just suffered a war and subsequent monetary depreciation. The amount of copper in the coin increased at the expense of the precious metal and eventually reduced the silver to pitiful pennies. Since a fixed exchange rate was in effect, it became more profitable to smelt the coin and mine the silver.
Ultimately, the Prussian coinage became worthless, leaving the locals unable to trade abroad as no one would accept the tangled money. The good money was gone. Hoarded, melted down and exported – a Gresham law for example. Although this mechanism is already known to other civilizations, Copernicus was the first European to write it correctly. Unfortunately for Prussia, the king did not heed his advice.
The quantity theory of money
Murray Rotbardthe American economist of the Austrian school, even affirmed that the Polish polymath had theorized a first 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 increased the quantity of money supply, which in turn drove up prices. Money supply is the primary determinant of prices. In our slowness, we fail to realize that the dearness of everything is the result of the cheapness of silver, for prices rise and fall according to the state of silver.
While contemporary man is still financially illiterate, Copernius, half a millennium ago, already elegantly theorized a linear relationship between the supply of money and market prices. Somehow we consider our unit of account to be fixed in supply and we never conclude that higher prices are the result of currency depreciation. Like the geocentric paradigm, it is difficult to detach from this immersive and biased point of view.
Today, QTM is quantitatively defined in Fisher’s formula. Here, the money supply (M) multiplied by the average velocity (V), equals the sum of all transactions in the economy (q) multiplied by their respective price (p). Given that spending behavior remains stable (V) and the production of goods and services remains stable, we conclude that an increase in money supply varies directly with all prices in the economy.
Subsequently, let us emphasize that the price (p) is a vector of all the prices which individually react differently to inflation, but increase on average linearly with the money supply. For example, a digital service may decline during monetary expansion through tech deflation, while scarce real estate appreciates. This is a point that was not lost on Michael Saylor, CEO of MicroStrategy and the largest company holding bitcoin, as shown when he replied 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 elements. Your index assumes that human beings do not need food, energy or home ownership, nor do they desire assets such as real estate, stocks, bonds or commodities Obviously a lot of inflation has been in assets.
The end of an age
Copernicus basically finished “De Revolutionibus Orbium Coelestium” in 1532but only published his heliocentric thesis on his deathbed in 1543 fearing the contempt of the church. The seed was sown, but the theory took off a century later following the arrival of the spyglass. Galileo Galilei was an early adopter of a telescope that produced the first anomalous celestial observations that could can only be explained by adopting the Copernican paradigm.
Rejection is easy in the absence of devices that tamper with the current model. Heliocentrism remained only an abstract idea before telescopy. But then, what about the monetary discoveries of Copernicus? Did we simply lack the tools to turn this point of view into reality?
With Bitcoin still in its infancy, it seems that Copernicus still has a leg up on the Keynesian economists and could be considered a Bitcoiner before the letter. Bitcoin, with its fixed supply of 21 million coins, is a digital telescope for anyone who wants to peer deeply into the economic machine. We can now all observe what the polymaths of yore said all along – that a sound economy revolves around a sound currency. And while it may be engineered by humans, Bitcoin shines as the natural hub we all crave. For this time may well be that appropriate place, where simple monetary laws will refuse to remain obscure.
“At rest, however, in the midst of all is the sun.”
–Copernicus“De Revolutionibus Orbium Coelestium”
This is a guest post from Bitcoin Graffiti. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
