I do not own or seek to own Bitcoins. Something about the idea of harvesting and selling unique, computer-generated numbers strikes me as silly. That this medium of exchange is intrinsically worthless, volatile, and shows all the signs of being a bubble also does little to endear me to it. However, earlier I was reading about a new possible niche for Bitcoin: providing an escape valve for people who have to live under dysfunctional economic systems. Like Argentina. Or Venezuela. I recently learned that it has become next to impossible to travel to that increasingly loony place — a place where mere discussion of prices is called “economic warfare.”
that’s what President Maduro, the rather hapless inheritor of the mess that is the economy in Venezuela under the Bolivarian socialist revolution, seems to think. For he’s arguing that people who simply report the prices at which things change hands are waging economic war upon the country and its economy. The actual point at issue is the black market exchange rate for the bolivar, the country’s currency. Given the, umm, excellence with which the economy has been managed that black market rate is well over an order of magnitude different from the official rate. And that, ahem, excellence with which the economy is being managed is such that the value has fallen another 25% in the last week alone. […] The basic problem is the same one that the more stupid leftists make all the time. Sensible ones know that you don’t mess with markets nor market prices. You want to change the distribution of incomes in the country? Fine, we might not agree, but if you do then tax and redistribute. But don’t go around messing up that price system which is the only way that anyone can ever calculate what people desire and what people are willing to make. But they keep making this mistake. From rent control in my native UK or New York City making affordable housing more difficult to find all the way through to this complete and total mess that they’ve made of the Venezuelan economy (and where is Mark Weissbrot these days? We don’t seem to hear much of his cheerleading any more, do we?). An interim position was that of Argentina. They had issued bonds that paid interest according to the inflation rate. As that began to rise some private sector economists noted that the official inflation rate seemed to be lower than that observable in the real economy. The Argentine government threatened to jail those economists.
Nothing surprising about that. As a friend put it, “Venezuela is proof of socialism’s idiocy.”
Socialism’s inherent unworkability provides the perfect incentive to establish a dictatorship, though. People will not cooperate voluntarily, so ultimately — if there to be is any hope of making socialism work — they will have to be forced.
But even after they are forced into submission, with private property nationalized at gunpoint, etc., the end result is a numbing lack of incentive. That lack of incentive leads those who have power to supply an incentive.
How do you motivate people lacking incentive into being productive?
Using the traditional slavery model, the answer was rewards and of course punishments. The reason slaveholder George Washington became so philosophically opposed to slavery was that he saw that his slaves had no reason to better themselves, no work ethic, and why should they? He saw it as inherently corrupting of both masters and slaves, and he became determined to eventually divest himself from owning slaves.
Stalin (and his followers) learned that the most efficient way to provide an incentive was fear. Fear of death motivates people, and socialism arguably can be made to work that way. But the question then becomes (at least, for those who think about such things), is that really the best way to build a better world? It certainly was not classical Marxism, but I think Marx was not very smart where it came to human nature. Granted that the exploitative capitalist bourgeois classes were in fact greedy and selfish, it never seemed to occur to him that the majority of humans are the same way. Especially those who want power.
Naturally, our government betters are doing everything possible to stymie Bitcoin in the United States.
If Bitcoin is in fact intrinsically worthless and a bubble, people might start wondering why the antipathy. History shows that driving things underground tends to increase their “value.”
Comments
25 responses to “Can Bitcoin fight socialism?”
Wouldn’t rai stones from Yap make a better alternative, non-state issued money than bitcoins? http://media.npr.org/assets/img/2010/12/09/yap_wide-412d287159d04fad716e48d0b70267820eaa26e4.jpg?s=1400
I’m remembering Money Mischief, Milton Friedman-
The problem with the Yap stones is they weigh hundreds of pounds, you don’t go to 7/11 with a wallet full. They really aren’t money in the normal sense, they are hard to make, take a group effort to shape and transport one from a neighboring island. Having one leaning against the wall of one’s hut was a sign of great prestige, but it’s not really a unit of exchange. Although the Germans did interfere with the system during the first war by painting black X marks one the ones owned by rebellious tribesmen, making them “worthless”.
