Σε αυτη τη γωνιά έχουμε αναφερθεί κι άλλες φορές για το virtual νόμισμα, το bitcoin. Ήρθε η σειρά του Paul Krugman να ασχοληθεί με αυτό και να συγκρίνει τις θεμελιώδεις αρχές που στηρίζεται η δημιουργία ενός τέτοιου νομίσματος με τα πιστεύω του Adam Smith. Για να δούμε με ποιό τρόπο.
Adam Smith Hates Bitcoin
There have been many good pieces written on the dubious economics of Bitcoin. One thing I haven’t seen emphasized, however, is the
extent to which the whole concept of having to “mine” Bitcoins by
expending real resources amounts to a drastic retrogression — a
retrogression that Adam Smith would have scorned.
Smith actually wrote eloquently about the fundamental foolishness of relying on gold and silver currency, which — as he pointed out — serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency:
Επίσης ο Krugman βρήκε ενδιαφέρον το παρακάτω άρθρο του Neil Irwin για το botcoin.
There was a great piece in the satirical news source The Onion
a few years ago in which it “reported” that Fed chairman Ben Bernanke
experienced a moment of existential panic during a congressional hearing
as he paused, shook his head, and said, “It’s just an illusion . . .
Just look at it: meaningless pieces of paper with numbers printed on
them. Worthless.”
Sayeth the Onion headline: “U.S. Economy Grinds to Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion.”
Which brings us to bitcoin.
It is a digital currency, which a certain variety of techno-utopian
futurist crowd views as a form of money unencumbered by the shackles of
privacy-reducing international anti-money laundering laws and
inflation-tolerant central banks. Its value has been extraordinarily volatile
over the last several weeks, rising from $20 a couple of months back,
to over $250, to around $60 on Friday, with a couple of trading halts in
between.
Bitcoin really is a tiny market in the scheme of things, and its recent gyrations mean that the dollar, euro and yen have nothing to fear from the competition. If a currency can lose 75 percent of its buying power in two days, it may not be the best store of value. But it also an important window into the strange and uncomfortable mystery of “What is money,” which is a harder question to answer than one might think.
We can all agree that the dollar bills in my wallet are money, as are the quarters and dimes in the jar on my dresser. So are the funds deposited in my checking account. The investment I have in a money market mutual fund probably counts, too; after all, I can write a check from that account and use it to buy things. Gold isn’t money, but can be readily traded for money, so it can be a reasonable substitute if you’re into that sort of thing. My refrigerator is definitely not money; even though it has value, it would be a lot harder than gold to convert it into money if I fell on hard times.
The common thread here is that money has almost nothing to do with physical form. It also doesn’t have much to do with who creates it: The dollar bills were issued by the Federal Reserve, the checking account created by my neighborhood bank, the money market fund was created by a mutual fund manager, the gold was mined out of the ground, and the refrigerator was made by General Electric.
Rather, what makes money money is what you can do with it. If you can purchase the goods and services that you want and need with it, it is money; if you can’t, it isn’t. Money is memory, said Narayana Kocherlakota in an important 1996 paper (he is now president of the Minneapolis Fed). It is the way we as a society record how much capacity to buy stuff each of us possess. In other words, The Onion was right. Money really is just a symbolic, mutually shared illusion.
That reality has important implications for all the monetary debates that captivate people today, from David Stockman’s assailing 80 years of economic policy to fretting over whether the Bank of Japan will unleash some dangerous inflation genie with its new bout of activism to the question of whether the euro zone can hold together.
Once you accept that money truly is an idea rather than a thing, it becomes clearer that there is no single “right” way to run a monetary system. It is merely trying to figure out, through trial and error (and mankind has had plenty of error over our history), what system works best.
Some societies, including this one until 1933, have strictly tied the value of their money to gold or other precious metals. That has some advantages, most notably that a government can’t create more of it from thin air and thus allow inflation to take hold. But it has some significant downsides as well. For one, the government may not be able to create new gold from thin air, but miners can definitely get it out of the ground. And it is a strange state of affairs when the price level of an entire society is allowed to fluctuate based on advances in mining technology or the discovery or non-discovery of new reserves.
All of the advanced nations in modern times instead have a central bank to be in charge of issuing money. The logic is that rather than tie the value of money to some material, instead put some politically independent, sober-minded economists in charge and assign them some goal. In practice, many countries have made that goal “manage the money supply so that prices rise about 2 percent each year, no more, no less). Because these institutions are imbued with the power of the state, the money they issue has the credibility of the entire government behind it.
