The Fiat Algorithm: How Broken Money Programs the Economy to Exploit

The world runs on fiat money — and it’s hardwired to sell our future at a discount

TL;DR: The article uses a cash flow analysis to demonstrate how inflationary fiat money distorts economic incentives. It compares two companies: Company A, which focuses on long-term sustainable practices, and Company B, which maximises short-term profits through unsustainable methods. Using a 7% annual discount rate (reflecting money’s depreciation), the present value of Company B’s earnings is higher than Company A’s, despite both generating the same total earnings over 15 years. This shows how debasement rewards short-termism. In contrast, under a deflationary “hard money” system (where money appreciates at 5% annually), the analysis flips: Company A’s long-term earnings are valued higher, incentivising sustainability. The article shows that inflation-driven discounting punishes future-oriented investments, while deflation aligns profitability with sustainability by naturally rewarding long-term value creation.

Today, we live under an inflationary economic framework. In simple terms, this means that whatever deflationary forces are created by productivity growth, they must be offset by inflationary forces (monetary expansion) to achieve net positive inflation (aka the inflation target).

In an inflationary economy, natural deflation (caused by productivity growth) must be offset by an inflationary force to achieve the inflation target.

This is a structural reality: if we fail to do this, the real value of debt will rise, ultimately causing the current economy to collapse under its own weight. This is because the entire system is highly leveraged — with approximately $3-4 of debt existing for every $1 of actual value globally.*

To generate the required inflationary force, the type of money we use is continuously debased — diluted through the creation of more units — which results in a consistent loss of purchasing power. In practical terms, this means that every dollar today will buy you fewer goods and services next year, and even less the year after.

The act of debasing money is referred to as “monetary expansion” or “monetary inflation”. This debasement can lead to price inflation (which ultimately is the goal in aggregate)— where prices rise, as measured by the Consumer Price Index — or it can simply suppress prices from falling.

Advocates of this system argue that monetary expansion — frequently referred to as “stimulating the economy” — is a prerequisite for achieving any productivity growth in the first place.

This gets the causal arrows exactly backwards. Productivity growth does not come from stimulating the economy with money; it comes from tinkering, trial and error, and real human ingenuity. The surplus created by innovation then gives us the optionality of what to do with it: consume it, save it, or reinvest it. To confuse money creation with productivity creation is like confusing the scoreboard with the game. You don’t win a football match by changing the numbers on the scoreboard (that’s called cheating); you win by playing the game better — which then changes the scoreboard as a consequence.

The problem is that, once you accept this flawed causality, policymakers keep making sure there is always plenty of money floating around — far more claims on goods than actual goods to buy. When someone then tries to “tighten” that money supply, the economy feels pain in the short term. That pain is then used as proof that stimulating the economy is necessary — when in reality it only proves how backward everything is.

In this piece, we will delve into the potential long-term benefits of an alternative system and examine how the continuous debasement of money fundamentally distorts the economy’s incentive structures, driving overconsumption, waste, and practices that not only threaten social cohesion but also the planet itself.

We will explore why monetary debasement not only encourages unethical behaviors but is, in fact, indistinguishable from it.

We will show how the “fiat algorithm” — the built-in rule that money must constantly lose value — programs the economy and all its participants to exploit.

Fiat money — depreciating in purchasing power

To illustrate, we’ll use the U.S. dollar, the world’s reserve currency, as a template for this exercise. The U.S. dollar is the most widely used currency globally and also one of the least inflationary. Like most international currencies, it is “fiat money”, meaning it is issued at the discretion of the government with nothing with no inherent constraints.

Over the past 100 years, the dollar has expanded at an average annual rate of approximately 7%**, resulting in a halving of its purchasing power roughly every eight years. This rate of expansion has been deemed necessary to achieve a target of 2% net positive inflation, as visualised in the previous graph.

Without these inflationary measures, the dollar’s purchasing power would have naturally appreciated over the same period. Later, we will explore what such appreciation could mean for the economy.

For now, though, the analysis that follows will compare a type of money similar to the one we use today — one that is continuously devalued — and examine the incentive structures it creates.

