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[liberationtech] Bitcoin and The Public Function of Money
dk at telekommunisten.net
Tue Oct 30 14:10:22 PDT 2012
I want to write a bit about the public function of money, especially as
compared to the market function of money, in light of some of the recent
discussion about Bitcoin.
Bitcoin is already a very useful technology due to the fact that it
allows transactions to take place without any central authority. This
alone is significant. The technology behind it is also perhaps
applicable in other areas, such as the Namecoin project to replace the
centralized Domain Name system.
Does Bitcoin have the potential to replace Government fiat money? No.
It doesn't. It only has the potential to be one commodity form within
the money economy.
Countless books and papers have described money, money is a very
complex thing which serves many functions. Keith Hart has written about
the "Two Sides of the Coin," heads on one side, tails on the other. One
way to interpret this might be to contrast between the public function
and the market function of money.
The origin of money is tribute. The source of money is the public, in
whatever form, whether empire or democracy or something else, money is
spent on public expenditure and demanded back as tribute. Whatever its
commodity value, whether minted on gold, printed on paper or electrified
as bits in a database, this sort of money has value because it can be
used to fulfill tributary obligations, for example, it can be used to
pay taxes. As the entire source of this money is government spending,
the amount of this money is determined by the amount we want to provide
on behalf of all as a society. This is the "Heads" side.
Not all economic activity is done for money. Much of it takes, and has
historically taken, gift and kin-communal forms, where work and wealth
is shared without specific prices for specific commodities, but rather
on a basis of social trust and reciprocation. Markets emerge as economic
activity extends beyond communal and neighbourly forms, markets extends
the social to beyond the kin-communal, and along with such social
distance come more transient relationships that can not rest on trust
and reciprocation, and thus must be encompassed by spot transactions,
and as a result specific prices for specific commodities and specific
price relationships between commodities. With these transient
relationships comes money. But this sort of money is different.
Commodities can also be traded directly, even if their relative worth
is counted in "Heads" money, and trade can also be done on-account, by
credit. The amount of which is not limited to the physical amount of
"Heads" money in circulation. In the wider economy, money is endogenous,
the amount of money circulating in the economy is not a function of any
monetary base, but rather is a function of the amount of things we want
to make and do for each other. More specifically, the amount we want to
make and do for each other for money. This is the "Tails" side.
This is vertical money and horizontal money. Vertical money is created
and destroyed by the public, horizontal money expands and contracts as a
result of the economic activity of private individuals and their
Money that has a commodity base, i.e. Gold, is not completely rooted in
a particular public form, since it's value can cross international
This is where Bitcoin, a digital specie essentially, emerges as a new
and rather unique form of money. It's built-in cryptographic limits on
supply make it essentially a virtual commodity form of money, fixed and
"hard", like Gold, yet digital and transferable electronically across
global telecommunications networks. As such, it has attractive features
as both means of exchange and store of value. Yet, while it certainly is
useful on the "Tails" side of money, as one of the various kinds of
assets circulating in the global market economy, it does not serve
public function well. There is a reason that modern public forms of
money are not commodities, why modern economies use "fiat" money, money
that is not based in or guaranteed by conversion to any sort of
If the public restricts itself to commodity-money for public
expenditure, this means that what it spends must be limited to what it
taxes plus what it borrows, since commodities have a fixed available
supply. And though many ignorant or simply disingenuous commentators,
such as promoters of austerity, present this to be the case even now, in
a modern monetary economy based upon fiat money issued by the public for
public purpose, this is factually not the case.
The thing about public money is that we can have as much of it as we
want to have. How much we spend relative to how much we tax is a public
policy choice, and the right-wing dogma that the appropriate choice is
for the budget to be balanced, for taxes to be equal to spending, is
universally understood to be false, even among the most celebrated
right-wing economists. In his 1948 article "A Monetary and Fiscal
Framework for Economic Stability", "Chicago Boys" patriarch Milton
Friedman proposed a counter-cyclical policy, where government spending
would be increased beyond taxation during economic downturns, similar to
Abba Lerner's "Functional Finance" which is often referred to as
"Keynesian" economic policy. Whatever their ideological stripes, there
is little disagreement among economists that to the degree that public
budgets need to be balanced, they must be balanced relative to economic
cycles and sectoral balances and not merely between annual public
spending and taxation.
The balance between spending and taxes is simply the balance of the
public "Heads" side of the coin, always in counter-balance with the
private "Tails" side of the coin, as expressed by the activity of
private interests in the global market.
It is no secret that the national State form is unsatisfactory. Not
only is it burdened by its aristocratic roots, and not only is it
corrupted by the fact that its modern form is largely captured by the
international corporate elite, but the State is clearly unsatisfactory
for modern publics as a result of the fact that static territorial forms
are increasingly ineffective and inappropriate structures to serve
global, distributed communities.
The public form has to evolve from the state form to the networked
form, but for that to happen, new, networked public forms will need to
emerge that are able to take over the socially necessary public
functions. Including the management of forms of public money.
The critical feature required of public money is that we can socially
determine how much of it there is, and how much of we want to apply to
public purpose. We need ways to create and destroy public money so that
we can can have a counter-balance to private activity, to manage cycles,
to counter-balance economic sectors, and to socially pursue public
objectives, such as health, education, and justice.
Thus, Bitcoin's innovation in terms of creating a networked form of
commodity money is not useful in creating networked forms of public
money, and as a result it does not create a way for networked public
forms to replace the current State forms.
I'll be at Stammtisch this evening at 9pm, please come if you're in
Berlin, if not, R15N continues at Mal au Pixel in Paris, you can join
the network by calling +33 181 97 97 11
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