Friday, April 12, 2013

Currency, anonymity, privacy, and the state

I've been reading a lot about bitcoin lately, and I just heard about Ripple. (Click on Buce's other link too.)

I might or might not post something more coherent and elaborate, but for now, I have a few random thoughts on the subject of stateless/anonymous currency.

First, it should be obvious any means of payment that can be used privately can be used illegally, i.e. for fraud, money laundering, and payment for illegal goods and services. The only reason to avoid the scrutiny of the state is do something the state considers objectionable. Obviously, there's no guarantee that what the state considers objectionable is something that the people consider objectionable. However, unless you're an anarchist, the solution is not better money but a better state.

Nothing is truly anonymous, and, as Karl Denninger, BitCoin is not anonymous. If we grant the state any legitimacy, then it has the power to defeat any attempt at anonymous transactions, including transactions in physical cash. All we can do is make it more difficult to ascertain the identity of those involved in certain kinds of transactions. Cash or BitCoins, you oppose the state at your own risk.

If you don't like state currency, and you have no intention to do anything objectionable to the state, it is legal in most countries to hold physical gold. Nothing stops you from holding your wealth in gold if you believe gold is a more stable store of value than currency, private or public bonds, equities, or other socially-constructed contracts.

Money is the relationship of the state to the economy. Money is the fundamental public good that the state provides, and only a state can provide money as money. (People can, of course, still barter, but even gold-as-commodity is, by definition, a commodity, not a money-thing. It is only by the action of the state that anything, including gold, can serve as a money-thing.

Money is a tool; it is an instrument of the will of individuals, groups, organizations, and institutions. One of those institutions is the state. It is nonsense to assert that anyone or any institution, the state included, has an a priori or objective "obligation" to use a tool in a particular way. If you want me to do something, you waste your time asserting I have moral obligation; you can succeed only by making it somehow in my interest to do what you want me to do. Likewise with the state. If you, like Denninger, want the state to contract the money supply in an economic contraction, you must show that it is in the interest of the state, or in the public interest, to do so. (I'm not sure that Denninger is substantively wrong: it might be the case that it is in the interest of the state or public to stabilize the currency in some sense. His moral argument, however, that the state has an obligation to do so in return for its privilege of seigniorage during an expansion, fails to be persuasive.)

As I've noted before, I don't think anarchism in the literal sense of "no state", is possible or desirable. In the sense that it means "no relations of subordination," I also disagree; I think that in many (but not all) things, the individual should be subordinate to the majority, because, paradoxically, it is in the broad interest of most individuals to subordinate themselves to the majority. Needless to say, this idea requires more elaboration. Money represents the ability for an individual to demand goods and services from the society, therefore for it to be money-as-money (and not merely barter, which is not demand), money has to be socially constructed. Because money is the quintessential non-excludable, non-rival public good, it requires the use of violence to marginalize free riders.

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