Intrinsically Worthless to Whom?

By Brian C. Albrecht

If you hang out with people who talk about money—in the “what is money” sense, not in the “I make a lot of money” sense—the conversation eventually goes to bitcoin. Is bitcoin intrinsically worthless? That is, does it have value as something other than as a money? The answer is, as others have shown, that it depends.

But it depends, in a particular way. It depends on who you are considering; to whom is bitcoin intrinsically worthless? For some people, the technology itself gives bitcoin intrinsic value. For someone like me, who thinks a computer is only for Twitter, the technology means nothing.

This distinction is not new to bitcoin. Many monies have been intrinsically valuable to one person and worthless to another. When cigarettes became money in P.O.W. camps during WWII, they had intrinsic value to smokers but were intrinsically worthless to non-smokers.  Even the classic example of gold as a money with intrinsic value isn’t absolute. I, for one, would have no idea how to “use” gold. Gold is, in some sense, intrinsically worthless to me.

But money is, by definition, not about one person in isolation. Money is social. What really matters is whether enough people in the society place non-monetary value on the money. I do not use the gold coin. But other people in society can turn that coin into jewelry, a filling, or computer wiring. Therefore, the reasoning goes, gold is intrinsically valuable to society and we classify it as a money with intrinsic value.

Of course, the world is made up of many societies and sub-societies that interact to varying degrees. The choice of which society to focus on matters.

Take wampum, for example. Wampum refers to the shell beads that became money during the 17th and 18th century in New Netherlands, which later became New York. Was wampum intrinsically worthless? People often give seashells as an example of an intrinsically worthless, fiat money--both in monetary theory research and textbooks. But it depends.

It depends on the the society of focus. For the Dutch and English, wampum was intrinsically worthless. It was valuable solely as a medium of exchange: first to exchange for furs from the Iroquois and then as a general medium of exchange within the colony. For the Iroquois, wampum was not a fiat money. It was a tool for writing contracts in a pre-literate society. It was used in religious ceremonies and much more. Wampum was as intrinsically valuable as any good the Iroquois possessed.

What do these historical examples tell us about the future of money? As Alex Salter has pointed out, the history of money need not influence the workings of money today. The same could be said about whether a money is intrinsically worthless or not. The categories create a taxonomy of monies, but tell us little in themselves about what is “the best” money or  whether bitcoin will succeed as a money.

Yet, history does show us that bitcoin has historical precedents, at least in one dimension. When the societies of the Iroquois and Dutch came into contact, something new emerged as money. As the world continues to become more connected and more sub-societies interact with each other, expect more situations when something that is intrinsically worthless to one group is intrinsically valuable to another.

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Brian C. Albrecht

Brian C. Albrecht is a Ph.D. student in the Department of Economics at the University of Minnesota. His research interests include political economy and monetary economics. He has published articles in scholarly journals, including the Journal of Economic Methodology and the NYU Journal of Law & Liberty.
Albrecht earned his M.A. in Economics from the University of Minnesota, his M.Sc. in Economics of Public Policy from the Barcelona Graduate School of Economics, and his B.A. in Physics and Political Science from St. Olaf College.