Cash Flow Analysis

In finance, determining the value of a company involves estimating the present value of its future cash flows. Simply put, this means projecting the company’s future earnings and calculating what those earnings are worth today.

This process relies on discounting, which adjusts future earnings to reflect their value in today’s terms. This adjustment accounts for the time value of money —the principle that a dollar today may hold a different value compared to a dollar in the future, due to factors such as monetary debasement. To make this adjustment, companies and investors use what’s known as a discount rate, which reflects the degree to which future earnings are valued today.

As we will see, the higher the discount rate, the more heavily the future is discounted, meaning future cash flows are valued less in today’s terms. Conversely, a lower discount rate — or even a negative one — assigns more value to those future cash flows.

While the anticipation of those future earning is an art and highly subjective — relying on assumptions about market trends, competition, and other factors — the ultimate objective remains consistent.

To illustrate how the type of money we use — one that is continuously depreciating in value — strongly shapes those assessments and, consequently, the types of behaviors that are rewarded, we will compare two hypothetical companies, Company A and Company B.

In this simplified example, both companies generate the same total earnings over a 15-year period, but the distribution of these earnings differ due to variations in their business practices.

Let’s delve in.

Company A— Maximises Long Term, Sustainable Practices

This company template is designed to illustrate a business model — such as a farming enterprise — focused on long-term, sustainable growth.

Linear earnings distribution, weighted to the right.

Practices: Organic farming methods without synthetic chemicals. Crop rotation and natural pest control to maintain biodiversity and soil integrity. Soil enrichment through composting and conservation techniques to enhance fertility and long-term productivity.

Earnings Profile: Linear earnings distribution, weighted to the right, reflecting gradual growth as sustainable investments yield increasing returns over time.

Consequences: Gradual increases in yield as sustainable practices improve soil health. Long-term productivity is secured, preserving resources for future generations.

Company B— Maximises Short-Term, Unsustainable Practices

This company template is designed to illustrate a business model — such as an intensive farming operation — focused on short-term profit maximisation, prioritising immediate gains at the expense of long-term sustainability.

Linear earnings distribution, weighted to the left.

Business Model: Focuses on short-term profits through intensive and exploitative methods that deplete natural resources without regard for long-term viability.

Earnings Profile: Linear earnings distribution, weighted to the left, reflecting high initial profits that steadily decline as the consequences of unsustainable practices gradually deplete the soil.

Practices: Heavy reliance on pesticides and chemical fertilisers to artificially boost short-term yields. Continuous cropping with little allowance for soil recovery or replenishment.

Consequences: Accelerated soil degradation and environmental damage, including significant harm to local ecosystems and loss of biodiversity. Over time, the land becomes increasingly infertile, rendering it unusable by the end of 15 years. This leads to the collapse of the business and nothing for future generations to build upon.

Case Study: Cash Flow Analysis with Depreciating Money

When we conduct a simple cash flow analysis on these two companies, using the previously mentioned discount rate of 7% annually — a rate that reflects the depreciation of the dollar — the results reveal the impact of a depreciating currency on their valuation:

Company B’s present value of future earnings are higher than Company A’s.

It’s important to note that the actual figures themselves are not what matters in this example. What matters is that both companies generate the same total earnings ($12,000) over 15 years — only distributed differently over time. Despite this identical total, the valuation method systematically favors Company B, which pursues unsustainable practices — even though it’s clear from the outset that these practices deplete the soil and undermine the long-term viability of the business.

Despite achieving the same total earnings, the present value of Company A’s future earnings is only $6,155, compared to $8,417 for Company B. In other words, Company B, under the given circumstances, is likely to attract more capital than Company A. This structural bias reveals how artificial monetary expansion distorts investment incentives by heavily discounting (and effectively punishing) future earnings in favor of near-term profits.

Before exploring an alternative scenario, let’s push this concept further with an even more extreme example: instead of linear earnings distribution, we’ll analyse exponential earnings distribution for both Company A and Company B.

Left: Exponential earnings distribution, weighted to the right. Right: Exponential earnings distribution, weighted to the left.

A simple cash flow analysis of these distribution curves yields the following results:

Company B’s present value of future earnings are higher than Company A’s.

