All The Cool Kids Are Doing It -- Making Money
Years and years ago, as a kid, I used to listen to short wave radio. It was a fantastic way to hear top-notch news reporting from the BBC World Service, Radio Netherlands and, my future employer, but that's not why I was listening. No, there was something other than the major international broadcasters that kept me listening: nutcases.
In the late 1980s and early 1990s the short wave bands were stuffed to the gills with all kinds of craziness, from official communist propaganda and broadcasts by the remnants of national liberation movements, to spy agencies broadcasting seemingly random strings of numbers, and crazed evangelicals like Brother Stair, who were later convicted of assault and battery.
Years later I bought a new short wave set and tuned around. The BBC and CSM were gone, as were the communists. The spies and religious fundamentalists were still there, but there was something new on the air: conspiracy theorists flogging gold.
Here's the idea: the US dollar is in trouble, either because the "gubberment" or Federal Reserve is ramping-up the printing presses to paper-over the cracks in the economy or, in the full-strength version, because of a secret conspiracy to enslave mankind via inflation.
The solution? Gold. Gold, you see, is finite and therefore not subject to government- or central bank-inspired inflation and therefore, the theory goes, is a permanent wealth store. Since the heady days of the early 2000s gold-buggery has become rather more mainstream, thanks mainly to the internet, though it does remain a fringe hobby. To hell with gold, though. It's grubby, it has to be dug out of the ground, sieved, cleaned, melted, it's bloody heavy and, well, just not very two-point-oh at all. Now there's a new kid on the conspiracists' currency block: bitcoin.
For those of you who've spent the last year living without access to the media in your underground gold hoard, bitcoin is a virtual currency, traded online and limited to a maximum of 21 million "coin" units. It is, in short, a decentralized, peer-to-peer form of electronic cash.
There's nothing particularly unique about people making their own unofficial money. In Northern Ireland each of the four local banks prints its own money; British pounds sterling as it happens—and despite the sniffiness of British shopkeepers when presented with Irish money purporting to be British, it is perfectly legitimate pounds sterling. (Yes, we Irish want everything both ways, all the time).
Various commercial organizations issue their own scrips too, most famously Air Miles and Canadian Tire money, both of which are intended as loyalty schemes but have been informally traded for actual goods and services—and even forged. Nintendo makes its own toy money, as does Microsoft, and now Amazon is getting in on the game, presumably hoping to shave a dime off every third-party transaction and get itself out of the nuisance-filled business of actually stocking products. The truth is you can use anything as currency—even detergent, reportedly. Currency is simply a means of exchange and all that is required to make it fungible is someone else wanting it.
But there's something that bitcoin shares with gold: bad politics.
Credit where credit is due, it was Business Insider, website of the legendary journalist Henry Blodget, that brought my attention back to misanthropic money politics. (Henry knows a thing or two about crazy schemes involving money, as well as about reusing other people's ideas, so I thought it was a point worth considering. In fact it's so worth considering that I wanted to break NSFWCORP's no-slideshows rule and create one documenting The One Best Thing Blodget Has Ever Published).
Touted as a way of escaping government surveillance, getting rich quick and generally sticking it to The Man, bitcoin has been a huge story among the technorati for a number of related ideological reasons. Firstly, bitcoin has at least been successful in that it solved one of the big problems that afflicts the high-tech caste in Silicon Valley: how to buy drugs without meeting working class or black people. Secondly, it is also finite, meaning inflation should be next to impossible. Thirdly, teh internetz!
Anyone who has seen photographs of prams full of money in Weimar Germany or a Zimbabwean trillion dollar note knows inflation is A Bad Thing. Sort of. Actually, inflation isn't always a bad thing. While it's no substitute for actual economic growth, the real panacea for the global economic crisis, the fact is that controlled inflation can be utilized as a perfectly legitimate tool to get out of recession. The fact that much of southern Europe and Ireland are being squeezed to death by the European Central Bank is, in part at least, a result of Germany's fixation with keeping interest rates low in order to combat inflation. (Quite why anyone ever thought it was a good idea for mighty industrial Germany and minnows like Ireland and Portugal to have a common monetary policy in is another question altogether.)
