Why Bitcoin is just not a socialist’s ally: Reply to Ben Arc – DiEM25


On 15th July, Ben Arc printed in Bitcoin Magazine an open letter addressed to me in a bid to persuade me that I ought to reassess my rejection of Bitcoin as a power for good; as a bulwark for democratising capitalism and paving the bottom for socialism. Here is my reply.
Dear Ben Arc,
Thank you on your open letter and your efforts to carry a socialist perspective to bear upon my evaluation of Bitcoin.
In my reply under, I shall handle you as a fellow socialist, moderately than put collectively a reply meant to handle all kinds of various views (e.g. Keynesian, Hayekian, neoclassical).
As you already know, I’m a type of who, again in 2011, had been genuinely intrigued, fascinated even, by the exceptional blockchain algorithm. The prospect of a decentralised ledger managed by its group of customers was mesmerising.
As you additionally know, I used to be unimpressed by Bitcoin as a substitute for fiat cash that’s both possible, or certainly fascinating, below our present capitalist predicament.
Having learn your open letter, I stay as enthusiastic on blockchain’s capacities and as unimpressed by Bitcoin’s potential to assist us both civilise or (as any socialist desires of) transcend capitalism.
Two propositions assist this view. In the hypothetical case the place Bitcoin had been, below presently-existing capitalism, to exchange fiat cash: (1) It would lack the mechanism essential to cease capitalist crises from yielding depressions that profit solely the ultra-right; and, (2) Its community-based, democratic protocols would do little to democratise financial life.
I shall clarify my two propositions briefly under. But, earlier than you despair (at my continued damaging tackle Bitcoin), let me foreshadow the concluding sentence within the Epilogue under: Once (and, in fact, if) socialism dawns, cash must be based on a distributed-ledger, financial commons enabling expertise.
In different phrases, I shall argue that Bitcoin is just not match for goal below capitalism, or as a automobile towards transcending capitalism, however one thing like Bitcoin will characterise financial programs in a future world free of personal banks and share markets.
OK, let me now assist my two propositions:
Proposition 1: Bitcoin lacks the shock absorbers mandatory to stop capitalist crises from doing untold injury to the working class.
Consider the Crash of 2008 or the more moderen 2020 Covid-19-induced disaster. Suppose that Central Banks didn’t have the capability immediately to create trillions of {dollars}, euros, kilos and yen — and as an alternative needed to depend on a spontaneous majority of Bitcoin’s customers to agree to an enormous improve within the provide of cash. The outcome can be a 1929-like collapse of banks and companies.
While socialists would shed no tears for the tragedy of the oligarchy, socialists ought to beware {that a} 1929-like systemic collapse is sure to strengthen the forces of the ultra-right — not of the socialist left (that has been, since at the least 1991, languishing within the doldrums of political paralysis).
Technically, there’s in fact nothing that might forestall the Bitcoin group from agreeing immediately to even a doubling of the cash base. However, the Tragedy of the Commons ensures that Bitcoin homeowners can be topic to the standard prisoner’s dilemma dynamic that forestalls the increase within the cash provide essential to avert the liquidation of probably viable companies and jobs. Moreover, this free-rider drawback is made far, far worse by the truth that Bitcoin possession may be very unequally distributed, thus giving the Bitcoin-rich highly effective incentives to restrain the expansion of the cash provide (since such restrictions would increase their non-public rents on the expense of the general public curiosity).
In brief, the free-rider drawback that ensures the maximal reinforcement of any capitalist disaster (in any economic system counting on Bitcoin as its foremost foreign money) can be turbocharged by the unequal possession of Bitcoin – which is unavoidable in any financial system overlaid upon modern capitalism.
Proposition 2: Under capitalism, Bitcoin’s dominance won’t democratise financial life — or give socialism an opportunity.
Suppose, once more, that some magic wand is waved and Bitcoin replaces fiat cash below modern capitalist circumstances. In different phrases, as Bitcoin changed {dollars}, kilos, euros and yen, property rights over land, sources and machines stay as they’re whereas non-public fairness corporations and pension funds proceed to personal the majority of shares buying and selling in Wall Street, the City and so on. All that may have modified is that Central Banks will vanish and the group of Bitcoin customers will decide the worldwide cash provide (topic to the free-rider issues talked about above).
At the agency degree, nothing may have modified. Jeff Bezos will nonetheless management an enormous monopsony-cum-monopoly, Facebook will nonetheless personal the entire market inside its platform, Exxon-Mobil will proceed to lean on weaker creating nation governments to drill for oil and gasoline that needs to be left within the Earth’s guts and so on.
And what of personal banks? They would, make no mistake right here, discover methods of making advanced derivatives primarily based on Bitcoin – derivatives that may quickly (similar to Lehman Brothers’ CDOs previous to 2008) perform as shops of worth and technique of change; i.e. as non-public cash. Massive bubbles denominated in Bitcoin will construct up and they’ll burst simply as they did within the 19th century below the Gold Standard. And then?
In the absence of Central Banks and with the Bitcoin group within the clasps of the aforementioned free-rider drawback, melancholy will comply with – because it did earlier than the Fed was instituted within the US. Thus, the tragedy talked about in Proposition 1 above kicks in.
In brief, not solely will the democratisation of cash by way of Bitcoin fail to democratise capitalism however it should additionally give an almighty increase to the forces of regression.
Bitcoin’s nice enchantment is that it breaks the cronyist chain linking central banks and personal bankers. However, it doesn’t undermine the cronyism of the community of bosses, politicians and personal bankers.
Lest we neglect, 19th Century bimetallic America additionally lacked a central financial institution. Under the gold and silver requirements, the general public cash provide was fastened — and couldn’t be simply manipulated by the state (both the federal government or the, then non-existent, Fed). But that didn’t cease non-public bankers from leveraging public cash out of skinny air to create big portions of personal cash with which to fund the Robber Barons, i.e. the Jeff Bezoses, of the period.
In this sense, changing fiat cash with Bitcoin would take us again to a postmodern model of 19th Century America — not precisely a prospect socialists ought to go to the barricades for.
In abstract, the financial system is just like the canine’s tail. It can’t wag the capitalist canine, within the sense that democratising cash via a financial commons won’t democratise financial life however, moderately, make capitalism uglier, nastier and extra harmful for humanity.
Having mentioned all this, a financial commons (that will very nicely depend on one thing just like the blockchain underpinning Bitcoin) will, I’ve little question, be a vital facet of a democratised economic system; of socialism.
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