Krugman’s Bitcoin Error

Paul Krugman, the Nobel Prize winning economist, is not really interested in Bitcoin. The only reason he recently wrote about the new cryptocurrency in his New York Times blog is because some people have urged him to. What he really wants to do is make a point about monetary systems, deride anything functioning “like a new gold standard.” His argument goes as follows: 1) Bitcoin is like gold; 2) currencies should be used for transactions; 3) people are hoarding Bitcoin; therefore, 4) Bitcoin once again demonstrates that anything functioning like gold is a bad idea.

To his credit, Krugman tells us where he read up on Bitcoin. He gets his arguments from an excellent post by James Surowiecki on the MIT Technology Review blog. Surowiecki’s point is that many people are using Bitcoin as an investment (asset) and not as a currency. If Bitcoin users ever want the system to function as a currency then they will need to use it more than they are to buy products and services. Krugman should have read the Surowiecki post closer. As it is, he is so in a hurry to make his the-gold-standard-is-a-bad-idea argument that he doesn’t realize that the very evidence he musters could prove to be Bitcoin’s salvation.

Krugman believes that the drop in value of transactions since June means that people are hoarding Bitcoin. Since he doesn’t take the time to understand the Bitcoin economy, he makes an error by extrapolating from more fully developed currencies. What he doesn’t consider is that the value of transactions follow quite closely what is occurring on the exchanges. This indicates that most of the value of transactions are speculative (or investment) transactions. The drop in value of transactions, as Surowiecki points out, could actually represent an emerging healthier distribution between speculative and non-speculative portions of the economy.

Hoarding is holding onto a currency or a commodity that you could otherwise spend or sell. For the most part people are not hoarding Bitcoins because there are as of yet not very many things or places where you can spend them except on the currency exchanges and a few dozen other places. Krugman completely neglects the fact that non-speculative markets for Bitcoin are still poorly developed. In his argument he does not distinguish between speculation and other types of transactions. As Surowiecki writes, this distinction is fundamental. As speculators abandon Bitcoin, the value of transactions may continue to fall. This could prove to be a good thing for Bitcoin. What has yet to be seen, however, is if people and businesses will continue to adopt and use Bitcoin even without all the speculative excitement around the currency.


Bitcoin and ethics

Recently I have been following and participating in some political discussions on IRC and the Bitcoin forums. What has impressed me is the diversity of political opinions expressed in relation to Bitcoin. In one discussion you can find a person defending libertarian islands, while in another someone else is espousing the virtues of socialism. Although it would be fair to say that the majority of those who express their opinions on these fora are skeptical of the state and critical of the status quo, you also find quite a few who support traditional parties, their platforms, and representational politics as conducted in North America and Europe.

What seems abundantly clear to me is that Bitcoin is not a political movement. Oh, I already hear my critics raising their voices at me! People are accustomed to think these days that everything is political. If the feminist movement of the late 1960s taught that “the personal is political”, then the culture wars of the 1980s, and the environmental movement have just reinforced the idea that whatever you do not only reflects on your political commitments but itself has political repercussions. Unfortunately, however, this is a false view of things.

Long ago anthropologists noticed that there was a big difference between what people say about what they do and what people actually do (the classic reference here is Malinowski, but I would also cite a much more recent discussion in Ferguson). If there is such a thing as a human universal, this might be one of them. I want to elaborate on this observation by distinguishing between politics and ethics. Politics, in this case, is how people frame some of their actions. Ethics refers to the actual codes of conduct and infrastructure that structure relationships between people. What might throw some people off is that I am including infrastructure in my definition of ethics. The infrastructure that I am referring to is that which determines or shapes social relationships. Since the type of buildings, neighborhoods, the type of transportation systems we choose to build, the technologies we use, all impact the relationships that we have with others, then in as much as we choose these things, these choices are ethical.

When you ask someone why they use Bitcoin, for example, they will likely give you an explanation that will tell you about their political views or personal values. The fact that two separate people, an anarcho-capitalist and a socialist, will give you two very different arguments for using Bitcoins suggests that you are learning more about their political beliefs than about Bitcoin itself. Bitcoin is in fact enabling new types of exchange and human relationships that have never been seen before. The political discussions, however, don’t tell us much about these in concrete terms because they are subsuming the novelty of Bitcoin to a political framework that was elaborated before Bitcoin came into existence.

