Theory of Constraints and Bitcoin: Introducing a New Fulcrum
Martin Sewell
Round 1
Reviewer 1 Report
Comments and Suggestions for Authors“They were not the constraints you were looking for: Bitcoin
and Theory of Constraints” views Bitcoin as a unit of account through the lens of the theory of constraints. It is one of the most comprehensively researched opinion pieces I’ve encountered. The author may wish to add a section introducing the blockchain technology underlying Bitcoin and expanding the discussion to transition the opinion article into a standard article. However, as an opinion article it is already quite substantial.
One minor edit that would benefit the article is a change to line 107. Those unfamiliar with Dr. Golratt’s book might not realise that The Goal is a book rather than an otherwise undefined goal. Clarifying this point will improve the flow.
Author Response
“They were not the constraints you were looking for: Bitcoin and Theory of Constraints” views Bitcoin as a unit of account through the lens of the theory of constraints. It is one of the most comprehensively researched opinion pieces I’ve encountered. The author may wish to add a section introducing the blockchain technology underlying Bitcoin and expanding the discussion to transition the opinion article into a standard article. However, as an opinion article it is already quite substantial.
One minor edit that would benefit the article is a change to line 107. Those unfamiliar with Dr. Golratt’s book might not realise that The Goal is a book rather than an otherwise undefined goal. Clarifying this point will improve the flow.”
Thank you very much for your comments, and I am considering devloping it further in the future, so your suggestion is appreciated.
I have made it explicit on line 107 that “The Goal” related to Goldratt’s book, rather than some ambiguous target.
Reviewer 2 Report
Comments and Suggestions for Authors
This is a very interesting paper examining the potential role of Bitcoin as a unit of account in business improvement, particularly in high-inflation environments. It explores the integration of Bitcoin within businesses using the Theory of Constraints (TOC) framework. The paper argues that Bitcoin's consistent value could provide a stable metric for companies to measure performance improvements, contrasting with traditional fiat currencies affected by inflation. It includes a case study of Microstrategy, illustrating the logic behind integrating Bitcoin into business operations and suggesting opportunities for further research in this area. Possible improvements:
Specific Research Questions: Including more detailed research questions would provide clearer guidance for the reader to follow. Specific questions could explore how Bitcoin's unique properties (like decentralization, limited supply, and resistance to inflation) could specifically benefit business operations under various economic conditions. This would add depth to the research and offer a more targeted approach for subsequent investigations.
Elaboration on the Linkage between Bitcoin Properties and TOC: Expanding on how Bitcoin's stability as a metric relates to performance improvements within the TOC framework is crucial. The paper could benefit from a more detailed analysis of how Bitcoin can help address specific constraints identified by TOC. For example, it could explore scenarios where Bitcoin's stability offers advantages over traditional currencies in managing supply chain costs, investment decisions, or risk management, especially in volatile economic environments. This would strengthen the argument by providing concrete examples and theoretical underpinnings that show how Bitcoin can be a strategic tool within the TOC framework.
Author Response
“This is a very interesting paper examining the potential role of Bitcoin as a unit of account in business improvement, particularly in high-inflation environments. It explores the integration of Bitcoin within businesses using the Theory of Constraints (TOC) framework. The paper argues that Bitcoin's consistent value could provide a stable metric for companies to measure performance improvements, contrasting with traditional fiat currencies affected by inflation. It includes a case study of Microstrategy, illustrating the logic behind integrating Bitcoin into business operations and suggesting opportunities for further research in this area. Possible improvements:
Specific Research Questions: Including more detailed research questions would provide clearer guidance for the reader to follow. Specific questions could explore how Bitcoin's unique properties (like decentralization, limited supply, and resistance to inflation) could specifically benefit business operations under various economic conditions. This would add depth to the research and offer a more targeted approach for subsequent investigations.”
Response: Thank you, I have added some potential research questions directed towards further research within the final section (lines 287-297).
“Elaboration on the Linkage between Bitcoin Properties and TOC: Expanding on how Bitcoin's stability as a metric relates to performance improvements within the TOC framework is crucial. The paper could benefit from a more detailed analysis of how Bitcoin can help address specific constraints identified by TOC. For example, it could explore scenarios where Bitcoin's stability offers advantages over traditional currencies in managing supply chain costs, investment decisions, or risk management, especially in volatile economic environments. This would strengthen the argument by providing concrete examples and theoretical underpinnings that show how Bitcoin can be a strategic tool within the TOC framework.”
Response: This is a very interesting point to identify, so thank you. Given the length of the paper, I’m not sure it is possible to do all of the suggested points justice. However, I think lines 217-226 go some of the way, but I have also added a point related to bitcoin being an explicit improvement metric. In the following new paragraph, lines 229-237, I have considered bitcoin’s potential role as a medium of exchange in supply chains, with the added benefit of this providing a mechanism for a firm to help other companies pursue the adoption of bitcoin. I think this is a valuable to addition, so thank you again.
Reviewer 3 Report
Comments and Suggestions for Authors25 imrpovement -> improvement
25 Theory of Constraint -> Theory of Constraints
59 Low-time preference -> Low time preference
60 'allow were' ?
69 to illustrate potential for bitcoin being an element -> to illustrate the potential for bitcoin to be an element of the framework
195 accepted as a volatile -> accepted as being volatile
Another cause of inflation was the government's response to the pandemic.
