Thursday, December 26, 2013

Bitcoin and other oddities

Why I want Bitcoin to die in a fire (Charlie Stross)

Bitcoin, Magical Thinking, and Political Ideology (Alex Payne)

Time for a little Bitcoin discussion (Digitopoly)

In gold we trust? (MacroMania)

What's interesting to me is that you've got so many different ideas about money all floating around at the same time. I don't think that's a coincidence. I think what it indicates is a profound unease with the complexity and volatility of the system of finance that we are now all yoked to whether we want to be or not.

And what's doubly-interesting is that all of these ideas seem to be joined to certain political philosophies. That is, your preferred "alternative" to money depends on your political views.

So you've got Bitcoin embraced by the libertarian/techno-utopian set that believes that we would all just be better off if centralized governments disappeared from the earth and we built a computer-centric utopia ("all watched over by machines of loving grace"). Then, you've got the Goldbugs, who tend to be the Calvinist/Doomer set who see the nineteenth century as an idealized golden age (no pun intended) that we should return back to. Both of these groups are obsessed with "debasement" as the cause for the collapse of society. Then you've got the more pro-social policies of "community currencies" that allow people to print enough money for various enterprises at the local level without having to sell bonds or deal with the Federal Reserve or any of that stuff (i.e. Monopoly money). This is embraced by the anti-government "local solutions" crowd who believe we can build a parallel society as the old one comes apart. You've also got people recommending "demurrage" currencies, that is, currencies that are specifically designed to lose their value so that people go out and spend them instead of hoarding them (a negative interest rate is based on a similar idea). This means that people will flee from whatever currency you're proposing to use, choosing instead to hold onto other types.

The common theme here is distrust of government. Any attempt at reforming the currency we actually do use every single day - the U.S. Dollar (or whatever you use in your country of origin), is off the table. People believe that their national currencies are under control of the bankers and the bureaucrats for their own benefit and everyone else is screwed. It's sad really. All of this has gotten enough attention to be worthy of a Paul Krugman column:

Bits and Barbarism (New York Times)
[Adam] Smith is often treated as a conservative patron saint, and he did indeed make the original case for free markets. It’s less often mentioned, however, that he also argued strongly for bank regulation — and that he offered a classic paean to the virtues of paper currency. Money, he understood, was a way to facilitate commerce, not a source of national prosperity — and paper money, he argued, allowed commerce to proceed without tying up much of a nation’s wealth in a “dead stock” of silver and gold.

So why are we tearing up the highlands of Papua New Guinea to add to our dead stock of gold and, even more bizarrely, running powerful computers 24/7 to add to a dead stock of digits? 
Here's an alternative view, but it doesn't really contradict the above. There are some good comments too. This one I found especially interesting, in that you can think of money as a stand-in for time:
The value of any object or commodity is a function of its usefulness and rarity. Gold, diamonds, trade routes, waterfront, atomic bombs, dollars, cyberspace are examples of high value to different segments. Amazingly most people resist acknowledging the most truly valuable and finite commodity is time. Money is simply a method of exchanging time.

For example, I can take the time to grow a carrot (2.5 months) or I can go to a grocer and purchase a carrot (10 minutes). I could walk to the East Coast (>100 days) or I can buy an airline ticket saving 99.75 days. Money allows me to control how I spent my time of Earth.

With a finite limit of time available to everyone; how much money is appropriate or even healthy to accumulate? Obviously, that answer will elicit a bell curve of responses. Ask anyone that has suffered a debilitating or life threatening illness; they’ll tell you time healthy is vastly more valuable than any object on Earth. People that accumulate vast stores of objects such as newspapers or cats, are diagnosed as suffering from a hoarding disorder When does the accumulation of wealth tip over from mild obsession to a compulsive illness, $50 million, $100 million, $1 billion, $10 billion, 50 billion?