As Joe Weisenthal wrote Thursday, “the U.S. dollar isn’t just important because other people think it is. The U.S. dollar is important, because the world’s strongest entity, with the full force of the U.S. army, the FBI, the CIA, the NSA, and various local authorities with guns demands that you pay them in U.S. dollars. That’s not faith. That’s the law.”
So why would somebody want to go and invent bitcoins? There is a certain theoretical elegance to the idea of a borderless currency, with its supply limited by the difficulty of working out very tough mathematical problems. But going back to where we started, money is useful inasmuch as it can be used to buy things. And two massive things stand in the way of bitcoin ever being anything more than a monetary curio. Ironically, both are byproducts of the things that bitcoin enthusiasts most like about it.
First, because it has the endorsement of no government, it will never be usable for official transactions. If you are an American, you will eventually have to pay your taxes, which means getting hold of some dollars, and as long as everyone needs to use dollars, that will be the way the currency in which an overwhelming majority of U.S. transactions occur.
Second, the cap on the supply of bitcoins may reassure people that there will be no inflation, but in fact it ensures that it can never go into widespread use. A currency needs to be elastic — that is, its supply has to rise and fall in order to keep prices stable even as people’s demand for money varies. Part of the reason the Federal Reserve was created a century ago is that the dollar was at that time an inelastic currency, its supply was basically fixed based on how much gold banks had in their vaults. That meant that when harvest season came around in what was then a heavily agricultural nation, there was always a shortage of cash and a spike in interest rates, and in some years a banking panic.
Bitcoin exacerbates that problem. Its supply is capped in the long run. That means that if it ever came under widespread use, demand for bitcoins would rise faster than supply (which is what happened between February and earlier this week), and the price rise rapidly. That may sound good — your money is more valuable! — but in fact it means that prices of goods and services are plummeting. That’s deflation, which as the Great Depression showed us, is not much fun. It is a situation in which everyone has every incentive to hoard money rather than spend it, leading the gears of commerce to grind to a halt.
In effect, bitcoin is a reminder of this fundamental truth: To function in a modern economy, you’re always putting your faith in something, whether you like it or not. And you may not like putting that faith in a powerful, independent central bank imbued with power from the state, but the alternatives may just be a lot worse.
Smith actually wrote eloquently about the fundamental foolishness of relying on gold and silver currency, which — as he pointed out — serve only a symbolic function, yet absorbed real resources in their production, and why it would be smart to replace them with paper currency:
The gold and silver money which circulates in any country, and by means of which, the produce of its land and labour is annually circulated and distributed to the proper consumers, is, in the same manner as the ready money of the dealer, all dead stock. It is a very valuable part of the capital of the country, which produces nothing to the country. The judicious operations of banking, by substituting paper in the room of a great part of this gold and silver, enable the country to convert a great part of this dead stock into active and productive stock; into stock which produces something to the country. The gold and silver money which circulates in any country may very properly be compared to a highway, which, while it circulates and carries to market all the grass and corn of the country, produces itself not a single pile of either. The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of waggon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures, and corn fields, and thereby to increase, very considerably, the annual produce of its land and labour.And now here we are in a world of high information technology — and people think it’s smart, nay cutting-edge, to create a sort of virtual currency whose creation requires wasting real resources in a way Adam Smith considered foolish and outmoded in 1776.
Επίσης ο Krugman βρήκε ενδιαφέρον το παρακάτω άρθρο του Neil Irwin για το botcoin.
Bitcoin is ludicrous, but it tells us something important about the nature of money
It’s all just an illusion, man.
Bitcoin really is a tiny market in the scheme of things, and its recent gyrations mean that the dollar, euro and yen have nothing to fear from the competition. If a currency can lose 75 percent of its buying power in two days, it may not be the best store of value. But it also an important window into the strange and uncomfortable mystery of “What is money,” which is a harder question to answer than one might think.
We can all agree that the dollar bills in my wallet are money, as are the quarters and dimes in the jar on my dresser. So are the funds deposited in my checking account. The investment I have in a money market mutual fund probably counts, too; after all, I can write a check from that account and use it to buy things. Gold isn’t money, but can be readily traded for money, so it can be a reasonable substitute if you’re into that sort of thing. My refrigerator is definitely not money; even though it has value, it would be a lot harder than gold to convert it into money if I fell on hard times.