By simply using Bitcoins in a way that conforms to the standards and technologies of the Bitcoin community and market, a person implicitly buys into a new way of interacting with others. This way of interacting couldn’t have been described in detail before the technology was invented and adopted. This is what I am calling the new ethics of Bitcoin. An anarchist and a socialist may vehemently disagree about the role of the state, for example, but in as much as they both use Bitcoin they implicitly subscribe to the same ethic. By using Bitcoin they are choosing for themselves specific technologies (infrastructure) and certain codes of conduct that shape their interactions with others in similar ways. They may disagree politically, but agree ethically.

So what is the Bitcoin ethic? Bitcoin structures relationships between individuals and computers by putting them into a relatively distributed network. Bitcoin is the most successful attempt to date of a peer-to-peer currency. The ethic of Bitcoin: 1) is universalist (potentially everyone with an Internet-enabled computer or handheld digital device could use Bitcoins); 2) diminishes the need for mediation (one individual can send another person on the other side of the globe Bitcoins without the mediation of a bank, a middle-person, or institution); 3) privileges transparency (the code is open-source and the process and rate of minting coins is known in advance); and 4) is immanent (the value of Bitcoin is restricted to the actions of those who participate directly in the market and does not depend on a central bank, government, or other external institution). These are the basic features that structure relationships between Bitcoin users no matter what their political persuasion might be.

These features, and others that I have not mentioned, form the ethics of Bitcoin. They are the codes of trade and human interaction built into the Bitcoin software system and supported by the network and community of Bitcoin users. It does not matter how conscious a Bitcoin user is of the fact, but by merely participating in the Bitcoin market he or she is implicitly subscribing to a Bitcoin ethic, that is a Bitcoin way of exchanging value and relating to others. If you ask users why they use Bitcoins, you could really get as many answers as people you ask. But if you pay attention instead to what people are actually doing with Bitcoins, whether mining, exchanging, making payments, or speculating with them, they are engaged in a distributed (relatively non-hierarchical) network of individuals unlike any that we have seen before. They are participating in a new mode of transacting. I call this new mode of transacting an ethic. And even though many Bitcoin users would be able to tell you why the Bitcoin ethic fits well into this or that political ideology, the ethic is something that we should understand as being common to all Bitcoin users no matter how they choose to frame their actions.

Bitcoin competing against the US dollar

The comparisons that are being made between the United States dollar and Bitcoin, the new crypto-currency, are not really legitimate. The first is issued by the United States government, and is used for almost all transactions in the world’s largest economy. The latter, on the other hand, is a peer-to-peer software system, created in 2009 for transferring value through the Internet. It is traded for other currencies on a growing number of online exchanges, but as of yet is only accepted for payment by a limited number of merchants. These two currencies are not providing the same features. The dollar and Bitcoin compete in different market niches.

The NPR Planet Money team, for their podcast on Bitcoin a few weeks back, interviewed the Harvard economist Benjamin Friedman. As another economist that I recently wrote about, in arguing that Bitcoin will ultimately fail, he appealed to the role the government plays in bolstering and securing the widespread adoption and use of the US dollar. According to the argument, Bitcoin will fail because it does not have a powerful government behind it to support its value and enforce its use. Friedman asked his listeners to consider the inscription on US dollar bills: “This note is legal tender for all debts public and private.” The US government has made it illegal for anyone under its jurisdiction to not accept US dollars in payment. They have, through their authority, secured a monopoly for the dollar among currencies circulating in the US economy. Bitcoin, by comparison, does not have a powerful agency behind it to oblige people to accept it. It is for this reason, suggests Friedman, that it will never be able to compete with the US dollar.

What Friedman and those who make this sort of argument ignore is that there is another basis for a currency’s strength, the strength of the economy in which it circulates. In the case of the US dollar, it is easy to conflate the power of the United States government with the strength of the US economy. However, it is not difficult to come up with counter examples, where relatively strong economies are associated with governments that are relatively weak. When it comes to currencies, the economy itself can be its own autonomous basis for power and legitimacy. In ignoring this, Friedman does not adequately address Bitcoin. It would be better to consider each currency as offering a distinct set of features, and then to consider how those features might give it relative advantages for different types of transactions. The future of Bitcoin depends on whether the features it provides as a currency will prove to satisfy emerging needs and desires in an increasingly interconnected and Internet-based world of commerce.