The popular libertarian argument that fiat currency is, at best, imaginary, and, at worst, a fraud, makes a lot of sense, but ultimately it is a trap. As paper notes not backed by gold are not finite, the argument goes, currency is not only volatile and subject to inflation, it also only really works as long as people believe in it. True enough. The moment people stop believing a currency is stable they abandon it and it becomes unstable. But is it realistic to compare the US to Zimbabwe or Weimar Germany? Hyperinflation occurs in failed states, and despite what Glenn Beck thinks, the US is not a failed state. The US dollar isn't backed by magic or belief; it's backed by the Federal Reserve, the US government, the wider US economy and, if necessary, the US military. It may fluctuate, but it's not going anywhere any time soon.
Meanwhile, bitcoin itself is plenty volatile. In fact, its price has crashed so much lately that I fully expect to see start-up entrepreneurs wheeling around shopping carts full of hard drives any day now. Buddy can you spare a hosting account?
The biggest problem with libertarianism isn't that it's insincere, though often it is, nor is it the Koch brothers, it's that it's an idée fixe. Libertarians tend to apply their preconceived and anti-political prescription to all social, economic and moral problems, declaring the problems to, in fact, not actually exist. Worried about illegal prostitution? Legalize it and the issue magically disappears! Concerned about the misguided war on drugs? Fire-up the meth labs! Inner-city unemployment spiraling? Er… fire-up the meth labs! There may be individual arguments for each of these, and other, measures, but a one-size-fits-all approach is non-sensical—and I say this as a European who thinks a dose of liberty would do those of us on this side of the Atlantic Pit the world of good.
Bitcoin advocates have decided that the problem with economics is actually simply monetary: produce a sound (AKA finite) currency and everything will be hunky-dory. We've been here before. In effect, bitcoin is simply the privatized opting-in to a kind of techno-monetarism that would make Milton Friedman blush. But as the Silver Democrats of the 1800s knew, strict limits on currency distribution favor those who already have it.
This libertarian money fetish is a near-perfect example of what internet scholar Angela Nagle calls "gamer logic", a kind of relentless and mechanical techno-thought trail that, while far from unique to libertarians, is extremely common in tech culture—unsurprisingly given the countercultural, hippytarian roots of Silicon Valley's culture and politics. It is precisely this kind of boosterist TEDism that suggests technical solutions to non-technical problems.
One apparent irony of recent bitcoin mania is that the digital currency's advocates trumpet every instance of a mainstream investor or fund getting in on the game as proof of their genius. So much for anarchism, then. Ultimately it seems respectability is still everything.
Bitcoin-sporting libertarians and gold-hoarding survivalists aren't the only eejits playing banker, by the way. Equally well-meaning, and equally misguided, lefties have promoted various crackpot currency schemes, from Brixton Pounds to Ithaca Hours, as ways of escaping what they see as the rottenness of global capitalism. It never works.
At the heart of all alternative currencies, whether pushed by the left or the right, lies one thing: misanthropy. Gold-buggers at least have the virtue of being mesmerized by a real material, and one that is shiny, doesn't tarnish and… can't be hacked.
But, just as local currencies restrict growth by placing artificial restrictions on exchange, neither gold, nor bitcoin can actually grow. The specific problem is that in being finite, naturally in the case of gold and by design in the case of bitcoin, a limit is placed on wealth. Both are just lumps of stuff that sit there, atoms in the case of gold and bits of data in the case of bitcoin. Sink your money into traditional investing and you make more on the basis of productivity: your capital is used as investment in the production of things that are made and sold. With lumps of atoms or data, all you can do is hope to flog them to someone else for more than you paid. Given that economic growth is the engine that pulls people out of poverty, however imperfectly, compared to bitcoiners the sharp-suited sharks of Wall Street are paragons of virtue.
It's not surprising that people confuse currency with wealth, though. That's the thing about money. Ultimately its ontology doesn't matter that much. What matters is how much of if you have in your pocket.