Interesting post and much better comments than at other places. Worth a read if you are following this.
Harvard Business Review | HBR Blog Network
Building a Better Bitcoin
Justin Fox | Editorial Director of the Harvard Business Review Group and author of The Myth of the Rational Market
14 comments:
I can't make digital heads or tails out of the Selgin claim that bitcoin is a "quasi-commodity" currency. It is in no sense a commodity currency. Bitcoins are not made of some commodity, nor are they credit instruments redeemable into or "backed" by some commodity.
To the extent that bitcoins can even function as a medium of exchange, that function is 100% dependent on on arbitrary convention. They have an exchange value for an existing holder of bitcoins only to the extent that others are willing to accept bitcoins in exchange for goods and services. Such conventions can exist; they can also vanish overnight simply as the result of the fickle variations in individual psychological dispositions with absolutely nothing for the hapless holder of the suddenly valueless tokens. The exchange value of the tokens can also move up or down extravagantly in response to random gyrations in dispositions, since there are no institutional forces constraining and stabilizing the exchange value.
Finally, the fact that the quantity of bitcoins has a fixed upper bound, a fact that seems to be of world-shattering importance to the bitbrains, has zero relevance to any of the other issues I have just cited. I just wrote an Excel macro. It places the numeral 1 in the first cell in a column, and continues to do so for each successive cell in the column. It will stop fairly shortly when it has written "1" a million times. The qunatity of these Dancoins is capped. Is this relevant to anything of economic significance? Of course not.
And the comments on the post reinforce most of my preconceptions about bitcoin enthusiasts - a raving gaggle of ill-informed cultists, caught up in a classic one of those Extraordinary Popular Delusions and the Madness of Crowds.
I can't make digital heads or tails out of the Selgin claim that bitcoin is a "quasi-commodity" currency.
I assume he means "like gold," i.e., fixed supply.
Maybe, Tom, but the fact that something has a fixed supply doesn't entail that it is commodity-like in any meaningful way, quasi or otherwise.
Well, Bitcoin is being compared to gold pretty widely, so that's why I assume he is referring to gold.
Interestingly, some Austrians are pushing back against that comparison.
I don't think it is particularly apt either.
One of the most relevant things wrt the monetary significance of gold is that central banks regularly hold it, expanding and contracting their inventories.
There are different kinds of Austrians as I understand it, and only some of them are gold buggy. The one that are usually say that gold has a durable kind of industrial value that gives it use value as a commodity and unperpins its use as a medium of exchange.
By design, it's supposed to be a *virtual* commodity, not a currency per se.
Problem being just as Dan says, it's not *actually* a commodity, it's just computer game money, with no more value than Sonic the Hedgehog's gold coins.
Hence its performace in the market, which has been marked by enormous swings in value--exactly the opposite of how a gold standarde is supposed to behave.
As Minsky said, anyone can create money, but the difficulty is getting it accepted. I.e. people will not accept a form of money unless there is a good reason or motive.
As Chartalists rightly point out, the fact that the state demands its own money in payment of taxes gives the state’s money a lot of clout. And making that form of money legal tender gives it even more clout.
As for Bitcoins, the only motive for holding them rather than Dollars, Yen, etc is that Bitcoins transactions are less easy for the authorities to trace (as I understand it).
Or have I missed something?
"I assume he means "like gold," i.e., fixed supply."
Actually, the above ground supply of gold is not fixed, but expands at an average pace of about 2% per year, which coincidentally comes closet of any commodity in keeping pace with human population growth. I would be more interested in Bitcoin if its supply was engineered to expand as close as possible with population growth. This is where I part with Austrians, because a budget deficit in the neighborhood of 2% of GDP seems like it might strike the right balance to promote long term sustainable growth with stable prices.
It could be that these guys read some old 19th century dreck about "scarcity" being the source of value, and mistakenly assume that value derives from scarcity and nothing else. But a moment's thought shows how wrong that is.
As Minsky said, anyone can create money, but the difficulty is getting it accepted. I.e. people will not accept a form of money unless there is a good reason or motive.
As Chartalists rightly point out, the fact that the state demands its own money in payment of taxes gives the state’s money a lot of clout. And making that form of money legal tender gives it even more clout.
In this framework, I don't see how bitcoins qualify as money. They're a virtual commodity, a thing to be bartered for other things.
As I understand it, in the Minsky/chartalist/MMT sense, money is the IOU. Whether that IOU is written on a piece of paper, stamped on a round of gold, embodied in some other token or even recorded as a series of 1s and 0s. It's the message, not that medium that matters.
In that sense, a bitcoin is like a lump of gold. It may have value, it may be exchanged for other things, but until some issuer writes a promise on it, it's not money. My reading of the Minsky quote is that it's about the promise, not the medium in which the promise is recorded.
geerussell,
If we adopt one fairly standard definition of "money" as anything that is generally accepted in payment for goods and service, then anything could be money. It doesn't even have to be a credit instrument. Bitcoins can be money if they are generally accepted.
I think the issue is just that without the surrounding governmental framework, there is nothing underpinning the stability of bitcoin-style money. Prices in bitcoins could vary widely; bitcoins could be widely accepted one day and generally rejected the next day. It's all entirely contingent on whim and convention - like a fashion trend.
Government-issued monies have all sorts of stabilization mechanisms built into them. Since they are needed to pay taxes, the government can sustain a level of demand for them no matter what is happening with people's fashion trends. Since courts are settling debt disputes each day and mandating payment in the government's currency, that process is also sustaining demand and establishing prices.
http://arstechnica.com/business/2013/04/bitcoin-crashes-losing-nearly-half-of-its-value-in-six-hours/
Suckers.
Looks like Bitcoin took the escalator on the way up, and the elevator shaft on the way down.
Post a Comment