It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Given how poorly states like California and Illinois have funded the pension funds for their own employees, one would think that this would stop dead in its tracks any plan to have the government assist in managing private sector funds too. The spate of recent activity, however, suggests otherwise.
The financial world is plodding along like a drunken sailor avoiding debt collectors by keeping no cash in his wallet. It’s not the kind of calm that’s going to last or end well. But the storm will have to wait until after the Olympics.What a game! We’ve never watched ice hockey closely before. But watching […]
“When they come for my gun, they will have to pry it out of my cold, dead hands,” is a common refrain I often hear from the Neo-Cons when there is a threat, credible or otherwise, that the U.S. government is going to take their firearms.And, when I hear this crazy talk, I agree with […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Amidst all the revelations about how the American people, many of whom are absolutely convinced they live in a free society, have their telephone calls, emails, website visits, and who knows what else under surveillance by their own government, let’s not forget the massive infringements on financial privacy that have gone on for decades.Consider, for […]
Image: ShutterstockBitInstant CEO Charlie Shrem, along with alleged co-conspirator Robert Faiella, was arrested by federal authorities last week for allegedly laundering more than $1 million worth of Bitcoins. This is a tiny amount compared to the largest drug-and-terrorism money laundering case ever. Yet when British bank HSBC was found guilty in 2012 of laundering billions, […]
The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.This isn’t the first time banks have come under an […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
So you’ve maneuvered the Obamacare website, plugged in your top-secret information and found out how much you are forced to pay to avoid a fine.And for some of you, it turns out you qualify for a government subsidy — making the premium sound like a bargain. But signing on that line to accept the government’s […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Bitcoins are largely considered digital currency (or “crypto currency”) so you’d expect it to be treated like currency on a retail web site. But the Internal Revenue Service might not think so.
Politicians — elected officials — are street smart rather than book smart.If you care about influencing government policy it helps to know how they think.Forbes contributor Nathan Lewis argues that:“Too much is done today on the oral tradition. That is, literally, what it is. In this post-Gutenberg age, we have some better alternatives.“Thus, we need […]
Bitcoin has been making headlines for months now. Extreme price fluctuations have sparked a vigorous debate: Is it a currency or a scam? Is Bitcoin viable in the long-term, or are we witnessing a bubble waiting to burst?The answers to these questions are simple: Yes, Bitcoin is a currency, but we cannot know if it […]
The Silk Road was an undercover website where you could buy or sell illegal goods — drugs mainly. I believe passports were changing hands for about $6,000, and I understand weapons were also sold, but that was ceased in response to the spate of shootings in the U.S. over the summer. The essence of the […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
[Ed. Note: This article originally published on Jan. 24, 2013]Stocks up. Gold down. Bitcoin… waaay up.The S&P 500 busted through the 1,500 mark this morning. Stocks haven’t been this expensive since 2007… right before they got a whole lot cheaper… for a whole lot longer. Gold, meanwhile, dipped a tad. This, despite central bankers of […]
Now, this is sheer entertainment. The Chicago branch of the Federal Reserve has addressed the great monetary question of our day. A researcher has taken a detailed look at the prospects for market-based crypto-currency, with a special focus on Bitcoin. It concludes that Bitcoin is not a viable replacement for the dollar. The report includes […]
The standard version of how money came to be goes like this: First, there was barter. (A handful of nails for a pint of ale!) Then, along came various forms of money. An evolutionary derby eventually crowned gold and silver as the supreme money. And finally, credit (or debt) was born. This is the apex […]
2013 represents another turning point in the demise of the American Empire. If you view it in economic (rather than ethical or moral) terms, the high water mark of Empire was probably in the late 1990s.But the Internet bubble and bust marked an important turning point. It coincided with the birth of the euro, a […]
It was a wild ride last week in the world of the Deep Web, that section of the Internet that requires special tools to access. The feds took down the site called Silk Road and claim to have arrested its founder and administrator. The news streams were filled with lurid tales of derring-do in this […]
My community in the Deep South prides itself on friendship, community feeling, and an overall happy spirit. So it was a bit strange for all of this to be utterly smashed and obliterated in the course of a few calamitous weeks in which friend turned against friend, colleagues became antagonists and enemies, and families were […]
A new assessment of state pension obligations suggests the problem is even worse than it already appears.How much worse?EMPTY COOKIE JAR: Pension liabilities are worse than many states’ official figures indicate.Using a more conservative method of accounting for financial gains in the marketplace, there is a $4.1 trillion gap between assets and liabilities — known […]
I dreamed I saw Bernard von NotHaus, alive as you or me.Said I, “But Bernard, you’ve been jailed two years.”“I never was,” said he.Bernard has been the called the Rosa Parks of the alternative money movement. More than 10 years ago, he had this idea that he would make his own money — not the […]
Bitcoin has been making headlines for months now. Extreme price fluctuations have sparked a vigorous debate: Is it a currency or a scam? Is Bitcoin viable in the long-term, or are we witnessing a bubble waiting to burst?