It is clear from the arguments being made that one of the features that the dollar provides is that it is backed by the US government. In the niche that Bitcoin competes, however, this does not confer on the dollar much of an advantage. What seems to be commonly ignored is that Bitcoin is designed to reduce the level of mediation necessary in long-distance and international transactions, as well as the associated costs. If I want to transfer money over a long distance, assuming that I am not willing to send cash through the mail, I will need to use the services of a bank, credit card company, or some other mediating institution. Bitcoin eliminates that need.

Bitcoins can be sent directly from one private individual to another via the Internet. US dollars bills, no matter how fiercely the US government supports them, cannot. Furthermore, if I send some funds, say through my bank or PayPal, to someone across the globe who wishes to draw on those fund in another national currency, this will entail a series of transaction costs. As it is now, I could use Bitcoin to do the same transfer for a fraction of the cost. I would change my dollars into Bitcoins, send the Bitcoins over the Internet free of charge, and the person would change those Bitcoins into his or her local currency. The expense of exchanging Bitcoins in and out of national currencies on online exchanges is but a fraction of the expense for exchanging one national currency into another and making a transfer from one bank to another across international lines. 

This, however, only represents the beginning of the possibilities. If the Bitcoin market develops more fully, if more merchants begin to accept the currency, then we can imagine a situation where the need to change into other currencies is reduced, lowering transaction costs even further. Even now it is possible for someone in Beijing to send a single Bitcoin to someone in New York, without paying any transaction costs whatsoever, and for that person to go out and use the Bitcoin to buy a felafel sandwich. It would be ridiculous to do this with national currencies alone because one would spend more in transaction fees than the amount of value that ends up being transferred. The dollar cannot compete with Bitcoin in the niche of long-distance micro-transfers, and even in larger transfers, why would individuals choose to pay high transaction costs when they could do it for less with Bitcoin?

Some proponents of Bitcoin lament that there are not more brick-and-mortar merchants who accept the currency. If we adopt the market model I am suggesting, however, we would expect Bitcoin to first develop in those areas where it has the greatest market advantage. This explains in part the proliferation of online exchanges (see here and here). The exchanges provide not only the opportunity for speculation, but perhaps even more importantly (in the long run) the ability to exchange Bitcoin for national currencies thereby facilitating international transactions. This is one market niche in which Bitcoin is much more competitive than the US dollar.

Bitcoin and trust

Why is it that nearly all media reports miss what is most innovative about Bitcoin? Many people, like the economist that I cited in my last post, believe that in order for Bitcoin to be successful, people need to trust Bitcoin. As they see it, in the future there could be many different similar currencies. Bitcoin itself is open-source and therefore easily modified and copied. They imagine multiple competing currencies none of which would have a monopoly. The problem with multiple currencies, they tell us, is that they make it difficult for individuals to judge the trustworthiness of any single currency. This line of argument is faulty. People can only reason in this way if they have not done the research, if they have not read the technical paper on Bitcoin. Bitcoin was expressly created to eliminate the need for one form of trust.

In order to make this issue clear, we need to distinguish between two types of trust related to currencies. To accept a bank issued check, debit card, PayPal, or a credit card number in payment, the payee must trust the bank, PayPal, or the credit card agency to make good on the transfer of funds. Trust is not necessary, not in the same way, when a payee accepts cash. Yes, of course, on an abstract level to accept a US dollar bill in payment the payee must trust in the Federal Reserve. On a more practical level, though, the Federal Reserve has very little to do with it. We accept cash because we believe that we can turn around and directly use it to buy, save, or pay down debts. What most people are missing in the debate over Bitcoin is the difference between cash and non-cash forms such as deposits, stocks, and credit. The I-believe-the-central-institution-will-come-through-for-me trust necessary for non-cash transactions is fundamentally different from the I-will-be-able-to-directly-spend-it trust of cash transactions. It is in this sense that Bitcoin is the very first (correct me if I am wrong) form of electronically transmitted cash. Nobody needs to trust in any single institution in order to accept Bitcoins. They only care if they are going to hold their value, and if they can turn around and spend them.