The common thread here is that money has almost nothing to do with physical form. It also doesn’t have much to do with who creates it: The dollar bills were issued by the Federal Reserve, the checking account created by my neighborhood bank, the money market fund was created by a mutual fund manager, the gold was mined out of the ground, and the refrigerator was made by General Electric.
Rather, what makes money money is what you can do with it. If you can purchase the goods and services that you want and need with it, it is money; if you can’t, it isn’t. Money is memory, said Narayana Kocherlakota in an important 1996 paper (he is now president of the Minneapolis Fed). It is the way we as a society record how much capacity to buy stuff each of us possess. In other words, The Onion was right. Money really is just a symbolic, mutually shared illusion.
That reality has important implications for all the monetary debates that captivate people today, from David Stockman’s assailing 80 years of economic policy to fretting over whether the Bank of Japan will unleash some dangerous inflation genie with its new bout of activism to the question of whether the euro zone can hold together.
Once you accept that money truly is an idea rather than a thing, it becomes clearer that there is no single “right” way to run a monetary system. It is merely trying to figure out, through trial and error (and mankind has had plenty of error over our history), what system works best.
Some societies, including this one until 1933, have strictly tied the value of their money to gold or other precious metals. That has some advantages, most notably that a government can’t create more of it from thin air and thus allow inflation to take hold. But it has some significant downsides as well. For one, the government may not be able to create new gold from thin air, but miners can definitely get it out of the ground. And it is a strange state of affairs when the price level of an entire society is allowed to fluctuate based on advances in mining technology or the discovery or non-discovery of new reserves.
All of the advanced nations in modern times instead have a central bank to be in charge of issuing money. The logic is that rather than tie the value of money to some material, instead put some politically independent, sober-minded economists in charge and assign them some goal. In practice, many countries have made that goal “manage the money supply so that prices rise about 2 percent each year, no more, no less). Because these institutions are imbued with the power of the state, the money they issue has the credibility of the entire government behind it.
As Joe Weisenthal wrote Thursday, “the U.S. dollar isn’t just important because other people think it is. The U.S. dollar is important, because the world’s strongest entity, with the full force of the U.S. army, the FBI, the CIA, the NSA, and various local authorities with guns demands that you pay them in U.S. dollars. That’s not faith. That’s the law.”
So why would somebody want to go and invent bitcoins? There is a certain theoretical elegance to the idea of a borderless currency, with its supply limited by the difficulty of working out very tough mathematical problems. But going back to where we started, money is useful inasmuch as it can be used to buy things. And two massive things stand in the way of bitcoin ever being anything more than a monetary curio. Ironically, both are byproducts of the things that bitcoin enthusiasts most like about it.
First, because it has the endorsement of no government, it will never be usable for official transactions. If you are an American, you will eventually have to pay your taxes, which means getting hold of some dollars, and as long as everyone needs to use dollars, that will be the way the currency in which an overwhelming majority of U.S. transactions occur.
Second, the cap on the supply of bitcoins may reassure people that there will be no inflation, but in fact it ensures that it can never go into widespread use. A currency needs to be elastic — that is, its supply has to rise and fall in order to keep prices stable even as people’s demand for money varies. Part of the reason the Federal Reserve was created a century ago is that the dollar was at that time an inelastic currency, its supply was basically fixed based on how much gold banks had in their vaults. That meant that when harvest season came around in what was then a heavily agricultural nation, there was always a shortage of cash and a spike in interest rates, and in some years a banking panic.
Bitcoin exacerbates that problem. Its supply is capped in the long run. That means that if it ever came under widespread use, demand for bitcoins would rise faster than supply (which is what happened between February and earlier this week), and the price rise rapidly. That may sound good — your money is more valuable! — but in fact it means that prices of goods and services are plummeting. That’s deflation, which as the Great Depression showed us, is not much fun. It is a situation in which everyone has every incentive to hoard money rather than spend it, leading the gears of commerce to grind to a halt.
In effect, bitcoin is a reminder of this fundamental truth: To function in a modern economy, you’re always putting your faith in something, whether you like it or not. And you may not like putting that faith in a powerful, independent central bank imbued with power from the state, but the alternatives may just be a lot worse.
