27 November 2013

Snake Bit

Bitcoin is in the news again. Twice in the NYT in a few days (once, and twice).

What none of the pundit class has discussed, in the cyberink that comes my way, is what a fixed amount of currency (21 millions "units", as I understand it) would have on a global economy? If the "exchange rate" (e.g. $35/ounce as gold once was) is fixed, then dee-flation is the rule. It has to happen, since as commerce expands both across nations (growth by accretion) and within nations (growth by procreation) prices have to aggregate to the amount of currency available.

If one looks at 19th century USofA, when specie money was the law, that's exactly what happened. There was localized inflation in mining areas (shopkeepers charged steep prices for necessities, and more for amenities), but national deflation since the economy was expanding along with its territory. With a nearly fixed amount of specie, relative to economic activity, aggregate prices had to multiply out to that specie hoard. Holders of specie made out, but the rest of the economy suffered in debt that grew in real terms. Not a process that aided Main Street. Not to mention tech/science was creating truly new forms of goods and commerce. And, no, today's cybershit isn't remotely as revolutionary to this era as coal fired steam traction and petroleum introduction and air flight and telegraphy and on and on to its.

Should bitcoin, and any number of other fiat currencies (why, one might wonder, is it OK for private issue fiat currency to exist, but not sovereign?), displace national currencies, batten down the hatches, Bro! The Dark Ages will have returned. The Winklevossen will be the liege, and the rest of us serfs.

No comments: