I just read the article called „Bitcoin and the dangerous fantasy of ‘apolitical’ money“ by Yanis Varoufakis and want to respond to that.
This sentence triggered my impulse to write this article:
„The 1920s thus demonstrates the impossibility of an apolitical money supply.“
What do the 1920s have to do with apolitical money supply? As Varoufakis points out just in the next sentence, „the financial sector was boosting the money supply inexorably“, so there was no apolitical money supply in the 20s.
In this very paragraph Varoufakis argues against both propositions, first he argues, that „large credit spurts“ („boosts in money supply“) are necessary for capitalism to flourish (bubble), but then he points to the disaster of the Great Depression (burst) without ever linking those two together.
Why would the dilemmas of the 1920s return to plague the bitcoin economy? Sorry, but this is just a wild speculation with no basis whatsoever. The Great Depression – just like the financial crisis 2008 – has many reasons. The „Gold Standard“ is not among them. First of all, there was a World War, which was certainly costly in blood and treasure. And then, the 20s had the very same problem that we have today: A bad distribution of money. Will bitcoin change that? Probably not.
We could argue, whether bitcoin should or can have any of those features, but I don’t think a trading commodity a.k.a. money „is and can only be political“. Where is your proof, that „the only way of steering a course“ is by a central bank exercising „rational, collective control over the supply of money“?
I’d rather ask the question: Who is in control? When you allow any government or non-governmental body to inflate the national currency („boosting money supply“), it is in fact redistributing money from people, who have a fixed income (b/c they are jobless, retired, …) and cash savings, to banks with high debt obligations. Governments certainly can play a role in boosting an economy, but inflating a currency (taxing poor people) should not be a viable option to fund those efforts.
So who is in control of the bitcoin economy? Well, just like any other rare commodity (like gold), every trader is part of the collective control of its price. And while it is true, that the supply of bitcoins is severely constricted by the Nakamoto algorithm, I don’t see the bitcoin economy „nosedive into a deflationary spiral“.
Why does Varoufakis warn people from buying a currency, where „deflation is unavoidable“? And why should that cause „untold hardship amongst its users“? That’s like warning people from buying gold, because you predict a price increase!
Yes, there is the risk of hacking, but many people already trust their computers enough to use it for online banking, which could possibly be hacked too. Yes, there have been two bitcoin price bubbles already, the latest did just burst on April 10th, so obviously bitcoin is still volatile.
Will bitcoin power our advanced, industrial society anytime soon? Probably not, but you can become a member of the ‘bitcoin aristocracy’ for just US$ 140,- today (4/26/2013).