Bitcoin and other cryptocurrencies are following a familiar path paved by monetary innovations that failed, economist Robert Shiller warned in an article published Monday.
Cryptocurrency prices have soared amid growing interest in the fledgling market. But some influential investors and business leaders argue that investing in digital currencies and initial coin offerings (ICOs) is a dangerous game. JPMorgan Chase CEO Jamie Dimon has called bitcoin a “fraud” and later said he isn’t interested in the subject.
Warren Buffett recently told Liz Claman on FOX Business that bitcoin has “produced nothing.” His longtime business partner, Charlie Munger, has called bitcoin “rat poison” and a “turd.”
Shiller, a Nobel-winning economist known for predicting the housing crisis and dot-com bubble, said much of cryptocurrencies’ appeal is driven by the mysteriousness that surrounds them.
“Practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity, gives the new money glamour, and fills devotees with revolutionary zeal,” Shiller wrote for Project Syndicate. “None of this is new, and, as with past monetary innovations, a compelling story may not be enough.”
Shiller compared the emergence of cryptocurrencies with past experiments such as “time money.” In the 19th century, Josiah Warner opened the “Cincinnati Time Store,” which sold goods in units of hours of work, using “labor notes” as paper money. The store closed three years after it opened. A similar effort by the “father of socialism,” Robert Owen, also failed.
Karl Marx and Friedrich Engels pushed for a “communistic abolition of buying and selling,” although no Communist state ever eliminated money, Shiller wrote. In the 1930s, a radical movement aimed to replace the gold-backed dollar with a measure of energy, but the Technocracy fad was short-lived. The economist John Pease Norton argued in 1932 for a dollar backed by electricity. That effort also gained little traction.
Shiller said these monetary innovations were connected to “a deep yearning for some kind of revolution in society.” Likewise, cryptocurrencies “are a statement of faith in a new community of entrepreneurial cosmopolitans who hold themselves above national governments,” he wrote.