If the economy grows faster than the money supply, we have deflation and price levels fall, and employers need to pay their staff less. But in practice, wages are ‘sticky’, and if employers decrease salaries, this can lead to unemployment. If further deflation is expected, people may defer spending, and the downturn gathers momentum. Furthermore, deflation makes debt more expensive. If we set a goal of permanent inflation, and the economy unexpectedly grows slightly, employers can freeze wages. But because we have inflation, employers are effectively decreasing wages without the subsequent unemployment. For this reason, most central banks target a low but positive rate of inflation, typically 2 per cent.
A useful unit of account would surely be the yardstick used to measure the cost of goods, salaries, sales, profit, etc. In other words, the local fiat currency.
Bitcoin is generally considered a poor unit of account, due to its volatility, and deflation.
Comments on the Quality of English LanguageThe paper is very well written. Just a few typos.
Author Response
"25 imrpovement -> improvement
25 Theory of Constraint -> Theory of Constraints
59 Low-time preference -> Low time preference
60 'allow were' ?
69 to illustrate potential for bitcoin being an element -> to illustrate the potential for bitcoin to be an element of the framework
195 accepted as a volatile -> accepted as being volatile (now line 199)"
Response: Thank you and apologies for the typos (and highlighted in the revision). These have now been resolved.
"Another cause of inflation was the government's response to the pandemic"
Response: I have also added government’s impact on inflation on line 169, which is a useful addition, I have also added central bank money printing.
"If the economy grows faster than the money supply, we have deflation and price levels fall, and employers need to pay their staff less. But in practice, wages are ‘sticky’, and if employers decrease salaries, this can lead to unemployment. If further deflation is expected, people may defer spending, and the downturn gathers momentum. Furthermore, deflation makes debt more expensive. If we set a goal of permanent inflation, and the economy unexpectedly grows slightly, employers can freeze wages. But because we have inflation, employers are effectively decreasing wages without the subsequent unemployment. For this reason, most central banks target a low but positive rate of inflation, typically 2 per cent."
Response: Thank you very much for the coverage of the processes and (potential) need for inflation within a modern economy, I have added a sentence in line 170-172 as a response, with reference to Ammous (2018). While the short length of the opinion piece means that I cannot go into much depth in exploring “what is inflation”, I would respectfully disagree with what you have presented. An example I feel is relevant is the US of 1920 illustrates this, with the economy recovering much more quickly and healthily without government intervention (that took place in 1929 and resulting in the great depression). In 1920 businesses were allowed to fail, prices fell via extreme deflation, and those with (hard) assets being able to use them to expand their healthy and productive businesses. While this is not a piece of Keynesian versus Austrian economics, I hope this example justifies the reason for taking the perspective I have in the paper.
"A useful unit of account would surely be the yardstick used to measure the cost of goods, salaries, sales, profit, etc. In other words, the local fiat currency."
Response: As a result of the nature of inflation being an increase in broad money supply (money printing) or the deliberate devaluation of currency, the suggestion that fiat currency provides a yardstick potentially misses the point of the paper. By continually being devalued, the “fiat currency yardstick” continually changes, making measurement difficult/impossible.
The fiat currency may be the unit of account that determines whether a firm makes profits or losses, but if the unit of account has lost more value than the profit the company has made, proposing that the company has been profitable makes little sense (see lines 53-56, 152-154 and 206-208). Within the work, it is mentioned that while the price of bitcoin is volatile, it’s monetary policy (emissions schedule) is consistent, so can help with planning. As more people realise the value of and save in the asset, the value of bitcoin appears likely increase. As a result of the “fiat value” of bitcoin increasing, the impact (irrespective of fiat inflation) will be for prices to fall in bitcoin terms.
From a cost management or traditional perspective, this could be viewed as a negative (with individuals delaying spending), but from a growth, future oriented perspective, holding a deflationary asset would support the pursuit of more impactful and high value developments (included within one of the newly proposed research questions). This view is consistent with the TOC perspective, presented in lined 256-258, in terms of a focus on making, rather than saving, or growth compared to maintaining a status quo.
Rather than working in a system that attempts to save with a currency that loses value, allowing managers and owners to “effectively decreasing wages” of staff, even though they need them to work harder to maintain living standard appears rather unfair. By pursuing a bitcoin unit of account that promotes the sharing earnings, learnings and development attitudes with the staff, company owners are likely to be better able to rely upon their staff to add value to their businesses (lines 281-284) rather than looking for alternative employment for a higher wage. Traditionally, I can agree with you that “bitcoin is generally considered a poor unit of account”, however, the aim of the paper is to question this viewpoint, so I hope my response has better helped you understand my position and views.
As I said, the length of the opinion piece (and focus on the paper) means that I cannot fully explore each of these point in the paper, although I hope that the references I have made to sections of the submission highlight that the view taken within the piece is not from a Keynesian, inflationary, fiat currency perspective.
Round 2
Reviewer 3 Report
Comments and Suggestions for Authors63 of -> for
69 'to illustrate potential for bitcoin being an element of the framework' English can be improved.
94-95 'tracking the emission' Not sure what this means.
144 'customer demand in set' English can be improved.
169 'to even' English can be improved.
199 as being a volatile -> as being volatile
225 straight forward -> straightforward
227 'stable unit of account' Stable? Bitcoin is volatile and deflationary.
231 area -> are
232 is -> it
236 beneficials -> beneficial
Bitcoin is a poor unit of account because it is so volatile, and deflationary. Microstratgy benefited from the long-term store of value.
Comments on the Quality of English LanguageA few typos.
Author Response
Thank you very much, I have addressed the identified typos. I have also added some reference to attempt to further justify the unit of account argument, but also thank you for the very helpful reminder of Microstrategy who began by using bitcoin at a store of value, which has appeared to progress towards using it as a unit of account.
