In my previous post, I described how the Bretton Woods agreement placed the U.S. dollar at the center of the global financial system; how that embeddedness deepened over decades; and how the structural mechanics of that arrangement generated the imbalances we now experience as geopolitical strain, excessive financialization, and social fragmentation.
Running quietly beneath that history is a deeper question:
What, exactly, is a monetary unit?
At Bretton Woods, John Maynard Keynes sought to move the world beyond gold. He viewed gold as an unnecessary attempt to outsource governance to physics—a scarce metal imposing arbitrary discipline without regard for human intention. His proposed bancor would have relocated the system’s center from geology to conscious management.
The system that emerged, shaped largely by Harry Dexter White, took a different path. It placed the dollar at the center, convertible into gold at $35 per ounce. Other national currencies orbited the dollar. Gold remained beneath the structure, but indirectly so.
This compromise contained the seeds of what Robert Triffin later identified as a dilemma. For the dollar to function as the global reserve currency, the United States had to supply the world with dollars. Supplying those dollars required persistent deficits. Persistent deficits, in turn, eroded confidence in the dollar’s gold convertibility.
The unit of measure had to expand to maintain global liquidity, even though the gold base from which it derived credibility did not.
In 1971, Richard Nixon severed the dollar’s convertibility into gold. The gravitational anchor was removed. The dollar, however, remained nominally at the center, with other fiat currencies even more tenuously orbiting it.
There is an illuminating analogy here.
When Nicolaus Copernicus displaced the Earth from the center of the cosmos, he did not change the planets. He changed the vantage point. The old model required increasingly elaborate epicycles to preserve the assumption of earthly centrality.
I suggest that our dollar-centric monetary system may contain a similar frame error.
The dollar functions as a quiet geocentrism. Assets “rise” or “fall” in dollars. Gold “moves.” Housing “appreciates.” The measuring stick is presumed unmoving.
Yet, as Ludwig Wittgenstein observed, when we measure something with a ruler, we are also testing the ruler. If the ruler is made of rubber, the measurement may reveal more about the ruler than the object.
Money functions as a ruler. Prices are measurements.
Under a reserve currency system governed by Triffin’s mechanics, the ruler must expand to provide liquidity. The supply of dollars grows not merely from domestic necessity but from global demand. If the measuring stick expands faster than the underlying physical economy, we must ask whether prices are disclosing changes in the object—or merely the flex of our ruler.
This raises a more fundamental proposition: a true unit of measure must relate, in some meaningful way, to the underlying energetic reality of production.
All economic production requires energy. Energy is the capacity to do work—the transformation of matter into useful forms. If a monetary unit can be expanded without proportional energetic cost, it risks detaching from the physical constraints of the economy it measures.
Gold’s historical dominance was not accidental. It won a long monetary competition among commodities because it combines scarcity, durability, divisibility, and portability in unusual proportion. Crucially, its above-ground stock dwarfs annual new supply. Increases in demand cannot meaningfully accelerate production relative to the existing base, as they can with most commodities. That high stock-to-flow ratio has made gold unusually stable across time.
More fundamentally, gold is energetically expensive to produce. It concentrates geological rarity and human labor. You cannot create it without deploying real energy. A unit of measure untethered from energy can proliferate without proportional work. A unit tied more directly to energy embeds constraint.
This is not mysticism. It is physics.
A monetary unit that cannot be expanded without expending real energy binds financial claims to physical limits. Gold accomplished this imperfectly but effectively for centuries.
The modern dollar does not operate under the same constraint—and other fiat currencies even less so. Monetary supply expands through balance-sheet entries rather than mining output. Those who favor a state theory of money argue that this flexibility carries advantages—responsiveness, countercyclical policy, liquidity provision, and enhanced state capacity. Yet it also harbors well-documented downsides: perverse redistributive dynamics such as the Cantillon Effect1, fiscal moral hazard, and the erosion of purchasing power through inflation.
Crucially, the measuring stick can be produced without direct reference to the energy base it purports to represent.
Over time, those who intuit that the currency is merely a short-term unit of account behave differently from those who mistake it for a long-term unit of measure. They treat dollars primarily as transactional media. They store surplus wealth in assets with deeper ties to energy, land, productivity, or constraint. Those who assume the currency itself is the stable measuring stick tend to hold savings in it. The divergence compounds quietly—and often dramatically.
This is not a moral indictment. It is structural literacy.
The deeper question follows naturally.
Should money be a frame within which the state sits—a constraint disciplining both citizen and sovereign alike? Or should money be a frame controlled by the state, granting policymakers wide latitude while citizens operate within state-defined boundaries?
Under a gold standard, the state could not expand the monetary base without acquiring gold. Its capacity for action was constrained by the same scarcity that disciplined private actors. Under a fiat regime, the state occupies the frame. One powerful consequence of this arrangement has been to extend the state’s capacity for force projection and policy action far beyond the natural limits of its treasury. The state can expand the supply of the measuring stick. Citizens cannot.
Constraint has not disappeared. It has been shifted asymmetrically from the state to the citizen.
Copernicus did not declare the sun sacred; he corrected the frame. Wittgenstein did not deny measurement; he reminded us to examine the instrument. Triffin did not condemn the dollar; he identified a structural tension.
Gold’s periodic reemergence during crises does not prove its eternal supremacy. It suggests that when discretionary systems strain credibility—when the energetic constraint is obscured—actors gravitate toward assets that cannot be conjured without real work.
Every monetary order has a center—a scarce commodity, human judgment, or a decentralized protocol. Whatever occupies that center shapes the entire incentive landscape. Money functions like a collective nervous system, coordinating human action at scale. Over time, the character of its center—its unique constraints or flexibility—permeates every domain of life.
Today we inhabit a perversely pliable monetary solar system: a flexible center orbited by an even more arbitrarily elastic constellation of derivatives. Those who reach the center gain the ability to act and command resources far beyond the natural bounds of their own stored energy. Those at the periphery struggle to store even a fraction of the energy they labor to accumulate.
A durable civilization may just require a monetary core that disciplines the powerful—rather than one the powerful are free to discipline.
- The Cantillon Effect refers to the insight, first articulated by the 18th-century economist Richard Cantillon, that newly created money does not enter an economy evenly or neutrally. It enters at specific points—typically through banks, governments, or financial markets—benefiting early recipients who can spend it before prices adjust. As the new money circulates, prices gradually rise, and later recipients experience dilution and diminished purchasing power. The effect highlights that monetary expansion redistributes wealth by altering relative prices and income patterns, rather than simply raising all prices proportionally.
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Deliberative Dad 