The Crash of 2008 has infused our societies with enormous scepticism on the role of the authorities, both government and Central Banks. It is quite natural that many dream of a currency that politicians, bankers and central bankers cannot manipulate; a currency of the people by the people for the people. Bitcoin has emerged as the great white hope of something of the sort. Alas, the hope it brings to many people’s hearts and minds is false. And the reason is simple: While it is true that local communities have, in the past, generated successful communitarian currencies (that enabled them to improve welfare in their midst, especially at a time of acute economic crises), there can be no de-politicised currency capable of ‘powering’ an advanced, industrial society.Bitcoin and the dangerous fantasy of ‘apolitical’ money
Since the second industrial revolution made possible the emergence of large, networked oligopolistic companies (the Edisons and Fords of the 1900s, and the Googles or Apples of today), capitalism became dependent on large credit spurts for the purposes of financing these capital corporations’ needs. Such credit spurts required large boosts in the money supply, both in order to finance the creation of new capital goods and also to support the new consumption patterns that were necessary to maintain the economy’s new productive capacity. Even when capitalist economies operated under the Gold Standard, banks found ways of creating money by lending increasing quantities against the existing, stable, stock of gold.
The 1920s thus demonstrates the impossibility of an apolitical money supply. Even though the monetary authorities were insisting on a stable correspondence between the quantity of paper money and gold, the financial sector was boosting the money supply inexorably. Should the authorities stop them from so doing? If they had, the Edisons and the Fords would have never flourished, and capitalism would have failed to produce all the goodies that it did; indeed, it would have stagnated and spawned social tensions that would put its institutions under a cloud well before 1929. So, the authorities stood by, allowing the bubbles of the 1920s to inflate, leading to 1929 and to the disaster of the Great Depression.
To the extent that bitcoin attempts to emulate the Gold Standard, if a large portion of economic activity is denominated in bitcoin, the dilemmas of the 1920s will return to plague the bitcoin economy. Finance will either have to find ways of introducing bitcoin denominated securities, 1920s-style, that will cause asset bubbles to form or the bitcoin political economy will nosedive into a deflationary spiral that either causes untold hardship amongst its users or leads them, as is more likely, to abandon bitcoin altogether.
The reason that money is and can only be political is that the only way of steering a course between the Scylla and Charybdis of dangerous ponzi growth and stagnation is to exercise a degree of rational, collective control over the supply of money. And since this control is bound to be political, in the sense that different monetary policies will affect different groups of people differently, the only decent manner in which such control can be exercised is through a democratic, collective agency. In brief, while apolitical money is a dangerous illusion, a Central Bank that is democratically controlled (as opposed to the indefensible notion of an ‘independent’ Central Bank) remains our best hope for a form of money that is for the people and by the people. Bitcoin, despite its many interesting features, can never be that.
I tend to agree. And this is also why I'm skeptical of the whole "community currencies" movement, however well-meaning it may be. As long as the main money supply, the one we have to pay our taxes in, is under control of the same people, I don't see how community currencies, which I may remind you are backed by nothing, can really make much of a difference besides making us feel better. It's incapable of funding the sorts of large, capital-intensive projects we so desperately need (like alternatives to carbon). Can anyone point out a single building built anywhere with "community currencies?" How about trains or solar panels? Anyone? Maybe I'm all wet on this one, but it seems to me like community currencies are the real distraction here.
And this leads me to an observation. Yes, it's hard to trust the U.S. government in its present form, with it's smug, incestuous circle of elite bureau/technocrats, it's armies of lobbyists, it's corrupt politicians trading money and favors with the one percent, its military/industrial/security/media complex, and its complete disconnect from the everyday realities of ordinary, non-wealthy, non-connected Americans (i.e. Versailles on the Potomac).
But this effort to discover who really created Bitcoin is telling. For all of its faults, the U.S. government is a known institution. It' won't vanish overnight, and will always exist in some form. There is some sort of democratic control and oversight (whether we choose to exercise it or not). There is some transparency (although not nearly enough). Dollars are an established, accepted medium of exchange (I'm betting you used some today. If you don't trust them, please send them all to me). It has established institutions, public and private, that have developed around it for a long time to manage it, like banking insurance and bonds.
So how does it follow that people who don't trust the current monetary systems are pinning their hopes on a shadowy, obscure individual or cabal who is totally anonymous (until last week, and he vigorously denies it), a protocol so complex that only highly-trained mathematicians and computer scientists can understand it, and a group of individual, unaccountable prospectors and privateers leaping in with no central oversight or management with the expectation of profit? A monetary system that has literally no precedent? This is somehow more trustworthy than the government? Er...what? Color me confused. If you want to reform the monetary system, how about, well, actually reforming the U.S. monetary system?
Here's James Kwak making a similar point:
Part of the underlying problem is an unwritten law of software competition: Security, performance, and reliability all cost money, but features are cheap and popular. So in the short term, it's a rational strategy to race ahead with feature development, skimp on security, and hope that you don't get caught with your pants down. This is why it's hard to expect high quality software when you're in the middle of a technological land grab, which is exactly what's going on with Bitcoin. This is especially true when the customers you're trying to attract are unsophisticated individuals sucked into the excitement of a speculative bubble. All the other Bitcoin exchanges may be safe as Ft. Knox—but that would be a surprise, given the incentives involved. Instead, we should expect shoddy development to be the norm.Bitcoin and the Myth of Tech Utopia (The Atlantic) The belief that every human problem can be solved with software forgets the human element inside all software.
More generally, there is no such thing as a technological utopia. No matter how perfect a technological concept is, when it enters the world of human beings, it becomes imperfect. Bitcoin is no exception. In addition to everything else, apparently Mt. Gox's problems are due in part to a Bitcoin vulnerability that has been around since 2011—but that humans didn't get around to fixing.
This is why we have laws, and regulators, and insurance, all of which would make Bitcoin more like ordinary money. Bitcoin may yet become a lasting part of our financial infrastructure, in part because it offers the promise of lower transaction costs. (As far as anonymity goes—well, look what the U.S. government is doing to Swiss banks.) But it will not usher in some kind of libertarian paradise.
I don't think creating some kind of "perfect" monetary system is possible. I also think it's a distraction from the underlying economic system that they money is used in. The way money is created and distributed is intimately tied up with the economic system we live in; you cannot separate them. Bitcoin operating under capitalism still has all the underlying problems of capitalism. But we're not supposed to think about those.
The point is, institutions still matter.