Crypto-currences and production

Electronic/crypto currencies are a fascinating comment on value, the way production is shaped and an insight into financialisation of the world. in previous eras (let’s say 1500 – 1950, the era in which classical economics was dominant), price was a representation of the work that had gone into creating something: if a pair of shoes cost y dollars, that represented a certain number of hours of work. Similarly for a car that cost 200 times y dollars, or a house that cost 10,000 times y dollars – not only would the cost of the car be 200 times the cost of the shoes, so would the approximate hours needed to create it. There was a definite and somewhat fixed correlation between price (exchange value) and utility (use value) [1]. This has been smashed in the last 50 years, with increasing mechanisation which has reduced the amount of labour t produce anything to near zero. In parallel, there has been a rise in the use of financial instruments including futures, collaterised debt obligations, credit default swaps and derivatives. The prices of these instruments change, go up and down in a self-referential manner; their prices no longer represent the usefulness of them [2] but of socially-agreed upon importance (between traders and owners of these instruments anyway, ordinary people aren’t permitted to intervene, through price-based discrimination). The end results of this collective hallucination is a herd mentality, including tendencies towards panic and fear, then a huge drop in the price of the instruments as everyone tries to sell them. The 2008 crash is a prime example of this, but it has happened many times in the last 40 years, see also the Asian Financial Crisis of 1997 [3]. This idea of price being based on belief entirely blows apart Adam Smith’s idea that selfish behaviour by individuals would produce increased wealth for everyone:

“The rich…are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society…” [4]

So, what’s this got to do with crypto currencies? Well, there is an identical complete detachment between price of the currency and useful production. The currencies have a price, some number of dollars, but “mining” (a title which is nothing more than a manipulative attempt to link them to something useful, something tangible as if the process is searching for something useful) them creates nothing of any value, does nothing for anyone else. In fact, the mining destroys value – it uses electricity, creates carbon emissions, uses resources to create the computer along with the other knock-on effects of building, transporting, using and disposing of the components, not to mention further enslaving some workers in China who have to make the components in terrible conditions. In Smith’s terms, it is selfishness which only benefits the individual undertaking the act, there is no “promoting the happiness of mankind”.

It’s an interesting insight into why “building wealth” in the current era is at best utterly useless for most of us, at worst actively damaging. That wealth never reaches us, only piles up against us, making us less and less relevant, less and less powerful.


Leave a Reply

Your email address will not be published. Required fields are marked *