Freedom of exchange is pivotal to the freedom of the individual
Institutions are slow to adapt. Last week Commons Speaker John Bercow launched a special commission on digital democracy, a mere decade after near universal internet access was achieved in the United Kingdom.
It is this stubborn allegiance to the status quo that inhibits potential. New ideas and technology inspire a kind of innate anathema in the unimaginative suits that scurry through the underground passage between Portcullis House and Westminster like so many rats.
Access to information and technology has irrevocably altered the balance of power between people and government. Through technology it will soon be possible to remove the way in which we trade from the purview of the state.
Society requires currency. Without it there is no relative value. The first farmer who tried to gauge the value of his cow in terms of his neighbours carrots realised this. And so we have currency. From its inception it was an intermediary designed to bridge gaps.
The shekel was a measure of barley. Your cow was worth a certain amount of barley, as were your neighbours carrots. The system worked, until there was a bad case of barley blight. It wasn’t perfect.
At various stages in history the idea of currency became conflated with the scarcity (and therefore perceived value) of precious metals. Worth was measured in weights of gold, or silver, or bronze. This worked in a fashion, until the sheer scale of the human race and the volume of trade made it impractical. And so we have fiat money. Currency without intrinsic value. The value of a modern currency is based on the users trust in the state that has issued it. This trust can be eroded by the rate of inflation, quantitative easing, or good old fashioned theft.
People do extraordinary things with fiat money. Things that are utterly incomprehensible to most of the population. Whether it’s short-selling or securities lending, the vast majority of economic activity makes no contribution to society, other than through the self propagation of capital.
This capital can then be used in ways that can make a huge difference in the world. Investment of this kind has brought about innovations in technology that have facilitated the most rapid growth in living standards around the globe in history. The rate and scale of growth being experienced in countries like India and China hasn’t been seen since the industrial revolution.
And so the value of currency is an illusion with tangible results, all of it based in the original trust placed in the state in which it was issued. In the western world this system works well. A democratic state is the expression of our amalgamated desires. This sum of our parts is never an ideal fit for anyone, but the best compromise available. For libertarians the state inhibits freedom. To a communist it is woefully inadequate at redistributing wealth. Whatever ones opinion, it is fair to say that on the whole the state can be trusted to preserve its measure of value. It is in its interest to do so.
But the state is fallible, especially in the developing world. In parts of Africa corruption is endemic. Closer to home, in France, the top rate of tax could be an astonishing 75%, as of 2014.
A currency outside of the control of authority has been made possible through information technology. This has a certain universal appeal. It isn’t issued and it can’t be controlled. It’s perceived value is based on trust in the laws of mathematics, and belief in the concept of a truly free market.
One day it is possible that wages could be paid in this way. From any part of the world to any other, with nothing more than an internet connection and a small piece of open source software.
Cryptocurrency is not yet a viable store of value. There are several major stumbling blocks in its way: The most immediate one is ease of access. To buy, store and spend bitcoin, litecoin or ripple takes the kind of technological intuition that is built up over years. A simple user interface will be required. Reputable and established companies, perhaps even banks, will need to operate exchanges, where people can be certain of their ability to extract local currencies until such a time as they are no longer necessary.
Currently cryptocurrencies are a terrible investment asset. A bitcoin that costs £720 today could be worth nothing tomorrow. Equally it could double in value. It is totally unpredictable and the factors that determine its value are not entirely clear.
It is possible that “millions of people have become simultaneously impressed with one delusion, and run after it until their attention is caught by some new folly more captivating than the first,’ as Charles Mackay noted in ‘Extraordinary Popular Delusions and the Madness of Crowds’. Equally it is possible that we are on the precipice of the kind of great leap forward of the kind predicted by James Dale Davidson and William Rees-Mogg in ‘The Sovereign Individual’.
As an investment asset, cryptocurrency is a truly awful prospect. As an investment concept it is utterly priceless.
Daniel Jackson tweets as @danieljksn