What happens after the crypto-revolution?

Bitcoin may disintermediate banks, but that will not change the economy, save the environment or make society fairer. One peaceful way to prevent our governments driving us to collective suicide is to get behind a new generation of P2P credit projects.

No economic reforms expected

As the recession drags on and on and on, disgruntled citizens are calling for various kinds of change: a re-branding of capitalism, tighter regulation of banks, austerity or Keynesian stimulus or a Tobin tax, Ending fractional reserve banking, even debt forgiveness. Very few reformers are voicing concerns about money itself. Specific criticisms are myriad, but for me, the fact that 97% of legal tender money is interest bearing debt issued by profit making corporations, goes a very long way to explain humanity's present malaise. The slimy yes-men in who 'lead' our sleezy governments are paying no attention to alternatives but instead engineering new bubbles and deepening our debt in order to preserve the appearance of 'growth'. The level of fraud needed to keep the banks functioning is only possible because regulators are owned and governments are plucking their own eyes out not to see.

Bitcoin's volatility problem

Meanwhile Bitcoin has given us all an instructive lesson on money creation. With no face value and a fixed supply, Bitcoin's market value shot up when the media discovered it in 2013, and again in response to the Cyprus bail-in. Many entrepreneurs and activists are eager for Bitcoin to 'disrupt' the banking system, but adoption is sure to be slow while the price is so unstable. There's no solution to the volatility problem, and lets face it, most of the money which goes into Bitcoin is from people looking to make a profit from volatility - speculators. They do not care how well Bitcoin might function as money. Big speculators can easily push the price around in a small market for day on day profits. Global banks who have been suppressing the price of gold and silver for decades can easily suppress the price of Bitcoin.

Elites always manipulate free markets

Market manipulation is a game as old as markets themselves. By scheming in groups, by sending in muscle, by spreading false rumours or by destroying or buying the competition, by owning the market and charging rent, by issuing the currency and forcing people to use it, powerful people know very well how to extract more value from markets than they could otherwise create. This is what the US hegemony is really doing, prizing open national markets like oysters, and using dollar denominated debt to suck all the value of it back to Wall Street. It is not a conspiracy theory to observe that the people working and creating wealth are not the people locking that wealth in tax havens. Yet the media, the courts, the economists, the policy-makers cannot bite the hand that feeds; these things are trivialised, obfuscated and overlooked. That's why we need Max Kaiser to constantly remind us that all prices are manipulated, and all markets are now rigged and swimming thick with sharks.

Commodity money always a tool for elites

None of the aforementioned reform strategies will prevent manipulation in a free market, not even the mass adoption of Bitcoin. Bitcoin's innate purpose is to disintermediate the banks as a global payment system and bring the cost of global payments to near zero. However, adopting Bitcoin as a national or even global legal tender currency would do little to change the balance of power and build a more equitable society. The fact is that history shows frequently that when the supply of money is tied to a commodity, or the supply is restricted like a commodity, then by buying up or limiting the supply, the rich will manipulate the supply of money to the economy in their own interests.

Interest free credit money

But there is a way of thinking about money, not as a commodity, and not a tool for the rich. Modern money is scarce and thus has commodity value because it is created when banks lend it into existence. The amount owed to banks (the amount borrowed plus the interest) is always more than the amount borrowed, so money is in short supply by definition and can be traded as a commodity. (Money as Debt 3 explains this the best). If money was backed by your reputation, and issued interest free in the quantity that reflected our trust and interdependency, we could expect the economy to display entirely different characteristics:

  • 30 year mortgages would become 10 year mortgages
  • prices would plummet as interest was subtracted right through the supply chain
  • zero unemployment
  • two or three days working week
  • No inherent 'need' for growth
  • governments wouldn't be slaves to banks!

Seriously? Can we really issue credit to one another and not have it create imbalances of power? Has it ever happened in history? Is anyone designing such markets for the modern era? Perhaps some 18th or 19th century economists have already expressed these things in their very essence before capitalism became an unquestionable axiom?

A very old idea

Happily the answer to all these questions is yes. At this moment in monetary history, neoclassical economics admits no alternatives, yet alternatives abound in past and present. No time for an ancient history lesson, but starting in the 19th Century we can point to many 'social' innovations which have some kind of credit-issuing power built in. While businesses were paying each other with 'self issued credit' notes, the cooperatives, building societies and credit unions, were doing p2p lending just as