[This is a subpost of Bitcoin, Cryptocurrencies and Blockchains]

Two points about cryptocurrencies and blockchains that advocates often point to are that the transactions are untamperable and anonymous. This is largely correct, but neither is perfectly true, nor even necessarily a good thing.

[This is a subpost of Bitcoin, Cryptocurrencies and Blockchains]

Blockchains are distributed ledgers, a database we each keep an up-to-date copy of. In private blockchains, such as that underlying the Venezuelan ‘petro’ or that proposed by UBS for bank transactions, a centralized authority decides who can record new ‘transactions’; not much novel here from the perspective of economic theory, although there are important technical advances that make private blockchains more efficient than existing distributed ledger technologies. Most casual interest is in public blockchains, which are decentralized and in which participants are anonymous. These blockchains are the main technological advance underlying cryptocurrencies such as Bitcoin or Ethereum. So what is a blockchain?

Bitcoin – a specific cryptocurrency
Cryptocurrency – a digital currency based on a (decentralized) blockchain
Blockchain – a distributed system of record keeping

Let’s go in reverse order!

(Or keep it brief: A 10 Minute Video)

The American Economic Association was founded in 1885 with a view that an Economics based in history and statistics was necessarily Scientific, and that Government based on this ‘Economic Science’ would necessarily be a force for good. As the founding Statement of Principles expressed it: “We take no partisan attitude” towards the “industrial and commercial policy of governments” which should be based on an Economics developed “not so much [by] speculation as [by] the historical and statistical study of actual conditions of economic life”. “We regard the state as an agency whose positive assistance is one of the indispensable conditions of human progress.”

The view of the founding members of the AEA that policy should strongly socially proactive fitted their largely Protestant backgrounds: twenty-three of the fifty-five charter members were clergymen. They viewed economic policy as something to be decided by experts in the service of society. These experts should make decisions based on science and proceed to implement them. As Arthur Hadley put it in his 1898 AEA Presidential address, the greatest opportunity for economics lay “not with students but with statesmen”, and the brightest future for economists was in “the leadership of an organized body politic.”

A.W. Phillips led an interesting life. Born in New Zealand he left before finishing high school, worked as a crocodile hunter, and found himself in a country when the Japanese invaded not once, not twice, but three times! The last of these resulting in him spending three and a half years as a prisoner of war. But perhaps even more interesting than the life of A.W. Phillips is the life of his eponymous curve and it this life story which follows.

Modern Monetary Theory claims that Governments which control their own currency do not face a ‘fiscal or financial’ limit to their ability to spend, they can always borrow more (issue more debt). We go in search of the new ‘Theory’ behind this claim and find that the only new theory is the Modern Monetary Confusion.

The Modern Monetary Confusion: always being able to issue debt does not equate to being able to have an ever increasing debt.

This is the story of how Economics came to be called the Dismal Science. It is a story I choose to begin with Piano wire…

[This is the fifth of five posts on Capital in the 21st Century. The first is here.]

[This is the fourth of five posts on Capital in the 21st Century. The first is here.]

[This is the third of five posts on Capital in the 21st Century. The first is here.]