Scarcity

Scarcity is arguably the most critical of the five properties of good money. It refers to money's resistance to arbitrary supply expansion. For money to reliably serve as a store of value, its quantity must be limited and predictable.

Why Scarcity Matters

Money derives its value from scarcity relative to demand. When supply is limited, each monetary unit commands significant purchasing power. When supply can expand freely, purchasing power evaporates as more units chase the same quantity of goods and services.

Scarcity is not merely about total quantity but about supply growth rate. Money whose stock increases slowly and predictably allows economic actors to plan. Money whose supply can explode unpredictably destroys the planning function entirely.

Natural Scarcity: Gold

Gold demonstrates natural scarcity. The total stock of above-ground gold increases by approximately 1-2% annually through mining - a rate determined by geology, not human whim. No government decree can suddenly double the gold supply. This predictable scarcity has made gold the dominant store of value for millennia.

Gold's scarcity derives from physical reality. The metal is rare in the Earth's crust, difficult to locate, and expensive to extract. These natural constraints protect gold from debasement through oversupply, though governments have historically debased gold coinage through alloying with cheaper metals.

Programmatic Scarcity: Bitcoin

Bitcoin achieves scarcity through code rather than physics. The protocol limits total supply to 21 million coins, with issuance halving every four years according to a predetermined schedule. No entity can arbitrarily increase Bitcoin supply without obtaining impossible levels of network consensus.

This programmatic scarcity attempts to replicate and even improve upon gold's properties. Bitcoin's supply schedule is not merely slow but mathematically fixed and verifiable by anyone running network software.

The Failure of Fiat Currency

Fiat currency catastrophically fails the scarcity requirement. Governments with monopoly money creation powers face constant political pressure to expand supply. Funding wars, social programs, and deficit spending through money printing proves irresistible to politicians seeking to avoid taxation.

The result is systematic inflation - a continuous erosion of purchasing power that constitutes currency debasement in slow motion. The U.S. dollar has lost over 95% of its value since 1913, the British pound over 99% since 1900. This is not accidental but inevitable in systems lacking scarcity constraints.

Scarcity and Economic Incentives

Money's scarcity affects economic behavior profoundly. Sound money with reliable scarcity encourages saving and capital accumulation. Debased money with eroding scarcity incentivizes immediate consumption and speculative investment in inflation hedges.

Violations of monetary scarcity constitute a transfer of wealth from savers to debtors, from the prudent to the profligate, and ultimately from the productive economy to the political sphere.