Opinion

Edward Hadas

Bitcoin is a step back not forward

Edward Hadas
Nov 27, 2013 16:00 UTC

The developers of bitcoin are trying to show that money can be successfully privatised. They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state.

Bitcoin relies on thoroughly contemporary technology. It consists of computer-generated tokens, with sophisticated algorithms guaranteeing the anonymity, transparency and integrity of transactions. However, the monetary philosophy behind this web-based phenomenon can be traced back to one of the oldest theories of money.

Economists have long declared that currencies are essentially a tool to increase the efficiency of barter, which they consider the foundation of all organised economic activity. On this view, money is a convenient instrument used by individuals to get things done. It is not inherently part of the apparatus of government.

I think of the concept of privately issued tender as “right money,” because the whole idea appeals instinctively to right-wing thinkers. They dislike centralised authority of all sorts, including monetary authority. For example, Friedrich Hayek, Margaret Thatcher’s favourite economist, proposed replacing the state’s monopoly on legal tender with competing currencies offered by rival banks.

Hayek presumably would have approved of bitcoin. The currency’s issuer is an unknown computer programmer, about as far from a government as can be imagined. Right now bitcoin is tiny; at the current exaggerated exchange rate the total projected volume of “coins” is worth less than the GDP of Mongolia. Still, Hayek might well have dreamt of bitcoins becoming a global currency for wages, prices and loans. He would, though, have hoped for a more stable value, not the increase from $13 to $900 per bitcoin in less than a year.

Favour labour over consumption

Edward Hadas
Nov 13, 2013 16:09 UTC

Unemployment is a problem in most developed economies. Any politician, central banker or professional economist in the United States or Europe will admit that the published rates are unacceptably high, that too many people have left the paid labour force and that young people starting out have a particularly bad deal.

Americans often say their problem was caused by the 2008 financial crisis. That isn’t exactly wrong. After the failure of Lehman Brothers, many indicators of labour market depression – for example, the proportion of unemployed people who have been unemployed for more than six months – jumped to the highest levels on record (generally since 1948). Most of these indicators have improved, but remain uncomfortably high.

However, I think that the recession only uncovered longstanding structural weaknesses, and the problems I have in mind are not exclusively American. They just showed up in European statistics much earlier. Unemployment rates there have been persistently high, especially among the young, for decades. And the recorded unemployment numbers are flattered everywhere by the expansion of what might be called the non-labour force: those classified as suffering from incapacity, involuntary students and healthy retirees.

Small is beautiful in finance

Edward Hadas
Nov 6, 2013 16:14 UTC

Some economic activity makes the world better, some is a cost of making the world better, and some actually makes the world worse. Where does the business of finance – lending, borrowing and securities trading – fit in? Mark Carney, the new governor of the Bank of England, recently said: “a vibrant financial sector brings substantial benefits.” The implication is that more finance is a good thing, as long as it is safe. That is simply wrong.

True, empirical studies show that financial activity increases along with incomes in poor countries. But this correlation has little bearing on developed economies with mature financial systems. In these countries, additional financial activity unquestionably adds to GDP, but the same can be said for the substitution of expensive medical care for cheap preventative action. The question is whether additional finance promotes overall economic good.

It can do so, but not directly. Finance is a cost. It is a means not an end, an input not an output. People and companies should engage in financial activity only to help them do other things – most notably to preserve or increase wealth, to coordinate expenditure with incomes and to help organise real investments, production and distribution.

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