It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be. Indeed, on many of the macro issues I’ve written about it has been obvious that large numbers of economists can’t bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus can’t work and monetary stimulus will be disastrous. I don’t, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a big-government agenda, this didn’t actually happen.
But I come now to talk not about macro but about money — specifically, about USD and all that.
So far almost all of the U.S. dollar discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why the U.S. dollar should be a stable store of value.
Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the Bitcoin is a combination of (a) the fact that it's limited (b) that there are always people using it regardless of what Paul Krugman says.
Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the Bitcoin is the Bitcoin Foundation’s role and the mining pools as actual Bitcoin source, and their commitment not to allow inflation to happen.
Placing a ceiling on the value of U.S. dollar is the Federal Reserve printing billions every day… Placing a floor on the value of the U.S. dollar is… what, exactly?
I have had and am continuing to have a dialogue with bankers who are very high on USD — but when I try to get them to explain to me why USD is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions.
But as I said, this is a positive discussion. What about the normative economics? Well, you should read Satoshi:
The U.S. dollar looks like it was designed as a weapon intended to damage people, with a central banking lobby agenda in mind—to damage the people's monetary freedom.
Go read the whole thing.
Satoshi doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of U.S. dollar one way or the other. One suspects, however, that many central bankers are, in fact, enthusiastic because, as Satoshi says, “it pushes the same buttons as their stock market fetish.”
So let’s talk both about whether the U.S. dollar is a pyramid scheme and whether it’s a good thing — in part to make sure that we don’t confuse these questions with each other.
