Cryptocurrencies may be yet another in a long line of failed attempts to establish new kinds of money, Robert Shiller wrote on the Project Syndicate’s website this week. Shiller, a Nobel prize winner who popularised the cyclically-adjusted price/earnings ratio as a measure of market valuation, and is famous for his warnings about both the US housing market and dotcom bubbles, notes that “attempts to reinvent money have a long history”.
Examples include Josiah Warner’s “Cincinnati Time Store”, which opened in 1827. It sold merchandise for “labour notes”, which were backed by “units of hours of work”. It shut down just three years after it launched. A similar experiment launched in London a couple of years later by social reformer Robert Owen failed, too. During the Great Depression, economist John Pease Norton proposed a “dollar backed not by gold, but by electricity”, which also failed.
“Each of these monetary innovations has been coupled with a unique technological story,” Shiller notes. “More fundamentally, all are connected with a deep yearning for some kind of revolution in society.” Cryptocurrencies are no different, he said. They were introduced by “entrepreneurial cosmopolitans” who “hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war”. The air of mystique around these innovations – not to mention the fact that the means by which money itself derives its value is nebulous and faith-based – also helps the ideas to gain traction, at least in the initial stages. For example, says Shiller, “practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity.” Yet devotees beware. “None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough.”