Every time I hear a report about cryptocurrency I feel depressed. Here’s why.
Currencies, including cryptocurrencies, are commodities. Under capitalism commodities derive their value from abstract labor time. Abstract labor time is not reducible to the specific labor spent producing a specific commodity. Abstract labor time counts labor too as a commodity, a commodity whose value in each specific instance takes its value from the other commodities for which it can in turn be traded. Abstract labor time is not aggregate labor time, but labor time irrespective of the specific labor performed or product produced. Its value arises from and is shaped by all of the trades among commodities within an integrated market. Since currencies too are traded within these markets, their values are calibrated to the values of all the commodities against which they are traded, including cryptocurrencies.
But individuals and institutions that trade in cryptocurrencies either feign ignorance of the underlying values of cryptocurrencies as commodities or, more likely, they are genuinely ignorant. Which means they represent that cryptocurrencies are just like official currencies, but without political interference, i.e., regulation. They are not. Here’s why.
Both cryptocurrencies and official currencies are commodities. It is also true that some currencies behave like cryptocurrencies. That is, some currencies hold values not pegged to aggregate wealth within an integrated market. In healthy economies, however, the currency is exactly equal to the aggregate wealth within the economy. This means, for example, that decreasing the volume of notes by half doubles the value of notes in circulation. Those notes are still equal to the aggregate wealth, even though their volume has been halved.
The same cannot be said of cryptocurrencies, which, like official currencies, are commodities, but not the universal commodity; i.e., the commodity exchangeable for any other commodity within an integrated market. Moreover, no currency can ever achieve this status outside of a rigorous regulatory apparatus. (If you don’t believe me, go back to your high school history textbook and read the section about the failure of US currencies (there were many) between 1783 and 1887.) So, why do so many smart people fall for cryptocurrencies?
Doubtless part of it can be chalked up to the hope that they will cash in on a bullish market. Some investors have. And part of it can also be chalked up to not exactly grasping what a currency is. But there is a small, yet loud and influential minority who more or less consciously hate the 1887 US Constitution, the Constitution that handed the regulation of the US currency over to the federal government; that authorized the federal government to regulate interstate commerce; that placed states and their constitutions under the authority of the federal government and its Supreme Court. When this small, but influential minority pillory the “nanny state,” they are lining up behind the anti-federalists, the folks who opposed the 1887 US Constitution, primarily because they felt it endangered their rights to “private property,” i.e., slaves, but also because they believed they could do better by doing it alone. That is to say, they were anti-republicans (they were against res publica, the wealth we hold in common; i.e., commonwealth).
Anti-federalism and anti-republicanism very nearly sank the US republic during its opening decade. They were based on many of the same myths as militant defenders of cryptocurrency.
Cryptocurrency is a commodity. Its value is whatever it can be traded for within an integrated market. Today it commands some fraction of this market’s abstract labor time. Today it can be traded for some small fraction of its wealth. But it is by no stretch a universal equivalent. Nor do its defenders want it to be.