Changing conceptions of money, with musings on cryptocurrency (not innovative, just stupid): Part III of Revisiting the Baroque Cycle, by Neal Stephenson

 After a particularly long-winded post yesterday, I think I'll try to keep it on the shorter side today.  While... writing about Neal Stephenson.  Yeah, that makes a kind of sense that doesn't.  Anyway, let's get back to my other ongoing series.  I have been revisiting Neal Stephenson's Baroque Cycle lately, which was a great read the first time around, and has only gotten more timely, which is ironic for historical fiction taking place in the late 17th and early 18 Centuries.  But hey, that's Neal.  Anyway, my original intent when I thought about going back to the series was to think about a world in transformation.  We currently live in a world in transformation, and Stephenson chose to novelize the Enlightenment period.  To the degree that a trilogy of novels can have a thesis, it would be this:  our world was set on its course through the Enlightenment, so via strange-but-true, and funny-but-false tales, Stephenson muses on everything from "natural philosophy" to language to economics to show how we got from there to here.  Essentially, the point is to show that the mid-17th Century was a dramatically different world, but the transformation was so rapid during the Enlightenment that it's just a hop, skip and a jump from that point to our world.  It's cool.

And yet, while I went back to these books thinking about our world in transformation, what I find is the Stephenson thesis holding up on this point:  conceptions of money and economics.

Allow me to elaborate.

Yes, our economic world is in rapid transformation.  Blah, blah, post-industrialization, globalization, buzzy-buzzy fuck fuck fuck.  Harrumph.  See?  I can write a Tom Friedman column!

Regardless, I'm talking about concept.

Currency.  Synonym for money, right?  How the fuck did that happen?  Currency.  Current.  That which flows.  Money as a thing which... flows.  That's concept.  That's an Enlightenment concept!  Why do we think about money this way?  We think about money in a very different way from 17th Century people.

Let's turn to Stephenson.

Specifically, Eliza.  I have mentioned her in my posts on the Baroque Cycle, because she is not just a central character, but fucking awesome.  She was picked up by Barbary Coast slavers as a kid, sold to the Turks, and then eventually freed by Half-Cocked Jack Shaftoe, who was, at the time, in the Polish-Lithuanian Army, but he ran away to loot during the Battle of Vienna, where he met Eliza.  Jack and Eliza ran off, first up to Germany and met up with Leibniz, and then to Amsterdam.  Amsterdam is where Eliza basically becomes a stock trader, and starts her rise.

Part of that rise involves recognizing changes in money-- not yet "currency"-- that others have trouble understanding.  For example, she winds up working for France, kinda, and working for William of Orange, and... it's all complicated espionage, but anyway, she has to head down to Lyon, where "money" is weird.  They have a system in Lyon called the depot.  They don't use hard currency there.  Just... ledgers.  Who owes whom money?  Who has an account with whom?  If you want to buy something, you need to be a part of this system-- part of the depot.  Outsiders can't really get in because it is all based on good standing, for obvious reasons, but outsiders also look at this, in the era of metal-based money as... what the fuck?!  You mean, you just say I have money?  And I don't actually have any fucking gold?  Huh?

Obvious point:  how much gold do you have stored in your home?  Or, does the bank just say you have money?  (Oh, and Stephenson does go through the origin of the "banca," but I'm skipping over that, because it doesn't make my point for the morning.)

And how much is a coin worth?  The value of the metal?  If so, you'd weigh a coin, determine its composition, and that would be necessary for trade.  Like... in the 16th Century.  That's not really how we do things anymore.  Why not?

So here's the thing.  It's actually something that kind of started as a scam.  Call back all the coins.  Take a cut, literally, and re-mint/re-issue them at the same face value, telling people, based on the stamp of the coin, that they're worth the same thing, even with less metal, so that nobody lost any money.  The government makes money by the cut of the metal they keep, so have fun, Louis!  As long as everyone just collectively agrees to take the money at face value... yay!  We call this "seigniorage."  Hop, skip and a jump to fiat money.  This money has the following value because we say so.

Because we say so.

Because we say so.

And as long as everyone accepts that, everything's fine.

Confidence.  Everything comes down to the confidence people have in whatever form of money there is.  This is in no way new, and it brings us to the ultimate plot in the final book, The System of the World.  Basically, Louis XIV wants to bring down England, 'cuz.  England and France.  By this point, Jack has been off traveling the world, getting mixed up in piracy 'n stuff, and he's kind of famous.  Louis hauls his ass into a palace and says, OK, here's the deal, asshole.  You work for me now.  Go bring down England.  Do it by bringing down their money.

This, around the same time that Newton gets put in charge of the English Mint.  So, Half-Cocked Jack Shaftoe becomes a forger, not to get rich, but to fuck with England, because if there is forgery run rampant, amid all of Newton's attempts to prevent it, then confidence in their money will plummet.

And if England's status as a world power at that point is based on trade, the benefit redounds to France.

There's a lot more going on here, having to do with alchemy, Solomon's Gold, and some very crazy shit, but let's stick to concepts of money.  Confidence in the unit of currency.

This built England, by Stephenson's telling, and were it to fall, it would take England down, because money ceased to be merely metal.  It became fluid.  Like... well, quicksilver.  Get it?