The dysfunctional performance of our governing bodies, the lack of infrastructure investment to support our future and the massive accumulation of wealth in the hands of so few appears crazy to many of us, maybe it really is.
And I like this statement:
"An economy is an imaginary construct. It is whatever we believe it to be. At this point in America, we are convinced that it is a winner take all game - based on survival of the fittest. And most Americans accept this definition, provided to us by the richest segment of our populace."  
I've expressed a lot of skepticism about all of these alternative currency ideas. In the past, I've recommended the ideas expressed by Chartalism (also called MMT or Functional Finance). I've also recommended a system of public banking. To me, these are the closest we can get under the current system to a resource-based economy as opposed to the clearly dysfunctional system we have now. The unfortunate thing is that for these ideas to grain traction, they need to be applied at the federal level (since only the federal government can issue currency), and the federal government is completely captured by big-money interests. These ideas might work if the United States breaks apart into smaller nations, which might be the best thing overall. But I don't see that happening anytime soon.

Personally, I think the fundamental problem with money is that the rich have too much and the rest of us not enough. People are not getting paid the value of their economic output, and the wealthy are hoarding money which just leads to expenditure cascades and rising prices for everything else in society. All of these alternative money proposals are simply reactions to that. But I don't think any one of them are going to fix that fundamental problem.


  1. People in Worgl, Austria, did not flee from their demurrage currency; in fact, they loved it so that Austria's central bankers had to send in the army to break it all up. How do you explain that?

    Been thinking a lot about Mosler's money ideas. Money as debt backed by extortion? Makes sense, but there is more than meets the eye.

  2. I'm familiar with the "Miracle of Wörgl," but I think there were extenuating circumstances. Here is a good page on it from money reformer Bernard Lietaer:

    He had a long list of projects he wanted to accomplish (re-paving the streets, making the water distribution system available for the entire town, planting trees along the streets and other needed repairs.) Many people were willing and able to do all of those things, but he had only 40,000 Austrian schillings in the bank, a pittance compared to what needed to be done.

    Instead of spending the 40,000 schillings on starting the first of his long list of projects, he decided to put the money on deposit with a local savings bank as a guarantee for issuing Wörgl’s own 40,000 schilling’s worth of stamp scrip. He then used the stamp scrip to pay for his first project. Because a stamp needed to be applied each month (at 1% of face value), everybody who was paid with the stamp scrip made sure he or she was spending it quickly, automatically providing work for others. When people had run out of ideas of what to spend their stamp scrip on, they even decided to pay their taxes, early.

    So, really, how much did the demurrage have to do with it? Wasn't the success of the experiment the fact that the town could increase the money supply to build public works that the town desperately needed? That it could overcome the artificial shortage of money created by the depression? That he didn't have to "raise taxes" on an already economically-hurting population to build necessary and beneficial things? And that the money from these works went into the pockets of ordinary people and started circulating among local businesses, boosting the economy.

    Because that's exactly what MMT would argue for! It would be like if Detroit established its own currency and paid people to rebuild its infrastructure. That would revive the town. Instead, it is allowed to go bankrupt so that its assets can be stripped and sold to the investor class, and pension obligations to workers can be looted - all part of the plan. The money system used to strip assets and send them to Wall Street.

    Notice also that government spending did not lead to inflation but a boosted economy. Contrast it with next-door Germany which was crippled by a gold standard and the punitive reparations of World War One.

    As for the demurrage part, in the middle of the depression, Austrian workers had nowhere else to park their cash. Everywhere in the world was hurting (in Germany they were using their famous wheelbarrows full of cash). If you did that on a larger scale, people would flee looking for a more stable source of value. If you think gold went up before, doing this would send people fleeing into gold as a stable source of value and it would go through the roof. Consider - if I knew the money in my savings account were guaranteed to lose value, I would definitely move it into something else - stocks, bonds, gold. Wouldn't you? After all, you can only spend so much on hard assets.

