The debate over money and banking is an ongoing controversy among libertarians who fall into two broad camps: the Rothbardians/Austrians versus the mainstream economics profession (the Misesian tradition). Finally, after decades of treating the Austrian view as little more than a curiosity, your culture is starting to take notice.
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What is the reason behind bitcoin’s fascination?
Krugman went on to ask: “What gives Bitcoin its fascination? I’m not sure, but I know what gives gold its fascination, and Bitcoins are, in many ways, very similar to gold. They’re a commodity that is designed to be scarce, and over time they get harder and harder to create.”
Bitcoin is “mined” by computers which must solve increasingly challenging mathematical problems. And, most important of all for libertarians, Bitcoin is beyond the reach of inflation-obsessed central banks. Krugman notes that Bitcoins are created at a fixed rate (by “some algorithm”), and their value floats freely on exchanges; he claims that they’re “not very similar to gold” in some significant ways, and he’s right.
But Krugman holds out Bitcoin as what you should strive for: “What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. Still, he concedes that Bitcoin’s increasing value is “based purely on speculation. What if everybody decided, en masse, that the reason they weren’t rich was that they hadn’t caught on to the scam yet?”
In April of 2011, Rep. Jared Polis (D-Colo.) wrote an “open letter” to Federal Reserve Chairman Ben Bernanke asking him to consider creating a government-endorsed digital currency. It’s easy to imagine, therefore, that his office will be watching out for Krugman’s suggestion: “When I was on Twitter this morning, I noticed the tag ‘Bitcoin’ and, without thinking too hard about it,” wrote Krugman in his typical glib style on the Times blog, “tried to think of something clever combining ‘Bernanke’ and ‘Bitcoin.'”
What would Krugman recommend that the Fed do?
“Maybe you could set up a system in which financial companies with access to the Federal Reserve payment system could offer Bitcoin-substitute electronic accounts. But, unfortunately, if I understand Bitcoin correctly, it’s not anonymous; rather, every transaction is logged. So you’d probably have to offer accounts with some middle person who issues the equivalent of Bitcoin-denominated one-time keys.”
Here Krugman is engaged in what Austrian economist Roger Garrison would call his “conflicting thoughts model” of monetary policy. Krugman wants to keep the Fed’s hands-off Bitcoin, but he also wants to ban it! He can’t figure out why Bitcoin is so alluring, but the worst thing about the whole phenomenon “is that people are willing to ascribe value to something that has no intrinsic worth.” Learn more here about bitcoinx.
Austrians know why people find Bitcoin so fascinating: its entirely predictable supply growth trait makes it just like gold, but without all the inconvenience of transporting and securing it.
There are no bank holidays or standing in line at a metal dealer’s office before you’re allowed to retake possession of your money. And, while you’ve seen plenty of gold confiscation in history, which is to say that Krugman wouldn’t be first out of the block with a new mandate?
On his blog, Krugman tries to separate Bitcoin’s “virtual-currency technology” from its status as “pseudonymous digital Beanie Babies.” Unfortunately, it amounts to an ideological belief that central banks can create “good money” while the private sector creates “bad money.”
The irony is that Krugman’s Fed-sponsored digital currency would be far less secure than Bitcoin. The crypto geniuses working on the cutting edge of virtual currencies are world-class mathematicians and computer scientists.
Final Words
The same cannot be said of the investment bankers, lawyers, and bureaucrats operating Fedwire or any other nationalized money system. You can’t open a bank account today without being forced to fork over all your personal information under penalty of law.
And let’s not forget that it was recently revealed that credit card companies are handing over the name and address of every person making a purchase with their card to government officials. So it’s only a matter of time before they demand access to complete credit histories and current balances.