People would argue that the use of Bitcoin is indeed founded on a trust in institutions. These are the exchanges, vendors, websites, and individuals that use them. However, if I go around the corner from my apartment to sell or buy some US dollars, assuming I know the exchange rate and am confident in my ability to spot counterfeit bills, do I need to trust the currency exchange office per se? Many people thought that Bitcoins would stop being used after the largest exchange, Mt. Gox, came crashing down a week ago. But would I stop believing in cash just because the currency exchange folded? The fact that Bitcoins retained their value even with the crash and fiasco at Mt. Gox demonstrates the extent to which trust in any single institution is not at stake here, not as it would be with non-cash type transactions. Of course, there is an issue of trust between individuals, but these are no different from the trust issues arising in cash exchanges. They amount to whether or not an individual is trusted to hand over the merchandise after being paid, or vice versa.

People will also argue that the use of Bitcoin is founded on a trust in the programmers that built and maintain the currency, and the individuals who review the code and tell everyone else that it is legitimate and will do as advertised. While there is some truth to this, it is practically irrelevant. The founder of Bitcoin uses a pseudonym and no longer appears to be particularly active in the project. Nobody seems to know who s/he is, yet people who use Bitcoin are not disquieted by this. If someone hands me a US dollar bill, how much do I really care about the Federal Reserve? In practice, I am only concerned with whether or not I can stash it away or use it when I want. If it turns out that Bitcoin is not as secure as people think it is, or that known security issues prove to be a greater hurdle than they are now, then confidence in the system may drop. This has little to do, however, with the trustworthiness and skill of Bitcoin coders and reviewers. If it turns out that dollar bills are being widely counterfeited, I would expect the Federal Reserve to step in and do something about it, but to what extent is trust in the institution really at play? Even more to the point, if my home is broken into repeatedly and my stash of cash stolen, or if I am often robbed on the way to work, is the Federal Reserve responsible?

A good way to conceptualize Bitcoin is to think of it as digital cash. Like cash, it is easily lost, stolen, and difficult to trace. As long as Bitcoins continue to hold value, people will devise and use methods of securing their holdings against theft and loss. Like cash, Bitcoin can be used between parties without a mediating entity. Like cash, Bitcoin transactions can be relatively anonymous. However, whereas cash is subject to unforeseeable central bank policies, Bitcoin is minted according to a transparent and fixed plan built into the code itself. And whereas cash is not usually sent by mail (transmitted over long distances), Bitcoins can be transmitted over the Internet to anyone around the world. Ultimately, though, to fully understand Bitcoin one will need to move beyond the cash metaphor. However, in as much as critics have seen the lack of a single trust-worthy institution as a weakness of Bitcoin, they have overlooked how even for cash a central institution is in practice irrelevant. A payee that accepts Bitcoins is concerned with Bitcoins holding their value and continuing to be accepted as payment. In the end Bitcoin may ultimately fail, but it will not be because people lose trust in any single company, website, institution, or programmer.

Bitcoin and the teological stories people tell

The value of the Bitcoin dropped precipitously this past Sunday from over 17 US dollars to 1 cent on Mt. Gox, the currency’s largest exchange. You don’t know what a Bitcoin is? You are not alone. Judging from the number of articles and blog posts that have appeared across the Internet in the past few days, many more people will learn about Bitcoin now in the wake of the crash. They may read that Bitcoin is doomed, that the death knell has been struck for this experiment in creating an international digital currency. Or contrarily, they may stumble upon the Bitcoin forum and read that the crash will only make the currency stronger, more mature, that the future still belongs to Bitcoin. Without predicting the success of Bitcoin, it is my purpose to call into question the doomsayers to the extent that they presuppose a teleological, and therefore suspect, conception of progress.

Imagine a historically organized exhibit on stores of value and objects used in exchange. In the early displays you would find stones, arrow heads, feathers, beads, and shells. Later on you would find depictions of domestic animals, such as cows, and agricultural products such as cacao. There would also be a display on title deeds and property. In the long history of exchange between humans, a wide variety of objects, real estate, animals, and even other humans (slaves and servants) have been used to accumulate wealth and transfer it from one person and group to another. Coins made from precious metals appear relatively late. Fiat currencies, like the national currencies we are familiar with today, although first appearing nearly a thousand years ago in China, became common only since the 1970s when the latest version of the gold standard was abandoned.

This series of displays representing the evolution of stores of value presupposes another stretching from hunter-gatherers during the dawn of human evolution to large populations organized under the control of states. Arrows and cows, like those exchanged by nomads, have a use value. Even if someone will not accept your arrows and cows as payment, you can use them yourself. Fiat currencies, by contrast, have no inherent value. What economists tell us is that people attribute value to a dollar, yuan, or euro because they trust that they will be able to pay their debts with them or use them to purchase something they need or want. Modern currencies work to the extent that people trust the governments that issue them and the economies in which they circulate.

