Bitcoin: What Would Marx Think?
We have heard all kind of things about Bitcoin. There is even someone who has dared to say that Bitcoin was an alternative to the current economic-political structure and that for this reason Marx would have liked it (‘Bitcoin and Marx’s Theory of History’, Kenny Spotz, Bitcoin Magazine 26, July 2014). Oh dear!
Let us see whether Marx would have liked Bitcoin or not. Bitcoin is a ‘cryptocurrency’, ie a digital encrypted means of payment, safe, until hacked of course. According to Marx, the only alternative to capitalism is a society based upon common ownership of the means of production and products, a society with no profit and no money, not even crypto or funny ones.
Marx analysed extensively the nature and function of money in the capitalist system. This can be found in the first section of the first volume of Capital. Let us brush up on a few concepts from it.
Anything that is able to satisfy a need has a use-value, which is a utility, a particular quality. But when we look at the exchange of two things and their qualities, for example two chairs and 0.3 ounces of gold, their various use-values are not the driver for the exchange; what matters is some measurable common quantity. In the exchange, these two things become commodities and their values become exchange-value. As for the example, the 2 and 0.3 are the exchange-values. Yet, if we were to look at it from the utility point of view, the two chairs should be more useful than the 0.3 ounces of gold (let’s say a golden ring).
But who or what decides that two chairs are worth only 0.3 ounces of gold, rather than 20 ounces, or 0.1 ounce? It is because the average amount of human labour in a society needed to produce two chairs and to extract 0.3 ounces of gold is the same. Thus, two chairs as well as 0.3 ounces of gold can be exchanged with each other, as with 8,000 apples, or 4 pairs of shoes. Every commodity therefore has equivalents, reflecting the average labour time spent on producing them from start to finish. By convention, historically, the universal equivalent form was attributed to a precious metal, gold or silver, as money-commodity, as the currency, which in itself embodied a standard of labour time in the same way and allowed all other commodities to be measured against it.
Marx sums this up in a clear example:
‘Could commodities themselves speak, they would say: Our use value may be a thing that interests men. It is no part of us as objects. What, however, does belong to us as objects is our [exchange] value.’
‘Gold [meaning here as money] … serves as a universal measure of [exchange] value.’
In origin, money was a commodity, the precious metals gold or silver, for their property of lasting through time and their divisibility; their exchange-value was determined by their weight. At some point in order to allow smaller scale exchanges, other metals such as copper were used as tokens, substitutes for gold or silver coins. Even gold and silver coins were subject to wear and tear, thus their value became more and more conventional and less and less connected to their weight. This paved the way for a purely conventional currency as paper notes. Paper by itself is of little exchange-value, but conventionally notes are worth £20, £50, £100, etc. In Marx’s time Bank of England notes were redeemable in gold. The Bank, to which the state had given a concession to print paper notes, had to have in its safe the same amount of value in gold.
As Marx said, ‘Coining, like the establishment of a standard of prices, is the business of the State.’ Furthermore,
‘Only in so far as paper money represents gold, which like all other commodities has value, is it a symbol of value.’
One by one, governments around the world decided to stop their currency’s convertibility to gold, making them fiat currencies. Fiat stands for let it be. That is to say, money with no gold convertibility obligations.
So today, a central bank, that can print banknotes under the state’s concession, can create money out of thin air, increasing the chances of inflation.
Let us go back to the cryptocurrency, though, and how Marx would see it.
It is quite possible to create a ‘cryptocurrency’ out of thin air; it is all a question of convention. To become a real currency, the state would have to recognize it. In most of the world’s countries, but not all, bitcoins are legally recognized but only as a private currency. Importantly, the inventors of Bitcoin set a limit on the number of bitcoins (21 million) and this scarcity, combined with other advantages, gave it some attraction. The major other advantage is that Bitcoin guarantees anonymity, ideal for those interested in tax evasion, gambling and money laundering. Moreover, purchases are not taxed. Bitcoin does not require so many intermediaries and therefore should have lower transaction fees. Businesses can even raise money, by means of Bitcoin, with no formal stock exchange listing. Yet, these advantages do not explain the steep increase in its price.
Chicago Mercantile Exchange, the world’s largest derivatives exchange operator, is planning to start offering Bitcoins trading. This has helped make the speculative Bitcoin bubble bigger than the dot-com one of the late 90s. At the time of writing, in December, bitcoins were worth about $15,500, already on a descending phase, from a peak of about $18,000. What was it going to be worth the next day, $10,000, $500, $1? Investors were buying bitcoins because they expected somebody else to buy them, and so on. They hope for a ‘greater fool’ to buy from them, as the Economist (1 November) put it. Clearly, despite what the Bitcoin community say, this is not a currency adequate for buying everyday goods, but it has proved ideal for a huge speculative bubble, surely not a step towards the future of human evolution.
Marx would not think that Bitcoin was a good currency, because it is not a stable form of universal equivalent. Marx would equally think that neither the dollar nor any other fiat money was a good form of universal equivalent, since fiat money is fictitiously sustained by the state and when issued in excess leads to inflation. Marx would not think that a currency, invisible because digital and encrypted, was intrinsically a step forward or could change the social order. Capitalism can be surpassed only by a system where the means of production and products have become the common property of the whole society, and access to them completely free. A society where gold would not be the universal form of equivalent, nor any other type of money.