In this extreme example, the bias becomes even more glaring, overwhelmingly favoring Company B. Here, Company B is ruthlessly stripping the land of every ounce of value it can extract as fast as possible, with total disregard for the long-term devastation it leaves behind. Their reckless, exploitative practices are rewarded exponentially, actively incentivising the most unsustainable and destructive behaviors imaginable.

Meanwhile, a company taking the polar opposite approach — sacrificing short-term profits to prioritise long-term success through investments in research, development, or regenerative practices — is harshly penalised. Their dedication to investing in the future value is actively punished, sending a clear signal that responsible practices are economically irrational under this system.

The same total earnings over the same period give Company B a present value that is nearly twice as high as Company A’s!

What we can conclude is that not only are short-term profits ‘generally’ incentivised over long-term sustainable investments in an economy with a depreciating currency, but also that the more aggressive and extreme the pursuit of those short-term profits are, the greater the rewards!

Now, consider how these results would look if the discount rate were even higher — as it is in most other countries around the world. The faster the currency debases, the more pronounced and magnified this effect becomes.

Hard money — appreciating in purchasing power

In contrast to the inflationary scenario we just explored, which reflects the economic framework we currently operate under, let us now consider an alternative economic order — one where the natural deflationary force of progress is NOT offset by artificial inflationary forces.

In this alternative scenario, instead of enduring a debasement of money through an artificial inflationary force of approximately 7% annually, we imagine a hypothetical system where the purchasing power of money appreciates over time at an annual rate of 5%, driven by the naturally deflationary force of productivity growth.

This appreciation means that one dollar next year would buy more goods and services than it does today — the inverse of the inflationary model.

Case Study: Cash Flow Analysis with Appreciating Money

Now, let’s examine how a monetary system with these deflationary properties would influence company valuations.

Company A’s present value of future earnings are higher than Company B’s.Company A’s present value of future earnings are higher than Company B’s.

What do you see?

The incentive structures are completely reversed in this scenario. Long-term practices are not only encouraged, but the more ambitious and forward-looking the approach, the greater the compounding effect of the new discount rate.

What’s even more remarkable is that this shift isn’t the result of artificially altering incentive structures through interventions. Instead, it comes from not engaging in monetary manipulation, thereby allowing the natural incentive structures of the economy to emerge.

Of course, this is a simplification of the forces at play. The discount rate, for instance, is not solely constructed by the cost of capital (like the changing value of money over time); it also includes elements such as risk premiums. There is no doubt that long-term investments inherently carry more uncertainty because the further into the future we look, the harder it becomes to foresee outcomes.

But it’s also true that in an economy free from excessive leverage (debt), many of the risks currently accounted for in various risk premiums would naturally diminish. For example, a less-leveraged system would be far less vulnerable to external shocks (and volatility).

The origin of “growth of all cost”

There are essentially two ways a company can position itself in an economy:

1. It can be repulsive to investors — meaning it struggles to attract capital and slowly declines.
2. It can be attractive to investors — meaning it secures funding, expands, and survives.

Now, let’s take the starting point that the U.S. dollar is being debased at an annual rate of 7%. This means that any given company must grow its cash flows at a rate of at least 7% per year just to maintain its value in real terms.

If a company grows at a slower rate, it is effectively shrinking in purchasing power. Over time, this leads to a slow but steady march toward bankruptcy.

Why not just raise prices?

At first glance, companies might attempt to offset this issue by increasing their prices by 7% each year. But in aggregate, this isn’t a sustainable solution.

Why? Because prices in the economy cannot sustainably rise faster than wages, and wages cannot sustainably rise faster than actual productivity growth.

But here’s the problem:

• Productivity growth in the economy is always lower than the rate of monetary debasement.
• If companies raise prices faster than wages increase, demand collapses, and they lose customers.

Where does this leave us?

For a company to remain competitive — that is, to avoid the slow track to bankruptcy and attract capital — it must at the very least grow at the rate of monetary debasement.

Some companies can achieve this organically for a time — through innovation, market expansion, or efficiency improvements. But over the long term, no individual company — and certainly not the economy as a whole — can sustain a 7% growth rate indefinitely.

