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?