If you’re a fan of the show Trailer Park Boys, odds are you’ve heard of hashcoins. In the show, one of the main characters presses his hash into circular coin-like objects and uses them as a currency in the local economy. It’s a funny take on a small-time cannabis grower who’s always short on cash but flush with weed. But the broader implications are fascinating. Suppose “hashcoins” were real. Would inflation exist? How does one have “hashcoin inflation” if hashcoins emerge as free-market money?
What is Inflation?
Inflation used to mean an increase in the money supply. Now it means a general rise in prices. Banks and governments create inflation, but now it’s assumed to be a natural part of the market economy. And when central banks let inflation get out of control, like our current situation, they blame the Russians.
Central banks engage in “inflation targeting,” which is their way of inflating the currency without causing a drastic rise in prices. It’s part of the illusion that inflation is a naturally occurring economic aspect. That the central bank acts as a custodian.
As if inflation was a bear out of his cage at the zoo. And central bankers were the zookeepers enticing him back to the compound. Of course, prices aren’t supposed to rise in a free-market economy, even at 2% a year. The bear isn’t ever to leave his cage. But central bankers leave the cell unlocked and the door open and tell people this is business as usual.
Marginal Utility Explains Hashcoin Inflation
Why do some goods cost more than others? Why are THC beverages more expensive than flower? Supply and demand are the easy answers. Diminishing marginal utility is the more technical one.
The best way to explain it is by thinking of your satisfaction with cannabis products. Say, one gram of Blue Dream. Your happiness from consuming a second gram may not be as great as the first gram. Your satisfaction from the third gram is likely to diminish further. And so on with the fourth and fifth, and sixth gram.
The more of a good we consume in a given period, the less satisfaction or utility we get from each addition or marginal unit.
So your enjoyment of Blue Dream may fade over time. You’ll want to try something new. But not only that, the price you’re willing to pay for one gram of Blue Dream also declines.
Mainstream economists calculate marginal utility as an objective property that they can measure. In reality, your value of cannabis products is entirely subjective to you. You may find someone who has the same preferences as you regarding one gram of Blue Dream. But there is no “utility” that economists can study like one studies chemistry or physics.
Furthermore, marginal utility can apply to money in addition to supply and demand. This is how hashcoin inflation could occur.
Inflation in the Cannabis Industry
Currently, Canadian cannabis isn’t experiencing higher prices. While the country faces record-high inflation rates, cannabis products have either stayed constant or gotten cheaper. There are many factors for this.
One, cannabis retailers are trying to compete with the legacy market, so they’re willing to take a dip in their margins to stay open. Two, large LPs are selling their cannabis at a loss to starve out the competition.
For these reasons, cannabis prices haven’t skyrocketed like other prices in the economy. And because mainstream economists (and the press) define inflation as a general rise in prices rather than an increase of the money supply, they erroneously say there’s no inflation in the cannabis industry.
But this is a fallacy. Inflation is the creation of money. When new money gets created, the purchasing power of the existing money falls. And it isn’t uniform across the economy. The inflation of the last twenty years has found its way into real estate while leaving other goods relatively untouched.
But now, inflation from the government’s COVID response is causing the price of food and fuel to rise. Since everyone has different values and, therefore, different utility rankings, how inflation impacts the economy will be nuanced.
The general “price level” economists refer to is a statistical construct. Numbers influenced by institutional interests. In other words, a lot of economic statisticians aren’t doing science. They’re performing astrology for politicians and providing cover for the banks.
A Brief History of Inflation
To understand how hashcoin inflation could be a thing, we’ll have to turn briefly to the origins of money. Money goes back thousands of years. No one invented it; money emerged from the spontaneous actions of human beings. Barter could only take us so far. But people liked how shiny and durable gold and silver were. Easily transportable too.
Eventually, gold and silver became a medium of exchange. Like how radio is a medium for music or the Internet is a medium for streaming movies. Money is the medium used by people trading goods and services.
Fast-forward to modern times, and money is no longer gold or silver. Throughout the 20th century, governments and banks slowly but surely disconnected society’s medium of exchange from a commodity that was scarce and subject to the laws of supply and demand.
But there is no escaping the laws of marginal utility. That’s why cryptocurrencies have become all the rage. They are digitally scarce and subject to supply and demand. That makes them stores of value, like gold or silver.
In contrast, dollars are pieces of paper printed infinitely. And those who get their hands on the new dollars first have greater purchasing power than those who get their hands on the new dollars last. Typically, this works out so that banks reap the rewards while seniors on fixed incomes struggle to pay the bills.
A Hashcoin Economy – Does Inflation Exist?
Commodity-based monies, like hashcoins, are not only a hedge against inflation but a powerful tool against the elites. What greater power is there for the masses than the ability to withdraw their financial support from institutions that have become corrupt?
This is where hashcoins come in. One cannot print hash; it requires time, energy and resources to produce. To create more money, one has to spend money. This is what makes cryptocurrencies work. Spent time, energy and resources “mining” cryptos ground them to the market economy.
In contrast, central bankers punch numbers onto a computer screen, and without any effort, they create more money. Their profit is costless. When done this way, money creation is inflationary. It isn’t adding to the economy, and it’s stealing your purchasing power. Inflation is nothing but a hidden tax—legalized counterfeiting. And just because something is legal doesn’t make it lawful.
Let’s say the world economy went on a hashcoin standard. Would inflation still exist?
To answer, we have to return to 16th century Spain. The Spanish sent ships to the New World that returned with an influx of gold and silver. While sending ships across the Atlantic 500 years ago required time, energy and resources – the amount of gold brought back more than tripled their initial investment.
Our hashcoin equivalent would be finding an abandoned storage garage filled to the brim with bricks of hash. All one would need to do is press them into coins, and suddenly they’re wealthy with minimal effort.
So what happened in Spain? First, they were rich. But by the end of the 17th century, prices had adjusted to account for this influx of gold. It was a temporary advantage. In a free-market economy, it’s not the money itself that is valuable but what it can buy.
Hashcoin inflation is possible. But it’d be nothing like what we experience today. Inflation in the cannabis industry exists because inflation exists throughout the entire economy. Since the First World War, there’s been a systemic debasement of money’s purchasing power. It’s no coincidence the century of inflation corresponds with the century of big government and never-ending wars.
Rising prices haven’t reached the cannabis sector for several reasons. But, as cannabis products get priced in dollars, the price per gram doesn’t necessarily have to rise to show inflation. If your income is losing its purchasing power, prices can remain the same. The price itself isn’t that important. It’s how much your money can buy.