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The more traditional among economists have steered clear of any interaction with the virtual currency fraternities, not just for the reason that its highly unpredictable and unindemnifyable nature runs counter to proven sovereign currency units, but also because there is a propensity among some of its advocates to display a degree of anarchy.
A year has passed during which virtual currencies, particularly Bitcoin, have dominated news sites with values varying from 70 BTC to over $1000 per dollar and back down again, plus the demise of high profile Bitcoin exchanges with no recourse for investors, plus the attempted ban on use of virtual currencies by various governments worldwide.
As is often the case with systems designed to circumvent the norm, a number of outspoken proponents have carved a reputation for themselves as Bitcoin aficionados, however whether they are mavericks and pioneers, or plain anarchists is a moot point.
Liberty.me CEO Jeffrey Tucker is one such personality, whose regular speeches at various institutes across the globe are often as provocative as they are charismatic. Mr. Tucker, an economist, author and expert on Austrian economics appeared at the Bitcoin and Bowties event in Andover, Massachusetts hosted by the Mises Group.
Mr. Tucker, according to a report by Mises Group leader Andrew Criscione in Bitcoin magazine this week, talked in-depth about advanced Austrian postulates, and he addressed head-on the extremely negative stances that many Austrians have taken on Bitcoin using Austrian economics as their basis.
Pop Austrian economics was the subject of much criticism, during Mr. Tucker’s speech, with special attention paid to claims that Austrian economics requires that money is a physical commodity, and especially the fallacy that money must have “intrinsic value”.
A notable topic of discussion was the concept that crypto-currencies makes money substitutes obsolete, and without banknotes and ledgers based on trust, there cannot be any fractional reserve banking. Thus clear property relationships in money can be restored, and the Austrian debate between free banking and full-reserve banking becomes irrelevant in a world of crypto-currencies. This viewpoint is particularly interesting when considering that last year, after over 30 attempts by Argentina’s government to outlaw the use of US dollars within its jurisdiction over the last two years, the country’s president Cristina Kirschner implemented the Cedin, a promisory note which is issued by the Argentinian central bank for the return of US dollars from overseas accounts.
The public response to this at the time was to eschew the Cedin, which requires its holders to have faith in the Argentine economy, and to opt for Bitcoin, which soared in value to 30% higher in Argentina than in neighboring Uruguay as members of the general public rallied to buy Bitcoin for use in every day transactions.
Mr. Criscione’s report continued to explain that Austrians have historically labeled gold mining as non-inflationary, and that crypto-currency mining acts in an economically similar fashion to gold mining, so if gold mining is not inflationary, neither is crypto-currency mining.
He asserts that if crypto-currency mining is not inflationary, then inflationary differences between certain denominations of crypto-currency cannot be compared. Such terminology is extremely useful, though, as Mr. Tucker pointed out. Using “more inflationary” to describe a currency that is a lesser store of value is something mainstream economists have been doing for decades, but which the Austrians have traditionally scorned. Perhaps, Tucker opines, the mainstream language is best suited to describe crypto-currencies, out of practicality if nothing else.
At the speech hosted by Mises, Mr. Tucker remarked during the event how “deflationary” currencies such as Bitcoin incentivize saving. Saving is the absence of consumption, and it frees up resources for investment which would otherwise be consumed. Mr. Tucker considers this sacrifice of consumption in order to pay for investment and production to be the fuel of a first-world society, insofar as that all wealth and material comfort comes into being through it. The wealth seen in that museum grew on a monetary system based on gold, another “deflationary” currency.
Proponency of an independent, peer-to-peer, non-sovereign currency which is prone to heart-stopping fluctuations in value, and runs the risk of total loss in the event of an exchange failure, is quite clearly not for all and sundry. Indeed, some FX firms have added it to their list of tradable asset classes, subsequently applying specialist risk management criteria due to its potential changes in value and instablility, however it is clear that those who make a continual