The answers to these questions are simple: Yes, Bitcoin is a currency, but we cannot know if it will remain so in the future. It does, however, have many properties that might make it viable in the long run.
There should be no controversy anymore about calling Bitcoin a currency. A currency is simply a good that serves as a medium of exchange, meaning that people trade it for the goods and services they want. In different circumstances, different goods serve this purpose. In prison, cigarettes are used as currency. In the early American colonies, tobacco was a currency. Bitcoins are used online as a medium of exchange for thousands of people around the globe.
Now, whether or not it is a “sound” currency is an entirely different question. In order to make that judgment, we need to understand the properties that make currencies sound or unsound in the first place. Consider gold and silver: They have persisted as a medium of exchange throughout history, and not by chance. They have desirable properties.
A sound currency needs to stay valuable over time, have a limited supply, and be easily divisible and portable. If any one of these properties is missing, it is reasonable to question the long-term viability of such a currency, especially if it is subject to competition. This is why many free-market economists are called “goldbugs” — they see the shortcomings of fiat money in comparison to hard-money alternatives.
Bitcoin, despite being entirely digital, stands up well to scrutiny. Bitcoins are incredibly portable; they can be sent anywhere in the world instantly, at almost no cost. They divide effortlessly down to one hundred-millionth of a Bitcoin. Their supply is strictly limited, even more than gold: There will only be 21,000,000 Bitcoins ever in existence — it’s written into the software. But what about their value? With wild price swings, is it accurate to say that they will remain valuable over time?
To answer that question, we first need to understand that there is no such thing as “intrinsic value.” No good in the universe is intrinsically valuable, any more than any particular food is intrinsically tasty. Value is entirely subjective, by its very definition. It is an evaluation of a good’s ability to satisfy our ends, and only subjective individuals can make such evaluations. Gold and silver have consistently been valued for their ability to satisfy our ends, but not because they contain value in their molecular makeup.
What people usually mean when they speak of the “intrinsic value” of a currency is something like this: It has a non-monetary use. If people did not accept gold as a medium of exchange, for example, they could wear it as jewelry or melt it down and use it in electronics. This is why critics have claimed that Bitcoin is destined to fail. You can’t “do” anything with a Bitcoin other than send it to somebody else.
There are two issues with this critique: First, it is not a logical necessity for currencies to have non-monetary use; second, even if this were the case, Bitcoins do indeed have a non-monetary use. It helps to make a distinction here between “Bitcoins” as currency units, and “Bitcoin” as software that runs on a decentralized network of computers.
Imagine that there was a payment system that allowed you to instantly move money anywhere on the globe, between any currencies, securely, at virtually no cost — and without reliance on intermediaries, like banks. Now imagine that system only accepted one currency to mediate these transactions. Surely, that currency would have value, and, in turn, each unit of that currency would have value. Well, that payment system is the Bitcoin network, running the Bitcoin software, and the currency unit is Bitcoins. Because Bitcoin (the software, payment system, and network) has value, Bitcoins (the currency units) have value.
That being said, we don’t know what the nominal price of each Bitcoin should be in relation to other currencies. And unquestionably, Bitcoin’s value has fluctuated wildly. Should one Bitcoin be worth $10? $1,000? $100,000? We don’t know, and the market is trying to figure it out. We can’t even be sure how many U.S. dollars are in existence, so determining an appropriate exchange rate between them is no easy task. Speculators have also rushed into the market, which has caused a series of booms and busts. But that should not surprise anyone, and it does not change any of the fundamental properties of Bitcoin.
We can’t know what the market will choose as a currency in the future, because it is entirely dependent on peoples’ values. We don’t even know if people will continue valuing U.S. dollars, much less Bitcoins. But we do know that Bitcoin possesses some of the fundamental properties that have made gold and silver successful currencies, and it even outperforms its competition in some categories.
It is no longer a question of whether or not people will accept Bitcoins as a currency: They already do, and the community is growing. The question is: Will Bitcoins continue to be valued in the future? Bitcoins certainly won’t rot, nor will the supply suffer from hyperinflation, but will these properties continue to be valued? I suppose the only appropriate answer is: We’ll see.
– Steve Patterson
This article originally appeared here on the Foundation for Economics Education website.