Cowrie shells are a better idea, or wompum. Or gold. Something with an inherently limited source of supply, and that takes effort to produce, but is fungible and portable.
The problem with paper currency is that it’s free to inflate, you just print more zeroes on the same pieces of paper. I’ve seen 50,000,000 Pingu notes from the Hungarian hyper inflation. As Germans said about the Weimar inflation, before you could walk into a store with wallet full of money and walk out with a wheel barrow full of food, now you need a wheel barrow full of money for a wallet full of food. Old Germans used to tell anecdotes about the value eroding over an afternoon.
The Austrian government asked von Mises how to curb their inflation in the aftermath of the 1st war. He told them to meet him at the mint at midnight, where the sound of the printing presses could be heard 24 hours a day. As he said, “gentlemen, do you hear that sound? Turn it off.”
Once these tin-pot governments resort to inflation it invariably turns into hyperinflation, economic collapse leading to revolts and dictatorships.
The public can adjust to minor inflation, just raise prices and interest to match. Which leaves things much like they were, so inflate some more. They find they have to keep jacking up the inflation rate to keep ahead. Soon the inflation rate is rising as a function of its own rate of increase. Also known as an exponential.
Looking at Friedman’s data there was a clear exponential component to most of the examples, except for Brazil, that was so crazy it would still have a sharp concave-up curve even on log paper.
“A pack of smokes and a sixer of Coor’s, please, and here’s a Yap stone to pay for it”
“And here’s your change” (hands over a bag of gravel)
Who’s likeness will appear on the bit coin jess duggard shaking hands with republican presidential candidates? And the motto abstinence works!
That makes even less sense than usual. Somebody eat lunch over the keyboard and leave a lot of crumbs?
I’ll stick up for Marx (and Trotsky).
Marx’ point was that the revolution had to be worldwide when the workers of the world united and threw off the chains of capitalistic imperialism.
So while he had no idea about human nature, his ideas were not about what Lenin and Stalin did.
As a Russian studies prof told me once, that’s why they hated Trotsky. He spent his time saying, “See? If it’s not a proletarian revolution you descend into totalitarianism.”
Which is the point of all commie states, it’s not the communism, it’s the totalitarianism.
You see, the advantage of rai stones is that you can’t easily inflate the money supply on Yap. Rai stones are hard to make and very labor intensive. On the other hand, printing dollars is easy, and bitcoins can be created with the click of a mouse.
Interesting that you bring up this topic. I’m currently involved with a guy who has a plan for using the BitCoin idea for raising money to do things. Start a business for instance.
And this all came about because our government goes to extraordinary lengths to see that “securities” can only be sold if you have sufficient capital.
Did this government plan eliminate a LOT of fraud? Likely. But it also strangled a LOT of upstarts. Which I believe was the idea.
Creating “securities” IS printing money. And as we all know the government doesn’t like the competition.
So what would be the value of these new BitCoins? The value of the underlying business. And even failed business Coins might retain some value or gain it over time. Like Confederate Dollars.
The successful business coins would actually pay you dividends. Just like money in the bank. But you decide what is worthwhile to invest in – not the bankers.
Regarding your second link in the article, Investopedia has it wrong if they think bitcoin has no intrinsic value. From websters:
Intrinsic – “adjective in·trin·sic \in-?trin-zik, -?trin(t)-sik\. : belonging to the essential nature of a thing : occurring as a natural part of something.”
One of the clear intrinsic properties of bitcoin is it’s limited quantity. Another is it’s securability (if you know how) – far better than cash – someone can steal my cash wallet, but if they steal my bitcoin wallet file they get nothing as I have backed up copies of the wallet and they’ll never get at the bitcoin in the wallet as it’s encrypted. Bitcoin is also easy to send around the globe in large amounts to anyone – another intrinsic property.
