Robert Shiller has been extremely critical and pessimistic on Bitcoin and cryptocurrency in general. But do his past examples remain relevant today and do they really apply to Bitcoin and cryptocurrency as a whole?
Sonajin – Analysis of Robert Shiller's Bitcoin Failure Prediction
He’s made comments that “no one understands how cryptocurrency works”. This may be true, but this would be true of the majority of technology today that has been working successfully for a long-time. No one understood how power or cars worked initially either but we are sure they were predicted as doomed to fail by those who didn’t understand.
In one sense he is right but we haven’t seen him cite the specific technical issues with Bitcoin. We would argue it is a horrible payment system that is slow, expensive and difficult to use and impossible to replace your current banking and payment systems today. This would apply to many cryptocurrencies but he doesn’t pick on these issues or appear be aware of them. He seems to be focusing on the idea as a whole that he sees people who believe in cryptocurrency as some sort of uneducated rebels who are fighting the banks and government. Now, certainly many involved in cryptocurrency are passionate about ending the banking cartels but there are just as many of us who just want alternatives to our bank that simply work. Being smart consumers doesn’t make the adoption and use of cryptocurrency worthless, but on the contrary we’d argue the ecosystem will ultimately change finance, investing and banking at the same time and it already is. If it wasn’t, the governments and financial regulators wouldn’t be talking about it if there was no chance that cryptocurrency could change things.
Some of Mr. Shiller’s comments:
- Attempts to reinvent money such as bitcoin often create excitement, but achieve little
- In 1827, Josiah Warner opened the “Cincinnati Time Store”, which sold merchandise in units of hours of work, relying on “labour notes,” which resembled paper money. The new money was seen as a testament to the importance of working people, until he closed the store in 1830.
- Robert Owen, sometimes described as the father of socialism, attempted to establish in London the National Equitable Labour Exchange, relying on labour notes, or “time money”, as currency. Here, too, using time instead of gold or silver as a standard of value enforced the notion of the primacy of labour. But, like Warner’s time store, Owen’s experiment failed.
- Karl Marx and Friedrich Engels proposed that the central communist premise – “abolition of private property” – would be accompanied by a “communistic abolition of buying and selling”. Eliminating money, however, was impossible to do, and no communist state ever did so. Instead, as the British Museum’s recent exhibit, The Currency of Communism, showed, they issued paper money with vivid symbols of the working class on it
- During the Great Depression of the 1930s, a radical movement, called Technocracy, associated with Columbia University, proposed to replace the gold-backed dollar with a measure of energy, the erg. In their book The A B C of Technocracy, published under the pseudonym Frank Arkright, they advanced the idea that putting the economy “on an energy basis” would overcome the unemployment problem. The Technocracy fad proved to be short-lived, though, after top scientists debunked the idea’s technical pretensions.
- Parallel with Technocracy, in 1932 the economist John Pease Norton, addressing the Econometric Society, proposed a dollar backed not by gold but by electricity. But while Norton’s electric dollar received substantial attention, he had no good reason for choosing electricity over other commodities to back the dollar. At a time when most households in advanced countries had only recently been electrified, and electric devices from radios to refrigerators had entered homes, electricity evoked images of the most glamorous high science. But, like Technocracy, the attempt to co-opt science backfired. Syndicated columnist Harry I Phillips in 1933 saw in the electric dollar only fodder for comedy. “But it would be good fun getting an income tax blank and sending the government 300 volts,” he noted.
- This statement appears highly biased and contrary to the reality today where banks and governments are adopting cryptocurrency and blockchain technology.
- Josiah Warner’s Cincinnati Time Store that sold merchandise based on “labour notes” which value is derived from hours of work didn’t work even though it tried to replace money. Another key difference is that of course you had to work to get that currency. With cryptocurrency you could have mined it (yes proof of work but not with actual labor) or an investment and purchase of cryptocurrency. However, Mr. Shiller seems to overlook the fact that this was implemented on a micro scale in a single city, in a single business and without the globally connected internet community we have today. Cryptocurrency is being used as we speak to buy, sell and trade and it is freely convertible from both and into fiat currency.
- Robert Owen’s scheme sounds a lot like Josiah Warner’s so there is no surprise it had the same result.
- Karl Marx is on a wider scale so we will give Mr. Shiller part of this one. However the parallels he uses are questionable. Marx tried to eliminate money and he couldn’t do it. We argue that cryptocurrency is a digital money replacement for fiat (cash) money.
- The Technocracy that wanted to replace the dollar with a measure of energy failed because it was debunked by scientists. Cryptocurrency is not an idea, it is here now, today and working as real currency.
- Once again Mr. Shiller uses almost two identical examples, much like the Technocracy, John Pease Norton tried to do something almost identical and it of course failed.
He seems to be missing the key point that cryptocurrency is not an idea, it is digital money that has significant value on the market today (we can argue it is a bubble and some are overvalued) but the fact that millions of people around the world are buying, selling and trading in cryptocurrency, including banks and large investors should signal that it is here to stay.
He is right to say there are issues with cryptocurrency which is in its infancy still. But we aim to resolve those issues and as a hedge against his bet, we will be creating a market that solely trades in XSJ. If Cryptocurrency is to be a replacement to your bank or fiat cash, it must function in a similar way.
We also think he underestimates the internet community. Back in the days of Napster, the RIAA instead of understanding that people wanted digital music, tried to fight the revolution and has lost, just like the MPAA. Now we are not saying we condone piracy, but if governments try to ban cryptocurrency it is unlikely it will die. There is also little evidence that the main governments of the world want to ban cryptocurrency, but rather, it is clear that they want to regulate, tax and control it, and that would give it nearly defacto currency status.
It seems like Shiller in one vein makes sense, but his historical comparisons in our opinion lack context and the globalized nature of cryptocurrency and its acceptance by millions of users around the world.