The rise of bitcoin, both in circulation and market value, has proponents of central banks and fiat currencies in a tizzy, including Nobel Laureate Joseph Stiglitz of Columbia University. How dare people decline to have their purchasing power robbed via inflation and their economy manipulated via negative real interest rates.
Stiglitz's knee-jerk condemnation of the cryptocurrency — aired today, November 29, on Bloomberg TV — is so foolhardy, confused, and devoid of argument it defies belief. Here is a quote from the former chief economist of the World Bank:
One of the main functions of government is to create currency, and bitcoin is successful only because of its potential for circumvention, lack of oversight. So it seems to me it ought to be outlawed. It doesn't serve any socially useful function. We ought to just go back to what we always have had.… [In terms of] the medium exchange that we use for transaction, and what I was trying to say is, let's move away from paper into the 21st century of a digital economy.
Apparently just declaring a central bank to be a critical function of government is the end of the story, and when people show that you do not need one by trading with private currencies, well, we will just have to ban them. After all, government hates competition, and bitcoin is making us look bad. In fact, the US Constitution only grants federal power to coin money to standard weights, and for much of US history there was no central bank.
Regarding functions of bitcoin, I suppose the almost 11,000 merchants listed on CoinMap.org are just in it for kicks and not for a currency with a cap on the quantity in circulation. These merchants do not want lower transaction fees, particularly across borders, or a common international currency. Nor do they want fewer barriers to entry, a less cartelized monetary system, and greater access for the unbanked population.
Stiglitz's contradictory call for a move away from a paper currency for the digital economy is telling. Cryptocurrencies offer precisely that, and with different variations battling for adoption, including some with gold backing. Since they have beaten government officials to the punch, however, central-bank apologists are not happy about it.
The presenter on Bloomberg Surveillance, Tom Keene, adds to the illiteracy and declares bitcoin users to be "relying on a Marxist theory of value [and] smoke and mirrors." To which Stiglitz agrees: "Precisely. The value of a bitcoin today is expectations of what the bitcoin is going to be tomorrow. If a government says, 'look, the reason bitcoin is being used is this circumvention,' they could clamp it down at any moment, and then it collapses."
The labor theory of value, advocated by Marxists, simply has nothing to do with bitcoin usage or advocacy. On the contrary, proponents of bitcoin tend to be classical or anarcho liberals who believe in limited government with laissez faire capitalism, diametrically opposed to communism. After all, the centralization of credit in the hands of a central bank with a monopoly is the fifth plank of the Communist Manifesto, written by Karl Marx and Friedrich Engels in 1848.
Perhaps Stiglitz is also not aware that a growing list of governments have already banned bitcoin or severely restricted its use, to no avail. Akin to the rise of Uber and the peer-to-peer economy, the ship has sailed on the prohibition of cryptocurrencies such as bitcoin. Their value and potential for creative destruction uphold the confidence of users and holders, flying in the face of the naysayers.