    1. "It would be like if Detroit established its own currency and paid people to rebuild its infrastructure. That would revive the town."

      I thought "brilliant, I wish I'd thought of it." It would piss off all the right people and set the libertarians against the conservatives. It turns out that participants on one of the BitCoin forums have been talking about DetroitCoin since July. Here's the link to the first of six pages.


  3. Well, as I understand it, demurrage money strips the "store of value" function from money intentionally. Then people have no motivation to hoard it, in fact the opposite, and money as solely an exchange medium moves quickly through the community.

    And the point is to motivate people to look at REAL value to put their savings in... gold, if they are so inclined, or art, or more useful things like silver or grain or shops or machinery...

    I've listened to Mosler a lot in the last couple of weeks (thanks for the tip!) and while I like his logic, I am disturbed that his schemes take no account of what acually creates real wellbeing (prosperity). He talks as though all the govt has to do is cut taxes and increase money supply, and presto, there is full employment (with govt employing people directly if need be). Yes, but! What if the govt pays some people to dig ditches, and other people to fill them? It will crank the economy, sure, but what if the economy is about spewing useless crap while pillaging the underlying ecosystem substrate? Maybe I just haven't heard enough of MMT to see if he addresses it as well. We don't need full employment that just plows more useless shit under at the landfills...

    1. Funny enough, I saw this article in the Guardian today that almost seems to argue that we already have demurrage currency: Spend, spend, spend. Because your savings aren't worth a damn

      With interest zilch and inflation at 2.1% – down from 5.2% in September 2011, the highest in the history of the consumer price index – keeping cash in the bank is like stuffing your refrigerator with red meat. It doesn't accrue value. It rots. It's little wonder that rational citizens are rushing out to turn their putrefying pounds into iPads and Xboxes before the smell sets in.

      You wrote:

      ...his schemes take no account of what actually creates real wellbeing...what if the economy is about spewing useless crap while pillaging the underlying ecosystem substrate?

      Absolutely true! And this is a very valid argument. Obviously you get it, but getting politicians or economists to get it is asking a bit much (they should read E.F. Schumacher). It's an argument I've made as well - we're creating jobs just to give people something to do to earn money rather than fulfilling useful and meaningful functions in a society. But that's got less to do with MMT than capitalism. Millions of people already work in advertising for example (and some make tons of money) convincing people to buy useless crap they don't need and may even be bad for them. With or without MMT, that's not going to change.

      What you're talking about is a transformation of society that goes way beyond economics. That's the ideal, but in the world we live in, we have to contend ourselves with the small steps first. The reason I support MMT (besides the fact that's it's correct) is that it allows control of money to be put back in the hands of the people. That's going to make catabolic collapse a lot more bearable. We're going to have to deal with peak oil one way or another. We either do it the plutocrats' way - the hoard money while the rest of us starve, or spend "our" money (and it is "ours" - not "theirs") making changes that will allow us to deal with it. I'd rather have people doing useless work than commit crime or suicide. That's not a great or ideal choice, but if it's the only choice you're giving me, I'll take the former.

      It's a bit like pining for a hunter-gatherer society to come back. We know that whatever the benefits, it's just not going to happen in the developed world, so what can we do, given what we know of those societies, right now, in our present technological-industrial society to make things better for people? That's a lot of what this blog is about (if it's about anything at all ;-))

  4. Uppercase website you bang. Do you already react Bitcoins? I would suggest to contract up at They instrument create the interchange you poorness as their database is ofttimes searched by bitcoin spenders. It's footloose though!

    1. Footloose? Sign me up! And who are you calling a bang?

    2. Yeah, there's no scams going on with Bitcoin...ha! Kind of validates the above, don't you think?

    3. "James" left a comment on the one entry in my blog about Bitcoin, too. That one was a lot more lucid than this, which looks like he ran a foreign language text through Babelfish and then tried to "fix" it with a Thesaurus, but just made it more incomprehensible.


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