Perhaps, investopedia is conflating intrinsic properties in general with one specific intrinsic property bitcoin lacks – tangibility. Tangibility however is more of a negative property than a positive one. People prefer gold over silver for this reason – the same value in silver weighs a lot more and takes up more space. True again with fiat – despite the government’s proclivity for money printing, people still use cash – it fits in your wallet much more easily than gold or silver. Bitcoin has this in spades over all of them. With bitcoin you could carry millions (not that you’d need to of course – just as exaggerated example) around with you and they’d be just as secure as if you had the money in the bank.
Regarding the digital nature of bitcoin – do you think the FED has all it’s billions of reserve capital in paper or gold or silver? Nope – it’s just digital numbers in their computer system.
At the end of the day, the utility of anything is a subjective and personal concern. Bitcoin, cash, gold, silver, paintings, cars, real-estate, rare comics…all have intrinsic value to many.
Bitcoin is a trap.
Bitcoin works as a store of value only so long as it is tolerated by the government. If it becomes more than a nerdy hobby and poses a threat to the monopoly on seigniorage, that tolerance will come to an end.
And make no mistake–government has the power to destroy Bitcoin. Think about what would happen to a business that kept their books in Bitcoin instead of dollars. High-publicity court cases notwithstanding, the IRS can already seize your business just for keeping too many cash dollars on hand.
If we can beat back the tide of economic totalitarianism, dollars will work just fine. If we can’t, Bitcoin won’t save us.
I agree that bitcoin is akin to a trap. However bitcoin was created as a prototype for new and better protocols to come. Many foolish people have latched onto it as the solution to every problem … how many people today still use the Mosaic web-browser? I don’t – but I remember it – it was the first web browser.
If you need anonymity and greater stability there are already many options out there that are superior to Bitcoin. I prefer NXT at the moment. In coming months there will be a new one on the block — SafeCoin – this one will ultimately put bitcoin to bed.
Fiat cannot beat back economic totalitarianism – simply because it is the tool of economic totalitarianism. Study the history of inflation in any State – it’s all due to money printing and it’s enormous. Given the technological advances of the last century we ought to all be multi-millionaires by now. Instead we are struggling to keep our heads above water – and many are drowning. They are killing us with their fiat and the only solution is to start to use our brains, turn off our fear and embrace alternatives.
Go ahead and embrace that alternative. It won’t help you when the SWAT team ejects you from your home for non-payment of taxes. In dollars.
By the way, you’ve got only a partial understanding of inflation there, at best. You can’t claim on the one hand that we should all have a thousand or a million times more monetary units than we do, and on the other that the government is causing excessive inflation by printing too much money. The two claims cancel.
Interesting discussion! And this stuff can actually get quite complicated:
http://www.alperlaw.com/asset-protection/bitcoin-asset-protection/bitcoin-asset-protection-in-florida/
Well I don’t own a home (#1) as in this bubble economy that’s a no-no. #2 – if you know how to take advantage of the anonymity of cryptocurrency, it seems the IRS is out-of-luck. What they don’t know and all.
#3 regards my multi-millionaire statement – that was merely an exaggeration to make the point. The point being, that inflation is crippling humanity. As for my understanding of inflation – I don’t know how you could be aware of my understanding – I only made one point about it. There is also the fractional-reserve system that creates massive credit expansion when the FED lowers it’s interest rate (historically anyhow – now thanks to Basel II a& III) banks have been curtailing loans during this period of very low interest rates hence leading to monetary contraction in the general economy while the financial sector of the economy is swimming in fiat. Sooner or later that pool will leak and prices will go berserk.
#4, I don’t see at all how my claims cancel – can you clarify that?
Your claims cancel because of the monetary expansion which would be required for every American to be a multi-millionaire (orders of magnitude higher net worth than the current average). You can’t get there from here without quite a bit of price inflation.
Your point #2 is a rough go, because of the reach of the IRS. At some point you’re going to want to pay rent, buy a car, buy a house, purchase something from a medium-to-large corporation, etc. If you try to make that trade in Bitcoin, you expose yourself to the IRS.
