Without a doubt, cryptocurrencies are the 21st century’s most mysterious invention, with a very few people able to fully explain their working or be considered as actual “experts” in the field. However, a mysterious story is not enough to ensure the digital asset class’ longevity, feels economics Nobel Award winner Robert Shiller.
‘Devotees’ Emotionally Invested in Digital Assets
On May 21, 2018, Shiller’s post titled “The Old Allure of New Money” compared cryptocurrencies to a number of monetary fads and experiments that took place in the past, with the economist terming bitcoin a “failed currency experiment.”
Since coming into existence in 2009, Bitcoin has drawn several critics from different quarters, and has spearheaded the rise of a whole new asset class that is carefully studied and scrutinized by the world’s governments’. At the time of writing, there are upwards of 2,000 cryptocurrencies, each of which represents the public’s’ monetary or emotional investments.
Robert Shiller at a Conference. Source: CNBC
The economist noted that money is the value we ascertain to it, with the dollar nothing more than a “piece of paper” that goes around the world. However, he observed that over different periods in history, various attempts to recreate money have been attempted, coupled with a compelling narrative, only to fail drastically.
In his post, Shiller quoted Viviana Zelizer book “The Social Meaning of Money:”
“Despite the common sense idea that ‘a dollar is a dollar is a dollar,’ everywhere we look people are constantly creating different kinds of money. Many of these innovations generate real excitement, at least for a while.”
Shiller Refers To Failed Concepts From the 80’s and 90’s
Shiller explained a few of currency novelties from the 1800’s to undermine cryptocurrencies. He first referred to the “Cincinnati Time Store,” opened by Josiah Warner in 1827, that relied on “labor notes” and sold merchandise in units of hours of work, which resembled paper money. For the next three years, the labour notes were seen as a “testament to the importance of working people,” until the shop shut down in 1830.
Shiller then cited Robert Owen’s National Equitable Labor Exchange in 1832, which also relied on “time money” as a form of currency. However, the enterprise met with failure too, and it was proved that the proof-of-labor concept could not equal physical stores-of-value, such as gold or silver.
Finally, Shiller cites economist John Pease Norton’s effort in 1932, who proposed an electricity-backed dollar, instead of gold. However, the innovative concept failed to answer a single question: A good reason for choosing electricity over other commodities?
Facing the Nobel Heat
To conclude, Shiller points out that each of the pasts’ experiments, and now Bitcoin, stem from a singular narrative of having a technologically advanced, “revolutionizing” transfer-of-value. However, the micro-revolutions remain short-lived:
“The cryptocurrencies are a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war.”