These evolutionary stories, however, suffer from the same defect that biological evolution has, namely that they are teleological. The 19th-century story about unicellular organisms evolving into fish, and fish into amphibians, and so on and so forth, all the way to monkeys and humans, gives the impression that unicellular organisms had their reason for existence as evolutionary precursors to humans. This, however, is nothing more than an anthropocentric bias. From the perspective of contemporary biology it may very well be the other way around. Judging from the number of unicellular organisms that colonize and inhabit each and every human being (it is estimated that there are 10 times as many bacterial cells in the human body than there are “human” cells), it seems more probable that humans are but elaborate bacterial hosts that serve to broaden the evolutionary success and extend the reach of unicellular organisms than the other way around. The crucial point is that contemporary non-teleological evolutionary theory provides no basis upon which to privilege humans over microbes (or insects, for that matter), no basis upon which to make guarantees about the evolutionary success of humans in the future.

It may not be obvious at first but all three stories function to naturalize the appearance of the last item in the series, and to privilege it above the rest. According to them, humans crown the long biological history of natural selection, citizens and states are more sophisticated than stateless groups, and national fiat currencies, the bills and coins issued by governments, perfect barter and other types of exchange. Regardless of what one might think, however, humans, states, and fiat currencies are not inevitable or necessarily superior developments. They are all results of, and are themselves, contingencies. Not only could have evolution and history been different, but so-called primitive (earlier-appearing) forms persist because they too continue to be successful in certain situations.

So what does this all have to do with Bitcoins? In this post I want to challenge the teleological premise that underlies some arguments against the currency. I have no way of knowing if Bitcoins will succeed in the long term (does anybody really?), but judging from history there is no reason to believe that national fiat currencies cannot in time be accompanied and even replaced by newer currencies. To argue that Bitcoins will not succeed because they do not resemble or function like US dollars, are not issued by a government and are not stored (yet) and traded in federally regulated institutions, is a case of taking the last successful item in a chronological series as the telos, the ultimate endpoint of historical development. To think in this way is a bias that we should work to free ourselves of. In the very least we should be attentive to how situations are fundamentally changing.

A particularly good example of teleological thinking being used to support a critique of Bitcoin is contained in a short opinion piece by a UC Berkeley economist appearing in the Washington Post. Barry Eichengreen begins by giving a brief history of the US dollar, beginning before the Civil War. At that time bank notes were issued and regulated on a state by state basis. The problem, as he sees it, was that “not all states enforced their regulations vigorously.” This caused some notes to be valued and trusted more than others. Newsletters, known as “note reporters”, were published listing “the prices at which different bank notes traded, reflecting the issuer’s good reputation or lack thereof.” With the Federal Reserve, the United States got a single currency and an institution that “regulates the supply of money,” with the power to step in to provide “the exceptional liquidity needed for its smooth operation in turbulent times such as those following Lehman Brothers’ failure.” Bitcoins and other similar propositions are a move backward to the problematic mess that he tells us existed in the United States before the Civil War.

There is a serious problem of scale with this argument. Bitcoins are an international currency. Is Barry Eichengreen suggesting that other national currencies should not exist, that the US dollar should be accepted as the only world currency, and that the Federal Reserve should be put in charge to regulate it? Forgetting this problem, however, his argument is also teleological, and thus should be suspect. Like humans who look at unicellular organisms and can only see evolutionary precursors to themselves, Eichengreen looks back through history and can only sees precursors of the US dollar and the Federal Reserve. He not only ignores other successful fiat currencies, but ignores the fact that local currencies similar to those that existed in the United States before the Civil War continue to exist and may in some circumstances be preferable.

Making the US dollar as the telos of a story told about currencies reduces history to a justification of the present. More importantly, though, it also closes off the future. If the US dollar and the Federal Reserve adequately (in the best way possible) address the problems that have existed with currencies throughout history, then there is no future, except to perhaps marginally improve on the existing system. This is a profoundly ahistorical attitude. Why wasn’t the Federal Reserve and the dollar established before the Civil War in the United States? Couldn’t it be because they were not what was needed at the time? Why didn’t fiat currencies become popular around the world as they are today a thousand years ago when they were first used during the Song and Yuan Dynasties in China? Couldn’t it be because they would have not functioned in Europe, the Americas, or the rest of Asia at the time? Why do some people continue to use cows as a store of value and as a means for transferring wealth today? Couldn’t it be because it is actually preferable to the US dollar under certain circumstances?

