Bitcoin and Time Preference
Time preference plays a crucial role in influencing both individual maturity and the overall health of a society.
This essay will build on the last one by expanding on the concept of Time Preference.
What is Time Preference?
Saifedean Ammous lays out the fundamental importance of time as the starting point of all economic decision making in his essay “Making Time Preference Low Again”, which he wrote for the incredible “Austrian Edition” of The Bitcoin Times:
The scarcity of time is the starting point of all economic choice. The scarcity of time forces man to choose between alternatives at all points in his life, and it means that every decision has an opportunity cost. Even with no restraint on the amount of resources available, an individual’s choice of how to spend their time results in the elimination of all other choices for which he could have used the time. Economizing time is unique because time passes and cannot be stopped or reversed.
— Saifedean Ammous
Time preference, as I described in my previous essay for Simply, is an economic term referring to the degree that an individual values present goods over future goods.
A person with a high time preference is more concerned with immediate gratification, while someone with a low time preference is willing to delay gratification in order to achieve greater long-term outcomes.
Why is it important?
We all value the future less than we do the present, but the closer their relative value (ie; the lower the time preference) the healthier both individuals and the societies they make up are - because they transcend impulse with reason.
While impulses can be useful (they are a function of our innate drives), they are often out of sync with a world in which cooperation and collaboration are required in order to thrive. In other words, impulse is fine if you’re Robinson Crusoe alone on an island, but when you’re a being in a social environment, you cannot succumb to impulse at all times.
You must elevate your behavior and transcend your baser, animal instincts and impulses. This is, in effect, what time preference is.
It’s a reflection of your maturity.
On an individual level, a person's time preference has a significant impact on their personal development and well-being.
High time preference leads to a focus on immediate pleasure and gratification, which can result in impulsive and short-sighted decision-making. This can be harmful to an individual's personal growth and well-being, as it can prevent them from developing the discipline and self-control needed to achieve long-term goals and build a healthy, fulfilling life.
On the other hand, a low time preference can foster a sense of responsibility and delayed gratification, which can help an individual to develop maturity and self-control. This is beneficial for an individual's long-term well-being and success, because it enables them to set and achieve goals, and to build a sense of accomplishment and self-worth.
At the societal level, time preference has a significant impact on the overall health and prosperity of a society. A high time preference leads to a focus on immediate pleasure and consumption, which is harmful to the long-term sustainability and stability of a society. This can be seen in societies that are heavily reliant on debt and consumption. They are more vulnerable to financial crises, cultural crises, political crises and myriad other forms of instability.
On the other hand, a society with a low time preference is likely to prioritize saving, investment and increased productivity, all which promote economic growth and stability. This is the very definition of civilization: A collective lowering of our shared time preference, a decrease in future uncertainty, and therefore a greater incentive toward building for the future.
How does Bitcoin improve our time preference?
Drawing upon Saifedean’s work again, from The Bitcoin Times, we understand that Money is how humans solved for future uncertainty, and the better the money, the lower the economic uncertainty of the future:
Providing for the future suffers from the problem of coincidence of wants. The future is unknowable and uncertain, and no individual can know for sure what goods they will require in the future. In the same way that money solves the problem of coincidence of wants in trade, it solves it for future-provision. By saving the most liquid good, and the generalized medium of exchange, the saver is able to exchange it in the future for the most valuable goods available, and to do so at the time of their choosing.
Money is thus held precisely because of uncertainty. In a future that is perfectly predictable, individuals could arrange all their future financial inflows to go directly to the providers of the goods they would need at the time they need them, and would not need to hold any money. But in the real world where the future is unpredictable, money is the best tool for providing for the future, as its liquidity allows it to be converted to whatever goods are desired in the future.
Money can therefore be understood as the economic good likely to have the highest marginal utility in the future, as it can most easily be converted into whatever good has the highest marginal utility in the future. As human society develops money as a good, humans find a very convenient and powerful tool for transferring value into the future, and that allows them to lower their time preference, and engage in more saving and future-provision.
— Saifedean Ammous: Making Time Preference Low Again, The Bitcoin Times
Bitcoin of course, is the kind of money that will be here 10 years from now, 100 and likely thousands of years from now, with the same core monetary properties and rules.
21 million, fixed supply, 10 minute blocks, etc.
There is no better form of money, and thus no greater method of lowering the time preference of the individuals who use it and measure their economic activity with it.
In the last essay I noted that:
“Bitcoin cultivates a culture of individualism and self-reliance, which is resistant to the negative effects of collectivism, much like nutrient dense food, sunlight and holistic medicines help give the body what it needs to naturally fight cancer.”
And we explored four of its key ingredients in doing so:
We established that Collectivist systems rely on individuals with high time preferences in order to maintain control and compliance. They inculcate this deformed relationship with the future in all their subjects by promising “free and immediate benefits” in exchange for loyalty and obedience.
Bitcoin, on the other hand, offers individuals a means of accumulating wealth and achieving long-term financial stability independent of the machinations of collectivists. It removes the inherent economic uncertainty about the future by providing an alternative way to save that is not dependent upon the whims of a committee.
As such it encourages more agency on the part of the individual actor, and therefore a greater degree of individual responsibility and self-sufficiency.
These are all artifacts of a lower time preference.
This lowering of time preference and re-localization of consequence increases the economic health of the individuals (the cells) that make up society (the body) and ultimately inoculates us from the cancer of collectivism.
— Wartime Bitcoiner
Overall, by fixing the money, we fix the individuals’ relationship to the future, thereby lowering their average time preference. In doing so, we kickstart a virtuous cycle toward further decreasing both time preference and the uncertainty about the future. This influences more productivity, and in time, actively promotes a greater degree of human flourishing.
Bitcoin is a powerful techno-sociological solution to a praxeological problem that has and will be with humans forever, but post bitcoin will be of a significantly higher quality, ie; “What do we do with the future”?
This is a guest post written by @WartimeBitcoin
17th Jan, 2023