Why? Because this growth rate compounds.

• A company growing at 7% annually must double its cash flows every 10 years just to stay even.
• In a single decade, the pressure to extract value and expand operations becomes exponentially harder.

This relentless demand for growth forces businesses into short-term, unsustainable strategies — cost-cutting at the expense of long-term stability, financial engineering over real innovation, and resource exploitation instead of conservation.

It’s not that businesses necessarily choose to operate this way. It’s that they must — because the monetary system demands it.

If a company cannot grow sustainably (meaning organically) at the rate of monetary debasement, what options does it have?

1. Go bankrupt, even if it’s otherwise a well-run business.
2. Pursue unsustainable growth practices to keep up with the system’s demands.

In a world where money constantly loses value, most businesses choose the latter. Here’s how they do it:

• Shrinkflation — Reducing product size while keeping the price the same, hoping consumers won’t notice.
• Quality degradation — Using cheaper, artificial ingredients, pesticides, or inferior materials to cut costs.
• Wage suppression — Keeping wages stagnant, cutting benefits, or increasing workload without compensation.
• Aggressive acquisitions — Larger companies buy up competitors to inflate cash flows rather than grow through real productivity.
• Excessive leverage — Taking on massive debt or overextending supply chains, making businesses dangerously fragile to external shocks.

The race to the bottom

Each of these strategies buys time but at the cost of long-term viability. There is only so much a company can shrink packaging, dilute product quality, suppress wages, or pile on debt before the cracks begin to show.

And yet — this is exactly how the global economy operates today.

• We see ecosystems deteriorating as businesses prioritise short-term profits over sustainability.
• We feel the pressure of working harder for less, as wages fail to keep up with the cost of living.
• We experience declining product quality while corporations report record earnings.

The irony is that many fail to recognise why this is happening.

A system that consumes itself

Monetary debasement is not just an economic issue — it’s an existential threat to all forms of capital. It programs the economy to consume and deplete:

• Financial capital — Purchasing power constantly goes down.
• Human capital — Workers squeezed to their limits, with wages lagging behind productivity.
• Natural capital — Resources extracted recklessly to meet short-term growth targets.
• Social capital — Trust and stability undermined as economic insecurity fuels division.

The destruction we see around us — from environmental degradation to increasing inequality — is not an accident. It is the logical outcome of a system that forces perpetual expansion at the cost of everything else.

Monetary debasement leads to the destruction of all forms of capital.

The fallacy of using monetary policy to instill sustainability

Faced with the very real consequences of the inflationary order — an economy that perpetually rewards short-term profits and actively depletes capital in all its forms —policymakers often make the mistake of advocating for centralised interventions that involve running a budget deficit to mitigate the harmful outputs of this system.

In many cases, this takes the form of justifying money printing (further increasing the inflationary force) to fund various initiatives — such as temporary tax incentives or subsidies — to encourage companies to adopt long-term practices. This has the effect of, in a sense, ‘artificially lowering the discount rate’ by rewarding companies that engage in practices the central government deem sustainable.

While such efforts may seem noble, they fail to address the systemic issues — and instead exacerbate them. Even when subsidised projects achieve success in isolation, they inadvertently redirect everyone outside the program to focus on short-term gains, intensifying the very behaviors these policies aim to correct.

Instead of attempting to artificially manage sustainability through monetary manipulation, we should advocate for a neutral and incorruptible hard money system. Hard money, inherently compatible with deflation, constantly reflects economic reality, seamlessly extending the ethics of nature into our economy. It would align profitability with sustainability in ways that are currently beyond the imagination of most.

Sustainability would no longer require enforcement to the same extent because the most profitable way of doing business would naturally be to pursue the most ambitious and sustainable visions. This shift would redirect the collective intelligence of 10 billion people toward the right cause: investing in tomorrow.

Follow me on Twitter for more: https://x.com/PetterEnglund

*https://www.iif.com/Products/Global-Debt-Monitor
**https://fred.stlouisfed.org/series/M2SL

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The Fiat Algorithm: How Broken Money Programs the Economy to Exploit was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.