Bitcoin “hacked into the global financial system to reveal the dirty little secret of the neoliberal age – namely, that this economy is increasingly built on illusions and conjuring tricks.”
John Rapley is a political economist and author of ‘Twilight of the Money Gods’, which was reviewed in BRAVE NEW EUROPE
Cross-posted from Brixton Subversity
Four years ago, I gave a talk to a London salon series on the future of money. Set in the basement of a bar in the Shoreditch district, I was in the heart of ‘Silicon Roundabout,’ addressing an audience filled with thirty-something tech entrepreneurs. I told them to keep an eye on Bitcoin.
I was too broke then to take my own advice, but I wish I could have. The relatively new invention was then selling on the Internet at $100. If I’d put money into it, my investment would have now paid me a hundred times over. But with Bitcoin now surging at rates one normally associates with a speculative fever, there’s talk of it soon crashing. What’s going on?
Amid the Great Recession that followed the 2008 Crash, there was a wave of experimentation with bold new forms of economic organisation. Unemployed young people, unable to afford rent or transportation or even groceries, began creating community gardens and found ways to stretch resources by sharing houses, cars and even clothes. Some launched new blogs or e-zines chronicling life in this new era, with Lena Dunham writing from her parents’ basement and radical publications like Jacobin and New Inquiry seeing the light of day. It was an exciting time of imagining a new future.
Amid all this experimentation, a mysterious hacker, or group of hackers, going under the name of Satoshi Nakamoto, created a digital currency called Bitcoin. Angered by the way the bankers who had caused the Great Crash walked away scot-free and cash-laden, they wanted to create a currency that would enable people to transact business without banks.
As Western governments rushed to save the banks by pumping money into the financial system, they managed to stave off the sort of crisis and revolution the young radicals had been hoping for. Some kept the dream alive, like the magazines still publishing. Others marched off to join the establishment, the inventors of Uber and AirBnB finding ways to turn the sharing-economy into a motherlode for venture capitalists, while Lena Dunham traded her parents’ basement for the Hamptons circuit.
And then there’s Bitcoin. The crypto-currency has gone from being the dream of visionaries to the darling of speculators, as everyone and his dog rushes in to take advantage of its meteoric rise – a tenfold increase this year alone. Along the way, it has gone from being the topic of basement salons, to fronting the headlines of the world’s business press. And the question on everyone’s lips is, is Bitcoin a bubble about to burst?
They were saying back in 2013, when I gave my talk. Nevertheless, the fact that Bitcoin has risen a hundredfold since then does not prove that it isn’t a bubble. But so what? The reason I told my audience to buy Bitcoin then was not that it was going to transform the global financial landscape and become the currency of the future. It may – and if it does, if Bitcoin begins getting used not merely as a store of value but as a means of transacting business, then it is probably undervalued even at these levels.
Yet even as a store of value, I could see Bitcoin was likely to rise well above $100. That’s because the way Western governments prevented the Great Recession from becoming another Depression was by debasing their currencies. By pumping trillions of dollars into the banking system, they flooded the market with money. And it doesn’t take a genius to figure out that if you increase the supply of money faster than the supply of goods and services, the prices of the latter will get bid up. With a supply fixed by its creators, Bitcoin had the possibility of becoming a more reliable store of value than the increasingly devalued currencies of the Western world. It would have to fall awfully far before anyone who bought it in 2013 felt otherwise.
So to call Bitcoin a bubble misses the point. The Western economies have become bubble economies, and governments and central banks are juicing growth with short term injections of cash, as I detail in my new book. Since the financial crisis, the total value of shares traded on the world’s stock exchanges has more than tripled, from under $30 trillion to just shy of $100 trillion today. But the total output of the world economy has grown by only a quarter. In other words, governments didn’t stimulate new investment and production, they inflated asset values by devaluing their currencies. The resulting ‘wealth effect’ led to an increase in consumption by asset-holders – enriching the asset-holders (i.e. the rich) at the expense of everyone else.
Bitcoin was a clever invention that took advantage of this. In effect, its creators engaged in a clever bit of subversion: they hacked into the global financial system to reveal the dirty little secret of the neoliberal age – namely, that this economy is increasingly built on illusions and conjuring tricks.