The world is quickly changing, Eichengreen is surely aware of the fact. In the past 20 years banks have come to transfer money quickly and easily electronically through the Internet. Internet commerce, facilitated by online credit transactions and services such as PayPal have become widespread. Even the Federal Reserve and the US dollar are not what they used to be. Just 40 years ago, nobody could have foreseen that so much money would be transferred merely as bytes on computers. How then can Eichengreen, and many others like him be so sure that the Federal Reserve and the dollar will continue to play the role that they have?

The Bitcoin market may or may not expand. Just now as I am writing this the exchange that crashed last Sunday, and was shut down, is being opened up again after a rollback. Whatever happens with the currency, however, we can be sure that it will be the result of historical contingencies. It may be that the US government will be able to maintain its monopoly on currencies in the United States during the foreseeable future. Two US senators have requested the Department of Justice to investigate Bitcoin in relation to a website that sells illegal drugs online, and propose a bill that would make the currency illegal. Because of the decentralized nature of the currency, however, it has yet to be seen if the government is capable of completely suppressing its use, should it decide to do so. Even if, however, Bitcoin should suffer from a loss of confidence, not be adopted extensively, or be successfully repressed by governments or financial agencies, does that mean that the Federal Reserve and the US dollar have answered the problem of exchange for all time and all situations?

Flying cars and locking in the future

One problem with progressive thought is that it seeks to lock in the future. I remember as a young child being enthralled by the depiction of flying cars on a cereal box. There is a particular progression by which flying cars appear as but the natural next step. Automobiles give individuals a particular terrestrial freedom of mobility previously unattainable during a period of horses, wagons, trains, and trolleys. Flying cars would expand the freedom of personal mobility in encompassing too the skies, combining terrestrial and aerial modes of transport. With a flying car an individual could travel nearly anywhere they wanted. There was an image on the cereal box of flying cars streaming through the air space over a city.

Thirty years later flying cars are neither any closer to becoming a common reality nor are they still appearing on the sides of cereal boxes. Whatever progress has been made in the modes of personal transport it has not led to flying cars. Certainly, my fascination with representations of flying cars as a young child arose in part because they served as fodder for imagining the world differently. However, in following this particular futurology I was mostly learning what was valued at the moment. People drape the future in the values they hold dearest. I must have learned the lesson well for I remember designing on paper an individual spaceship a few years later that I took great pleasure in reproducing over and over again. An individual spaceship that could be used to go wherever one desired throughout the galaxy was, of course, what I imagined as a self-evident progression in the development of mechanized means of personal locomotion.

In reality, however, there is no necessary progression from the trolley, to the bus, to the automobile. The tendency we attribute to this history, for example that of increasing individual mobility, is artificial and arbitrary. The automobile, as it turns out, limits individual mobility as much as it enables it. I was reminded of this fact just the other day when I directed someone to drive down a one-way street the wrong way only because I am used to walking along that street in that direction. The philosopher Ivan Illich has already more fully developed this argument. There are towns in Europe that used to be close, people would walk easily from one to the other. Now that people walk less, however, are habituated to traveling by car or bus, they are limited by where a road will take them. A town that used to be accessible by walking can now be relatively inaccessible because there is not a road that travels directly to it.

If someone were to do the research, I suspect that the flying cars that I saw depicted on cereal boxes as a child could be related to the publicity campaigns produced by the automobile industry to encourage the adoption of and the use of cars. It is certainly no surprise that I encountered these images on cereal boxes in Southern California. Long before the automobile industry had successfully lobbied politicians and the public to build the largest network of roads, intersections, and highways in the world. To this day it is still the Mecca for a cult to the car, as can be seen not only in the number of car clubs and shows but also the chronic problem with traffic. Looking back, the image of flying cars was but traces of an earlier ecstatic celebration to the automobile as fetishized object. The honeymoon, however, was already over, brought to an end by the energy crisis and the rising concern over pollution.

