Bitcoin Crypto

Nobel-Winning Economist Shiller: Bitcoin Could Be Another Failed Monetary Experiment

Rebecca Campbell | May 21, 2018 | 10:00 pm
Shiller
Bitcoin

Nobel-Winning Economist Shiller: Bitcoin Could Be Another Failed Monetary Experiment

Rebecca Campbell | May 21, 2018 | 10:00 pm

The advent of the cryptocurrency market is mimicking that of some of history’s most failed monetary experiments, according to Robert Shiller.

Shiller: ‘No One Can Explain How Cryptocurrencies Work’

Writing in a new blog posted today, the Yale professor and Nobel-winning economist wrote that enthusiasm for the cryptocurrency market remains strong despite warnings that it could be a scam. ‘One must bear in mind that attempts to reinvent money have a long history,’ he said. Yet, while new monetary innovations create excitement to begin with, they fail to last, he added.

As an example he cited Josiah Warner, who in 1827 opened the ‘Cincinnati Time Store’ that sold merchandise in units of hours of work. These relied on labour notes, which resembled paper money; however, while they were considered a sign of importance of working people, the store closed in 1830.

Undeterred by Warner’s failure, two years later Robert Owen attempted to create the National Equitable Labour Exchange in London. This relied on ‘time money’ as a currency. Yet, similar to Warner’s attempts Owen’s experiment failed as well, Shiller pointed out.

A hundred years later, during the Great Depression, economist John Pease Norton proposed a dollar backed not by gold, but by electricity. Notably, though, this too failed to catch on.

“Each of these monetary innovations has been coupled with a unique technological story,” wrote Shiller. “But, more fundamentally, all are connected with a deep yearning for some kind of revolution in society.”

In his opinion, cryptocurrencies like bitcoin are no different, adding:

“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.”

He goes on to state that similar to past failed currencies, ‘the public’s fascination with cryptocurrencies is tied to a sort of mystery.’

“Practically no one, outside of computer science departments, can explain how cryptocurrencies work,” he said.” That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal. None of this is new, and, as with past monetary innovations, a compelling story may not be enough.”

This is certainly not the first time that Shiller has spoken out against the cryptocurrency market. Last October, he called bitcoin a ‘fad,’ as he commented on the ‘strange enthusiasm’ for the currency. Earlier this year, he was reported as being conflicted on bitcoin and wasn’t sure whether it would fail or succeed. He’s also said bitcoin is a bubble and that it only attracts investors because it is a good story.

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  • RIAlan

    Lovelace and Babbage had the foolish idea that changeable data and instructions could be processed in an analytical engine. They were limited to work with belts, gears, shafts, cogs and wheels. After years of lost money and effort, the concept went nowhere.

    Some years later, atoms were found to be made of particles, the lightest of which could be guided into a controlled flow through the logic gates those two had conceived. Alas, that flow could only be created by boiling electrons off a metal plate in an oxygen-free tube. The concept was still impossibly impractical.

    A half-century later came the transistor, 9 of which were used in my portable radio. (WOW! You didn’t have to wait for it to warm up and boil off those electrons.)

    Then came Moore and Grove. Things started getting interesting. Equally interesting is that IBM predicted that the world would need 8 or 9 computers.

    Dr Shiller is probably the only skeptic I’ve seen who doesn’t wax nasty on the subject, and he provides a good, charming sounding board for the overly-enthusiastic. However, I’d like to recite for him a nursery rhyme I learned 60 years ago, that I think addresses the venerable (okay, ancient) banking and monetary systems. It goes like this:

    When I was one, I had just begun.
    When I was two, I was nearly new.
    When I was three, I was hardly me.
    When I was four, I was not much more.
    When I was five, I was just alive.
    BUT NOW THAT I’M SIX, AND AS CLEVER AS CLEVER, I THINK I’LL STAY SIX NOW, FOREVER AND EVER.

    And, of course, university professor Francis Fukuyama told us twenty years ago that history had ended.

    Given all that, and the fact that we’ve moved from barter to cowry shells to gold, to notes promising to redeem gold, then developed a banking system that dealt exclusively with those promissory notes, whereby a credit system was developed (with the advent of carbon paper) where a ID card could be used to promise a merchant payment by a third party — all of which became part of the electronic transfer system…

    Well, you get the point. Why would ANYBODY think this is the way it’s going to be forever and ever?
    ======================================

    Get a horse!
    It will mow your grass and fertilize your garden.
    It will take you home if you’re drunk or incapacitated.
    It will make other horses.
    It doesn’t require foreign adventures or fracking to get fuel.
    It’s friendly, and becomes part of the family.

    All incontrovertibly true — but history has its own imperative, and it’s not leaning toward horses.

  • RIAlan

    Sorry to add even more, but this really gets my goat, and I’ve seen the good doctor mention this before:

    “But, more fundamentally, all are connected with a deep yearning for some kind of revolution in society.”

    This reminds me of a statement like “If you get honest about it, what you really want is sex.” Well, yeah, I DO want sex. Why do you say it like there’s something wrong with me? You got a problem with that? Maybe YOU find it repulsive, but I don’t, and I’m not about to be cowed into shame. It just needs a little regulation.

    I also have a deep yearning for some kind of revolution in society, and I’m not ashamed of that, either. The yearning says it’s fine to have stopgap measures for certain functions, but when something better comes along, there’s no sense — except maybe nostalgia or misdirected loyalty — in not using it. There’s a big difference between caution and rejection.

    I did mention Dr Shiller’s charm before, and I meant it — but I’ve noticed this bit about some psychological thing he doesn’t care for, for whatever reason, and I don’t buy it. Not EVERY LAST DETAIL about society is great, and whether it’s money and banking, transportation, human rights, and everything else, it’s a good idea to improve things that need improvement.

    And as far as “nobody understands”? Yes, the mathematics is university level. So’s the chemistry in pharmaceuticals. How many people “understand” how central banks and fractional reserves, and controlled inflation work? Enough to get it working well enough so that the population can use that exceptionally complex system. The only difference is that the upcoming system isn’t subject to political whim, and if anyone tries to manipulate it, the whole world will see it, call them out, and void the transaction. That sounds pretty okay to me.

    I’ll try to shut up now.

  • Huginn Muninn

    Another (((expert)) gives his useless opinion on a revolution leaving all doubting Thomas’s in choking in the dust….

  • Chanco

    Shiller is chewing his fud.

  • dickiefresh

    His name is beyond appropriate.

    He forgets to mention that labor dollars are still used in various parts of the US and are a successful alternate currency.

  • samoanpunch .

    How many people outside of banking can explain how the central bank works? How many inside of banking including those working directly for the central bank can explain how they work, let alone how tens of trillions can disappear each year? His opinions means nothing because he conveniently ignores how his his reasons also apply to the existing model and how there are similarities between Bitcoin and fiat.

  • Jason Lee

    Practically no one, outside of computer science departments, could explain how internet worked.

  • Jared Odulio

    but the examples cited were backed by labor, bitcoin is backed by love 😛

  • John Anthony

    Ok Robert, explain the TCP/IP protocol as it relates to the OSI model…

    Having trouble? Oh no worries, you still get to enjoy the benefit of it everyday, but you just call it the Internet.

  • Aditya Vikram Singh

    Good analysis, however Shiller failed to convey only handful of people on earth understand how central banking works, so should we not use fiat !

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