Cryptocurrency, mercantilism and authoritarianism
This week on Facebook: The rise in value of cryptocurrency may be likened to an economic bubble but it is a bubble created as a result of government debts using fiat money. Last week I wrote about cryptocurrency bubbles and money and four weeks ago about the rising cryptocurrency, which led me to conclude that this is more than a speculative bubble. The rise of cryptocurrency is likely to have far reaching consequences regarding today’s governments and the money supply it attempts to control.
All the hubris, heroism, self-sacrifice and venality we perceive in our modern politicians and royals are to be found in abundance here, as Goodwin combs the archives for the gossip and glamour which inevitably attached to those monstres sacrés, Ferdinand and Isabella, Charles V and Philip II, or their rivals, Henry VIII and Francis I. Spain: The Centre of the World 1519-1682
Present day maladministration of fiscal policy is comparable to that prevailing at the momentary prosperity and glittering power of Spain in the sixteenth century. The Good fortune that literally dropped the riches of Mexico and Peru into the laps of Spanish Royalty not only made Spain the first truly global empire but also led to its decline. An age of glorious decay, as opposed to the sudden and continuous rise afforded by the Conquistadors. Reflected again in today’s declining First World economic hegemony, brought about by the maladroit application of fiscal policies relating to the fiat money that dropped into their laps post Bretton Woods.
The new found wealth of sixteenth century Spain was fuelled almost completely by the influx of silver and gold from the Spanish colonies in the New World. This increase in bullion enabled the Spanish to purchase and enjoy the products of the rest of Europe and Asia, until the price inflation it induced led to the economic collapse of Spain. Sixteenth century Spain was not impoverished by the influx of bullion from the Americas, nor was this a failure of mercantilism, rather it was (in a large part) due to a failure in taxing the already wealthy bourgeoisie and an economic mismanagement that led to government debt. The great wealth of Spain occurred in an age mercantilism, which was a government economic policy that promoted the regulation of a nation’s economy for the purpose of augmenting state power at the expense of rival national powers, a policy in which the desires of empire inevitably lead to an economic failure.
Modern monetary systems make the wealth of any government difficult to assess and the exchange rate of the fiat money it uses makes it subject to constant speculation on the financial markets. The value attributed to a government’s fiat money on the Global trade and the currency market can severely impact on a government’s plans for economic growth. The global trade of Spain in the sixteenth century and its economic consequences have many facets and rationales in common with today’s financial markets, not the least of which is government debt. The rulers of sixteenth century Spain were no more free of the international financial markets than are today’s governments.
Today’s government debt is created with fiat money and deficit financing that hold out the promise of unrestricted government wealth, as did bullion from the Americas in sixteenth century Spain. Fiat money and taxation is now taken by a government to represent a Potosi mine holding a limitless supply of silver. Present day government debt is very much like that of sixteenth century Spain which, despite the influx of bullion, incurred debts, defaults and austerity due to mismanaged fiscal policies¹.
The present global scramble for economic growth is fuelled by mercantile beggar thy neighbour fiscal policies, in which an increasing government debt is premised upon future economic growth financing it. This global scramble has within it visions of declining economic empires and fears of rising economic empires, such futuristic visions leading to an economic reality that may not be wished for, just as in sixteenth century Spain.
It is today’s government debt that has giving rise to cryptocurrency and government authoritarianism that seeks to control it.
Monday 10/7/2017 Mercantilism in Spain: In the short run, the influx of bullion provided a means by which the Spanish could purchase and enjoy the products of the rest of Europe and Asia; but in the long run, price inflation wiped out this temporary advantage.
Tuesday 11/7/2017 Keynes and Rothbard Agreed that Today’s Economics is Mercantilism: All of today’s premier economic policies, notably monetary manipulation and floating fiat currencies, attempts to “manage the economy” via government deficit spending, and the never-ending concern over “imbalances” in trade, are straight-up Mercantilism.
Wednesday 12/7/2017 All that glisters… Finding an article that included a simple link to cryptocurrency in support of my analogy linking sixteenth century Spanish bullion to modern mercantilism and the desire of a sovereign power to maintain authority over its fiat money was difficult. I eventually concluded that I had write my own.
Thursday 13/7/2017 Known unknown: But crypto-currencies are not only competitors. They represent different trade-offs between security, complexity, performance, cost and other factors, so each is likely to find its niche. They are also a case of co-operation: since their software is open-source, developers can easily learn and copy from each other.
Friday 14/7/2017 Cryptocurrency might be a path to authoritarianism: Bitcoin is an expression of extreme technological libertarianism. This school of thought goes by many names: anarcho-capitalism (or ancap for short), libertarian anarchy, market anarchism. Central to the philosophy is a distrust of states in favor of individuals. Its adherents believe society best facilitates individual will in a free-market economy driven by individual property owners—not governments or corporations—engaging in free trade of that private property.
¹Sixteenth Century Spanish Fiscal Mismanagement and Debtor Emperors: An Economic History Review of Spain under Charles V in 1528 and under Philip II in 1575: In this story, Spain’s rise to power in the sixteenth century is attributed to the wealth found in its monopolies in the Americas, which fuelled massive expansion of its military might. Yet, the bold obviousness of the New World monetary windfall often prevents recognition of the fact that, by the turn of the sixteenth century, Spain was already well‐poised in the European political landscape to become the region’s most powerful nation. Moreover, Spain was equally poised for downfall long before its glory could be enjoyed.
Having — at least for the time being — exhausted myself with articles on cryptocurrency many questions on the subject remain with me, some of which are:
- What if the reserves of gold, presently held by a government, are replaced or supplemented by a cryptocurrency?
- What if the cryptocurrency held by a government is data mined exclusively by that government?
- What if a cryptocurrency has no global value if the blockchain that creates it is withheld?
- What if data mining for cryptocurrency is limitless?
- What if a blockchain that generates cryptocurrency gets hacked?
My shills keep telling that the end of money is nigh — by that they mean that officially issued national currency consisting of notes and coin is ending. I think that they are right.
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