CAN CRYPTO DETHRONE LEGAL CURRENCY?

Hence an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics.

(Karl Marx)

Commodities and goods owe their value to social work, that is to say, they have an intrinsic value that corresponds to the socially necessary labour time needed to their production. This theory started among the political economists during the 18th Century, particularly by David Ricardo. Their price is, of course, fixed by many other factors (supply&demand, marginal utility, competitive strategy or pressure, etc). However, prices always gravitate around their exchange value as defined by David Ricardo. Money is, by its definition, a commodity that expresses the exchange value of many other goods and commodities.

Thus, gold and silver, because of their physical character as their incorruptibility (“some lasting thing that men might keep without spoiling”, stated John Locke), high intrinsic value and easy divisibility, worked for so long as the measure of the value of the rest of goods, both in its amassing function and payment medium. Once paper money was established, gold came to back it up and, although gold standard has been banished, it is not less true that there is a practical channelling of amassing savings upon commodities (mainly gold) when economic stability is in serious threat. We could rightfully name it as an officious or informal gold standard. This goes without saying, of course, that the exchange value of all these money-role-commodities, as far as they are also commodities, is also a function of the relative social labour they represent. As for gold intrinsic value, let’s take its example:

But…what about cryptocurrencies? Cryptocurrencies have no intrinsic value, better said, they have intrinsic value although it is neglected in their price. Cryptocurrencies have a fict exchange value. Of course, not everything exchangeable in a market must have it. For instance, selling your own image or honour is like selling something that has not been created or produced to be sold, no social labour has been incorporated in them, so that it has no intrinsic value although it does not have to be always priceless. Therefore, crypto has just a speculative price, mostly determined by the eventual commodities someone could afford with them. 

Additionally, the number of cryptocurrencies to be mined are limited in a predetermined number. Even more, the number of crypto becomes increasingly fewer once mining has overcome different tranches. For each mined block, miners obtain “x” cryptocurrencies. This “x” is lower as mining goes on. Moreover, cryptocurrencies lack, by now, central bank’s control. This is not insignificant. Will Rogers said „There have been three great inventions since the beginning of time: fire, the wheel, and central banking„. And he was not far off the mark. “Fiat money” is no longer officially backed by gold, but it is not that fiduciary. It comes from the state. We are not now diving into little inflation increase benefits but there is a simple formula that applies here: PxY=MxV. Whereas M means the total money supply, V means the number of complete money cycles, and PxY the nominal GDP. Central Banks need to create or pull money at will (not arbitrarily) to ensure minimum conditions for growth and stability, and to finance the states by their public debt purchase. 

While it is true that crypto mining requires energetic input, which represents a cost, and as long as at first glance it can be thought as an equivalent of gold&silver mining costs, its market price does not depend on the mentioned input. Rather, this appears as a mere technical requirement which works as nothing but as a logic limit of the mining financial rationale. Just in case they are backed by intrinsic-value commodities (gold, silver, oil or whatever) we can start considering them, admittedly with some reservations, a substitute of legal money. In sum, cryptocurrencies are far from work as commodity-money and cannot either become so according to the prevailing circumstances. Even more, the banks will not disappear. Who otherwise would canalize social savings?

The text represents the point of view of the author

Bibliography

1 In fact, there are many different viewpoints in which money can be seen as: a) the measure of values; b) the price pattern; c) the medium of commodity circulation; d) the hoarding or amassing medium; e) a payment medium; f) universal money.

2 Crypto tech can be implemented by the state. I refer to decentralised crypto.

3 Fiat money is not more based on faith than the right to a pension. As it is printed by the state, it is also backed by the sovereign. It is not fiat at all. Thus, its creator has the power to tax enforcement (wealth appropriation) which can be satisfied with fiat money, as well as the state payments are done by its means.

Ignacio Múzquiz Jiménez

Ignacio Múzquiz Jiménez

Degree in Law from University Carlos III. Degree in Business Administration and Management from the University Carlos III. He studied Philosophy at UNED (National Distance Education University). Lawyer. Specialized in Philosophy of Law, Political Economy, Economic Anthropology and Political Narrative. Researcher on historical truths. Synthetist. Popularizer.

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