Bitcoin: A Tower of Monetary Babel
The promoters of crypto currencies have gushingly touted them as the mechanism by which the present central banking cabal and the system of nation states which derive much of their power from will be brought down and replaced by digital money. Despite their meteoric rise as speculative “assets,” there are fundamental economic reasons why they will never act as a general medium of exchange despite the wild enthusiasm for them by the crypto-currency cultists.
Money – a general medium of exchange – is the most marketable (exchangeable) commodity in an economy. As a good, money is not sought after for its direct use – to satisfy individual wants – but to satisfy wants indirectly through exchange for other goods. Over time, one good becomes money since it possesses qualities superior to all other goods as a money. When gold became demanded not for its “use value,” but for its “exchange value,” it became a general medium of exchange – money.
As a consumer good, gold possessed a value or a “price” prior to it becoming a money, as the eminent monetary theorist Murray Rothbard explains:
. . . embedded in the demand for money is knowledge
of the money-prices of the immediate past; in contrast
to directly-used consumers’ or producers’ goods, money
must have pre-existing prices on which to ground a demand.
But the only way this can happen is by beginning with a useful
commodity under barter, and then adding demand for a
medium to the previous demand for direct use (e.g., for
ornaments in the case of gold.)*
Thus, Bitcoin’s “price” is not in terms of its original commodity price, but its price is in terms of dollars, Euros, yuan, etc. In the dollar’s case, it was at one time linked to gold, but has since been severed from it while Bitcoin has had no such relationship.
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