Fiat money distorts interest rates, leading to malinvestment and economic crises from "summary" of The Bitcoin Standard by Saifedean Ammous
The idea that fiat money distorts interest rates, leading to malinvestment and economic crises, is a crucial aspect of the Austrian school of economics, particularly highlighted by the work of Ludwig von Mises and Friedrich Hayek. According to this view, interest rates in a free market economy are meant to serve as signals that guide entrepreneurs and investors in making decisions about the allocation of resources. When interest rates are artificially manipulated by a central bank through the expansion of the money supply, these signals become distorted, leading to a misallocation of resources. In a fiat money system, central banks have the power to set interest rates through the control of the money supply. By lowering interest rates below their natural market level, central banks incentivize borrowing and spending, which leads to an increase in investment in projects that would not have been profitable under normal market conditions. This phenomenon is known as malinvestment, where resources are channeled into unproductive or unsustainable ventures, ultimately leading to economic imbalances and crises. The distortion of interest rates also has broader implications for the overall economy. As malinvestments accumulate, they create bubbles in various sectors, such as hous...
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