So, like I said, Bitcoin won’t prevent economic repression, and if we get rid of the repression, dollars will work just fine.
“Your claims cancel because of the monetary expansion which would be required for every American to be a multi-millionaire (orders of magnitude higher net worth than the current average). You can’t get there from here without quite a bit of price inflation.”
Ah, I see the misunderstanding. My statement of us all being multimillionaires was meant to imply that we’d all have high net worth. If there is no monetary inflation, and little to no State regulation – such that entrepreneurs could create jobs en-masse; then our net worth, after a century of such progress, would give us the EQUIVALENT value of multi-millionaires today. Sorry for the confusion, it seemed clear to me when I wrote it.
“If you try to make that trade in Bitcoin, you expose yourself to the IRS.”
Only if those I trade with expose me — so it’s in my best interest to find cooperative trading partners – of which there are more and more emerging due to the poor economic conditions we find ourselves in.
I’ve said that crypto-currency is a solid means of evading economic repression and I think I’ve made a good case. Your view that economic repression can be mitigated by other means has no merit as you’ve not specified any other means. Most people don’t think for themselves these days, so they are led down the path by politicians who use fear to maintain control. It seems there is no end to that madness. If you have a way forward, I’d sincerely like to hear it – but don’t expect me to go easy on you – I’ll challenge your hypothesis with all my knowledge. Good ideas stand hard analysis, bad ideas do not.
Tyler, I think you are confusing “high net worth”, which is a quantitative monetary statement, with high utility, which is in some ways a subjective measure of well-being.
The fact is that we ARE fabulously wealthy compared with the past. One obvious way is that the poorest welfare recipient, who communicates using the internet on their prepaid smart phone and drives a 10-year-old Honda from work to their air-conditioned house, has creature comforts that John D. Rockefeller didn’t even dream of in 1917.
If you are claiming that we would be even more wealthy (in utilitarian terms) with a stable currency value, well, maybe. But you’d have to show me an instance from the past in which a currency has held stable value for more than a fraction of a century. Even the monetarists have had to admit that holding the money supply constant doesn’t mean that money’s value will remain constant.
Regarding Bitcoin, you didn’t answer my objection. You say you’ll “find cooperative trading partners”, which is begging the question. How can you trade solely in Bitcoin, when many of the suppliers you MUST patronize, (such as for fuel, food, raw materials, transportation, etc.) have fixed plant which can be easily audited by the IRS? Whether they are willing or no, they can be easily detected and shut down if they don’t account for their trades in dollars.
I don’t propose that there is a magic switch to flip to regain our economic freedom, and I think it’s folly to look for one. The way back starts with a long counter-march through the institutions of culture and education. We’ve gotten to this point after 100 years of steady, patient propagandizing by the left. We have to do the hard work of teaching the public how to live in liberty. Anything less will fail.
At the moment, we have to begin by stopping, and then rolling back the worst of the excesses. We have to prevent the Treasury from going to a cashless system, in which every transaction will be monitored by the IRS. We have to roll back FATCA, which is killing international trade. We have to get rid of the income tax, which has turned into a tool of political repression. That’s just for starters.
I don’t think it will take 100 years to regain our senses, but it’s not going to happen overnight, either.
“The fact is that we ARE fabulously wealthy compared with the past. One obvious way is that the poorest welfare recipient, who communicates using the internet on their prepaid smart phone and drives a 10-year-old Honda from work to their air-conditioned house, has creature comforts that John D. Rockefeller didn’t even dream of in 1917”
lucky for you then. I live in a freezer – can’t afford heat. I am soon to be out on the street in another year unless investments (in my time/money) come though; and there are no jobs to speak of here as the Australian government has destroyed the ability of people like me to actually create new jobs. But go on, keep telling me and the thousands of people around me in dire poverty how rich we are compared to our ancestors who OWNED land, had their own modest home and weren’t utter slaves to the State’s fiat.
