Bitcoins’ suddenly significant perceived value may be news today, but this is hardly the first time for this kind of phenomenon.
Come, now, ladies, and gentlemen, please. Has no one read, or at least seen the television version of “The Ascent of Money: A Financial History of the World” by Niall Ferguson ? Paper, as a form of money was not even accepted until the middle classes merchants of the Renaissance started issuing “trade bills”, until the French government began paying their soldiers in Canada with playing card style currency in 1685 (www.econ.ucla.edu/workingpapers/wp815.pdf) followed shortly by the Ameicans in about 1690. (Not entirely coincidentaly my UCLA source says the Americans where paying their soldiers for an unsuccessful foray into Canada at that time.) It only took until about 1730 until the banks in England had a cash crunch crisis when everyone came around demanding real metal in exchange for their paper money. The point being that acceptance of any symbolic medium of exchange of value is dependent not on some underlying government but upon the willingness of the middle class to accept the value that the exchange medium represents.
There is no gold backing the value of the US dollar any more, nor is there any “concrete” value at all to the underground methods of exchange that have existed for hundreds of years
Paypal may have established a system of exchange that interacts with some banks, but their bits are no more or less valuable than their patrons (and cooperating banks) agree to attribute to them, and just like the international money market fluctuations between the “real” currency of the world can cost you more or less on that set of ruby earrings you purchased in Hong Kong today than you thought they did yesterday when you actually struck a deal with the merchant, so too, the value of a “bitcoin” may vary greatly from day to day (you should have tried to get something for your PRC RMB’s a few couple of decades ago, to know what a “nationally back currency” is worth). Hell, I can’t even find anyone who will give me more than a nickel for the 5 Euro note presently in my wallet from my last excursion to France after I forgot to exchange it at the airport before my departure.
Bitcoin may or may not have a bright future. Current bitcoin owners better hope that a few more billion of them are in broad public circulation soon, before some banking industry lobbyist gets to a few congressal representatitives to outlaw them in this country or others. And all of us should remember, that if we want prices for nickel and dime prices to reach the internet (for candy corn or software items), we should think long and hard about opposing any “software based” currency system that will promote that possibility sooner rather than later.
Stafford “Doc” Williamson
p.s. This item will likely get cross posted to my column on the American Chronicle syndicate of websites, sooner or later, if you want/need to find it again.
This was originally