Somebody will point out to me that flying cars tie into dreams of terrestrial and aerial mobility that can be traced back hundreds if not thousands of years. While this is certainly true, it does not detract from my point that flying cars are principally a tribute to cars themselves, the terrestrial machines that many people fell in love with in Southern California in the 1950s and 1960s. Flying cars, in this sense, were not really about the future at all. Imagining a future populated by these machines was a way of rationalizing the use of the automobile in the present, celebrating the values that led to privileging that mode of transportation over and against others. Can you imagine what it would really be like to have a congested stream of cars hanging over your backyard during a weekend barbecue blocking out the sun and poisoning the air with emissions and noise? No, equipping cars with wings was more in the spirit of depicting the gods or celestial beings with wings, an act of veneration.

Imagining the future populated by flying cars was one way of imagining a future WITH cars. If cars were part of the future, then the place of importance given to them in the present had meaning. Projecting a future technology based on the automobile was not an exercise in creatively opening up the future to technological developments, but a way of locking in that future around a particular technology. If the car was going to be such an important part of life in the future, then there was no basis upon which to question the decisions and investments that had led to extensive dependence on this technology. Seen in this light, through the depictions on the cereal box my own childhood fantasies of travel were parasitized by the automobile.

Obviously this story is not a tragic one. I am not trying to give it more importance than it should have. Today I am quite happy living in a place where I do not need a car to get to work or shop, where I can get most places I need by walking, a bicycle, or public transportation. Southern California, however, continues to be a place where living without a car is nearly impossible. My real point is not about cars at all, but about progress. Progress as the unfolding of a historical tendency always exhibits this characteristic: By locating the present in-between a past and a future that is understood in terms of a particular development, leading from one technology or institution to another, the present is immobilized, and thinking about the future is impoverished. History is in reality discontinuous and contingent. We tell ourselves stories, like the one about cars, to give ourselves importance by imagining that we build on past accomplishments and contribute to a future that stands on our values, institutions, and technologies. In as much as we use these stories to rationalize our decisions, we use them to lock them in, closing off the type of thought and imagination that would key into alternative possibilities in the present and better tune into developments that may lead to values and technologies that don’t fit the self-congratulatory stories we tell ourselves.

Toward a more complete ethic

There is an ethic between Schopenhauer and Nietzsche, between denying the will to live and embracing the will to power, between transcendence and immanence, between asceticism and affirming joy. We could apply to these two ethical systems the Aristotelian principle of the golden mean. The virtuous path lies between the two extremes. As it is written in an ancient book of wisdom, the wise person will hold onto one without letting go of the other.

However, we must also recognize that one ethic comes more spontaneously than the other. Nietzsche recognizes as much when he considers the self-affirming morality of nobles as more primitive, more vitalistic. It perhaps takes the disciplining power of movements like the world’s major religions to form individuals that are predisposed to negate their own wills. Yet, and here Schopenhauer is right, given even the call to asceticism of these religions the majority of adherents still do not achieve transcendence and are driven almost entirely by their wills. This is necessarily so since otherwise the species would not survive. It is in affirming ostensibly one’s personal interests that the goals of the species are realized.

Thus we can use Aristotle again to argue that Schopenhauer gives the ethic that better serves in achieving the good or virtuous life. Like the world’s ascetic movements, it helps guard us against the extremes that our own self-affirming inclinations, no matter how weak, would lead us to if we were to indulge them fully. Assuming, however, that it is not desirable to entirely extinguish one’s own impulse to embrace life, Schopenhauer’s ethic leaves us in the unfortunate position of living in what he calls a penal colony, in a condition where we do out of necessity what we would have ourselves not do.

Nietzsche’s ethic, on the other hand, is useful for those moments when an individual is overly constrained by ascetic principles or moral judgments. It is a breath of fresh air, a liberating force that helps one escapes the life-defeating thrust of slavish moral censure. Human greatness, that which is immanent to this world, is founded on affirmation. Let the weak console themselves with the beatitudes of another world. The strong will create and celebrate beauty in the here and now.

So, we are left with two approaches to the will, one that helps guard against the excesses to which we are lead by our inclinations, and another that would have us affirm what is strong and noble in ourselves. It seems to me that we would do good to hold onto one without releasing the other. They are both ethical tools. We might discover that here one functions best and there the other. Perhaps at times it will be an amalgamation of the two. A more complete ethic would provide us with a means of identifying the relative applicability of these partial ethics and a way to move forward experimenting with mixtures.