“I think you are confusing “high net worth”, which is a quantitative monetary statement” — Explain to me how that is a quantitative monetary statement? I think by definition the word NET translates as a relative statement of one’s debt/asset RATIO – which means it is a RATIO and not a quantity of ‘x’.
“But you’d have to show me an instance from the past in which a currency has held stable value for more than a fraction of a century” — no, I don’t have to show you that. My claim was to a hypothetical situation; however math is math. If you agree with the premise of the hypothetical situation “no monetary inflation” then the math should be the math.
“How can you trade solely in Bitcoin, when many of the suppliers you MUST patronize, (such as for fuel, food, raw materials, transportation, etc.) have fixed plant which can be easily audited by the IRS?”
I did address this, but I think you just didn’t catch it. Suppliers will have no choice but to use alternative currencies when the big inflation whammy kicks in – otherwise they will have no ability to profit and they’ll go out of business. If they have excess resources/production however, those resources will always be traded for something that HAS VALUE. And that, in the future, will not be fiat, if history AND math are any guide whatsoever.
“I don’t think it will take 100 years to regain our senses” — humans in Statist societies have been turned into unthinking automatons by the State and it’s cronies. They cannot simply regain their senses when they are being driven by deep seated fear created by, again, the State and it’s cronies. All their lives they been trained in one manner. At the end of this rope is a noose. Either crypto is adopted and people gain anonymity and hence stifle and choke the State and it’s apparatus, or society is doomed to population implosion (democide) and rebirth as a new, State to repeat the cycle.
“I don’t propose that there is a magic switch to flip to regain our economic freedom, and I think it’s folly to look for one.” — Well then we are done having a conversation. If it is ‘folly’ to look for ideas then you are closed to any ideas and I’ve no intention of arguing with a rock.
I’m not a believer in bitcoin long term. I am a believer in crypto tech that has brought and will continue to bring great anonymity for individuals. With greater anonymity the State has less and less power to control us. This tech is no ‘magic switch’, it has and will continue to require hard work to develop the tech and to get people onboard to bring value to it. I personally do not see any other alternative that can bring ultimate freedom to humanity, so it is a given for me that this is the way forward, unless it happens that a better approach is developed – and that IMO won’t be a magic switch either.
Neil,
Milton Friedman estimated that if the Federal government stuck to its Constitutionally limited functions the economy would grow at 10% a year.
That is a growth rate of about 14,000X in 100 years. In a man’s working lifetime of 50 years that is a growth of about 120X.
Tyler may have a point.
Tyler, you are needlessly insulting me. I am trying my best to explain some tricky monetary concepts, but if you prefer to remain ignorant that’s your business. Your magical thinking is sadly typical of the public, and that is the reason that we adopt band-aid solutions that are quickly co-opted by the left, instead of attacking the real problem.
Simon,
No, Tyler does not have a point. He’s reiterating the old monetarist claim that inflation is solely a function of money supply–that if we could hold the monetary supply constant, the value of money would also remain constant. Friedman himself had to give that up, because it’s easy to find time periods in which those two data series do not correlate.
Of course, I do agree that the federal government has its fingers in too many pies.
OK, I’m late to the party so I may be missing something:
“He’s reiterating the old monetarist claim that inflation is solely a function of money supply–that if we could hold the monetary supply constant, the value of money would also remain constant. ”
I thought the argument was that a constant money supply would not keep the value constant but rather, it would *increase* in value. Isn’t it one feature for fiat money is that it makes debt cheaper and thereby kicks the proverbial debt can down the road? IIRC, hard money was much more valuable than fiat money due to a flat supply of silver/gold and there was much complaining from farmers that they’d never be able to pay off their farms b/c of the ever increasing value of money.
Lastly, doesn’t Tyler have a point about cryptocurrency and distermediation? Allowing for more and more peer to peer exchanges outside traditionally monitored financial institutions puts the state on the defensive WRT revenue collection, no?