Nobel Laureate Shiller Warns Cryptocurrencies Could Fail Like Other Older Alternative Currencies

Among the alternative currencies that have existed before bitcoin (BTC) came onto the scene in 2009 were the labor notes invented by Cincinnati Time Store’s Josiah Warner in the early 19^th century. At the time the retail outlet was selling merchandise based on hours of work. However, the labor notes were short-lived as the store ceased existing in 1830.

Across the Atlantic two years later there was an attempt in London to establish the National Equitable Labor Exchange which would rely on similar labor notes as a currency where time would be used as the standard of value rather than silver or gold. This was done with a view to enforcing the notion of labor’s primacy. Just like in the case of the Cincinnati Time Store this experiment by Robert Owen failed too.

Electricity-backed Dollar

Per Shiller, there were also experiments with alternative currencies in the 20^th century too. In 1932, for instance, there was a proposal by economist John Norton that the U.S. dollar should be backed by electricity rather than gold. The idea got a lot of attention though Norton could not provide a good reason why electricity should be chosen as the standard rather than gold.

In Shiller’s view, the current digital currencies are similar to the alternative currencies that had been experimented with in the past. And due to the fact that the level of understanding among the general public with regards to virtual currencies was low, this resulted in them being seen as alluring. This is because the aura of exclusivity fills devotees and enthusiasts with revolutionary zeal as well as giving the new currencies some glamor.

Anti-government Stance

Due to their decentralized nature, for instance, Shiller argues that virtual currencies appeal in a big way to libertarians as well as those who view governments as evil and the cause of war and inequality. However, according to Shiller, this is not new and just like with the monetary innovations of the past virtual currencies will not be saved by a compelling story. Shiller is not the first Nobel Laureate to criticize virtual currencies. Other winners of the Nobel Memorial Prize in Economic Sciences include Paul Krugman and Robert Shiller.

Last year in November during an interview with Bloomberg Television, Joseph Stiglitz, the 2001 winner of the Nobel Memorial Prize in Economic Sciences, said that the reason bitcoin had become so popular was that it lacked oversight and it allowed the circumvention of the law. Stiglitz suggested that the virtual currency should be outlawed especially because it didn’t serve any function that was socially useful.

The Nobel Laureate also added that the digital currency was a bubble waiting to burst. At the time the virtual coin had just surpassed the $11,000 mark before it went on to nearly reach $20,000 later in the year. Since the year began the price of the cryptocurrency has fallen by more than 50% from its record high.