Just our parents in different circumstances

We spend half our lives believing that we will be exceptional. We tell ourselves that it is just a matter of adopting a few simple principles or perspectives. It is not so much that we think we are better than our parents, but times have changed, we have knowledge, technologies, and enjoy privileges that they didn’t have. Certainly in many cases it was our parents themselves that instilled in us this belief. Now we spend the second half of our lives learning how truly unexceptional we are.

Through a few transpositions effected on the intelligence and character of one relative or another we can derive our own. If we are different than our ancestors and peers it is only due to this or that circumstance or opportunity beyond the direct control of the parties involved. Perhaps it is true as some philosophers have suggested that the purpose of life is but for us to learn just to what degree our movements are hemmed in and determined. Striving toward exceptionality is to imagine lifting ourselves up and away from the masses. But even this is an individuated gesture belaying a general impulse. Isn’t it true that the more an individual is possessed by the desire to be extraordinary the more they enact the designs of the species? We could think here of the peacock.

Back to a mixed economy

Economist Brad DeLong gives a short intellectual history of economic paradigms in the United States. In the nineteenth and early twentieth century there were the laissez-faire economists. With the arrival of the Great Depression and World War II in the thirties, however, it became quite evident that the government needed to participate more vigorously in managing the economy. John Maynard Keynes brought a dose of reasonableness to the field with his theory of a “mixed economy” in which governments dampen recessions and increase levels of employment through fiscal policy.
Beginning in the seventies, however, laissez-faire principles had their revenge with Milton Friedman.
Friedman proposed that with one minor, technocratic adjustment a largely unregulated free-market would work just fine. That adjustment? The government had to control the “money supply” and keep it growing at a steady, constant rate-no matter what. Since money was what people used to pay for their spending, a smoothly-growing money supply meant a smoothly-growing flow of spending and, hence, no depressions…
However, as we are seeing today, keeping the money supply growing is not entirely under governments’ control. Adjusting interest rates and regulating the printing of money is not enough.
When banks and businesses and households get scared and cautious and feel poor, they take steps to shrink the economic reality that is the “money supply.” Businesses extend less trade credit. Credit card companies cut off cards and reduce ceilings. Banks call in loans and then take no steps to replace the deposits extinguished by the loan pay-downs. Without a single bureaucrat making a single decision to slow down a single printing press, the money supply shrinks—disastrously in episodes like the Great Depression. Thus in emergencies, to say that all the central bank has to do is to keep the money supply growing smoothly is very like saying that all the captain of the Titanic has to do is to keep the deck of the ship level.
It was not possible to ward off the current recession by adjusting interest rates and printing more money.
So increasingly over the past year, the central ministries of the globe have taken extra measures: they have guaranteed debts, they have partially or completely nationalized banks, they have forced weak institutions to merge with stronger ones, they have expanded their balance sheets to an extraordinary extent. And yet this, too, has not been enough.
There is nothing else to do than to return to a more reasonable “mixed market” approach. Monetary policy must be combined with strong fiscal policy.

Economic progress and the middle class

Apparently, economic progress rides the tails of a middle class that spends. This insight is often attributed to Henry Ford. He reputedly gave his workers relatively higher wages so that they could afford to purchase the automobiles they labored to make.

Last Thursday in the New York Times, Bill Clinton’s former secretary of labor Robert Reich wrote an Op-Ed claiming that the reason that the United States’ economy continues to sputter is because the middle class no longer has the means to spend. The average male worker in the US earns less, when his wages are adjusted for inflation, than he did thirty years ago.

Over the past three decades, the economy continued to grow because the middle class found ways to increase their spending even though wages had essentially stagnated. First, women increasingly entered the workforce contributing to households’ disposable incomes. Second, men and women worked more hours than before. And finally, households got into debt in order to be able to keep on spending.

If the growing economy did not result in increasing middle-class wages (not in real terms), then who was benefitting? The rich were. This is a problem because the rich do not spend like the poor and middle class do. Henry Ford and his wealthy friends were not going to buy up all of the automobiles that were built in his factories.

Spending is the true motor of economic growth. Investing (or saving), what the rich often do with a significant portion of their money, only functions if others are spending. Economic growth will continue to be meager, argues Reich, until middle class worker once again have the means with which to spend.

Why is it that Canada has weathered the recession better than the United States? It certainly has something to do with the tighter regulation of banks north of the border. Following Reich’s arguments, I would suggest that it also might have a lot to do with the fact that in Canada the middle class is comparatively a lot stronger than it is in the US.