OK, so historians could comment on how many liberties Stephenson took, with answers ranging from "a lot" to "a lot, but...," but with respect to the history of money, the language of money, and all that... he ain't lyin'.  He's lying about Jack Shaftoe, Louis hiring this non-existent King of the Vagabonds, and lots of other stuff, but the basics of money and economic history... he ain't lyin'.  I'm trying to work that into a "Lyon" pun, and I can't get there, but give me depot credit for the attempt, please.

Money is currency.  Fluid.  We attribute value... because.  Money is just... numbers on a ledger.  We move numbers around on a ledger, and we change our assessments of who owes what.  Governments can say, "now we have X units of money, because we say so."  There's nothing new.  OK, there's new stuff, but at a basic, conceptual level, you can dig, and find the roots of modern ideas of money and economics in the Enlightenment.  Yeah, Stephenson was digging, and frequently playing fast and loose, but the conceptual roots of modern economics are old.

And of course, this all takes place a few score years before The Wealth of Nations.

Now, I promised some musings about bitcoin and other cryptocurrency.  Bitcoin is still bullshit.

Also, it is not, in any conceptual way, new.

OK, look, I've been telling people that it is a stupid pyramid scheme for years.  By the numbers, here is what happens.  The price goes up dramatically, it plummets, and the cycle repeats.  Its price is higher, even at the troughs, than when it started, but the wild cycles still make it useless, stupid, and bullshit, but I'll return to that.

Anyway, though, when confronted with a bitcoin/cryptocurrency detractor, the bitcoin bug will generally respond with some variation of the following:  well, you just don't understand that all money is arbitrary, and anything can be money if we all agree that it's money!

Um... my point is that this isn't a new idea.

Seigniorage?  Once we're there, it's all just a collective agreement.  Depot ledgers?  How is that different from a distributed ledger?

Oh, right, that Lyon system collapsed, in part because nobody could convert their numbers on the Lyon ledgers to currency that anyone outside Lyon would accept as payment for goods!

Sure, Mr. Threader and the money scriveners fundamentally moved stuff around on ledgers in a way that wasn't that different from Lyon, except that they settled accounts with "hard" currency in order to keep the system compatible with the outside economy, but that just made it a weird form of banking.  Ledgers.  (His schemes were another matter.) 

My point is that the underlying concept, such as it is, ain't new.  There is nothing new about saying, hey, let's use X for currency!  When Jack and Eliza part ways, Jack is getting on a boat that turns out to be a slave trading ship, and Eliza demands that he turn away because she's an abolitionist.  They have a... violent falling out.  What was the payoff for the slave ship?  Cowry shells.  Yeah, those have been used as currency, and there are good reasons to have stopped, but the point is that the defenders of cryptocurrency are arguing with no one.  Or at least, no one educated.

The arguments against the long-term viability of cryptocurrency, as I have made them, have always been as follows.  First, you can't pay your taxes in cryptocurrency, and no functioning government will ever allow you to do so for reasons that should be obvious to anyone who has studied the Greek financial crisis.  Denominate your debt in a currency you control.  Consequence?  It will always be intrinsically inefficient to conduct your transactions in cryptocurrency because you have to pay transaction costs on both ends.  You need to convert your paycheck to crypto as a buyer, and then the recipient has to convert the crypto back into currency that the government will accept in taxable currency.  Both of those exchanges entail transaction costs.  Unnecessary transaction costs.  Therefore, crypto is always going to be intrinsically stupid.  If we (in the US) all just use dollars, no transaction costs, and those assholes trying to collect fees for converting between dollars and bitcoin get precisely nothing from me or anyone doing business from me.  They are parasites who don't deserve any money for their parasitism.

Second, those wild fluctuations in value?  That's exactly what you don't want in a currency.

This is actually part of the story in the Baroque Cycle.  Confidence in currency leads to stability.  If your currency is not stable, you can't have an economy.  If the currency is going down in value-- inflation-- that's bad.  We're seeing some of that now, and it kinda sucks, right?  Of course, this is nothing compared to the 70s and early 80s, much less Weimar or Zimbabwe or some of the real horror stories, but think of it from the comparative currency perspective.  If one currency is going down in value and the other is not, which currency will the seller accept?  That's right, the stable one.  Now, let's say that a currency is going up in value-- deflation.  If you only have one currency, that sucks too.  That's depression territory.  Nobody spends.  And if you have two currencies, from a consumer's perspective, which do you spend?  That's right, the one that isn't going up in value.  Keep the one that's going up in value, and wait because it'll be worth more later.

So no matter what is happening, if the value of a currency is changing, it is useless as currency.  Even if its value is going up.

This is why one of the most important features of a unit of exchange is, as we say in economics, a "stable store of value."  Stable means it can't be going down, or up.  Up is also bad.

If you're just a rovin' gambler, gamblin' all around, you can gamble all you want on this thing called tulips beenie babies bitcoin.  But it isn't the newness I challenge.  It ain't new at all.  It's just stupid.

And remember, every time you see some news story about some schlub who made millions investing in crypto... they aren't telling you the stories of the people who lost everything by buying near high points, and needing to sell near a trough to cover expenses and losses.

The only thing a rounder needs is a suitcase and a trunk, but you probably need a bit more than that.  So plan accordingly, and don't think you can outsmart Eliza.

Music.  Tigran Hamasyan, "Moneypulated," from Red Hail/Aratta Rebirth.