No, we’re not kidding. Much. This could actually work . . . at least until people catch on that the whole cryptocurrency craze is what Charles MacKay would have called an extraordinary popular delusion and a madness of crowds. This sort of thing, of course, formed the subject of MacKay’s 1841 book titled . . . well, Extraordinary Popular Delusions and the Madness of Crowds.
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| Charles MacKay |
As MacKay chronicled selected events in history (at least up to his time, early Victorian England), people often have the tendency to take something innocuous, even beneficial, twist things, misunderstand them, or simply start fantasizing, and run with it. The delusion seizes the public imagination and matters quickly become surreal.
Take, for example, the Crusades. Okay, hardly innocuous, and only arguably beneficial, but they did address a specific problem. A new group of Muslims had taken control of the Holy Land, and were denying access to Christian pilgrims . . . and, incidentally, cutting off trade. The “Greek Romans” of what was left of the Byzantine Empire were also not particularly friendly or accommodating to the “Latin Romans” of the rival Holy Roman Empire and stifled trade. The solution? The Latin Romans decided to organize a military campaign and reopen the trade routes.
Unfortunately for the plan, your typical European serf, peasant, yeoman, or knight didn’t give any part of a rat’s anatomy about the eastern trade. They couldn’t afford that stuff, anyway. That was for the nobility and other useless social appendages who only made trouble by starting wars and such nonsense when there was important work to be done, such as raising families, growing food, and producing marketable goods and services. Why go to war so a great lord could have silks and spices on which to fritter away tax money?
They did, however, care a great deal about access to the Holy Land. Religion was a part of real, everyday life. Building a cathedral or going on a pilgrimage was something anybody could do. So, the civil powers-that-be persuaded the pope to preach a Crusade to “recover” the Holy Land . . . and, oh, yeah, reopen the trade routes. It seized the popular imagination. The rest, as they say, is history.
The Tulip Mania in Holland and the South Sea Bubble in England are less understandable. The public seized on something of ephemeral value or that didn’t exist in the first place and decided it was the be-all and end-all of economic life.
The Tulip Mania . . . yes, tulips are pretty and all that, but the bulbs are only bulbs until they are planted, and the flowers can grow; they are investments only for someone in the business of growing tulips or producing bulbs. They are not something to speculate in, particularly as they are not essential to life, liberty, and private property. . . and that sort of thing shouldn’t be speculated in, either.
Compared to the South Sea Bubble, however, the Tulip Mania was almost reasonable. At least tulip bulbs exist. The “South Sea Trade” (i.e., trade with Central and South America) did not meet expectations, and the bubble burst, one of the results being the “Bubble Act” which prohibited the formation of corporations without a charter from parliament.
Before everything collapsed, however, everybody and his brother began forming corporations for everything under the sun, including one which advertised itself as for a secret purpose that would not be disclosed. Shares were issued, floated, and prices rose to astounding heights for pieces of ownership of companies that in some cases didn’t even exist.
The South Sea Bubble made the Mississippi Scheme look rational — at least there was something real (the economic development of Louisiana) behind it. The Mississippi Scheme came to grief when people began thinking the pieces of paper backed by the present value of Louisiana’s future development were valuable in and of themselves. It really hit the skids when the French regent thought he could crank up the printing presses and create wealth out of thin air. Naturally it caused national bankruptcy when the crash came.
Now for that idea to get rid of that $37 trillion in debt. It’s based on the announcement that President Trump (or whoever talked to him last) wants to create a government stockpile of cryptocurrency . . . which is a bunch of electronic impulses (which is actually okay) completely non-redeemable by the issuer and that absolutely no intrinsic value whatsoever. It’s only “worth” what somebody will pay for it, even though it exists only as an idea in the mind of the beholder and no independent existence. Cryptocurrency is, as a rule, the perfect example of the “greater fool theory.” It’s worth only what you can fool somebody else into paying for it, and can be used for nothing else.
Anyway, if President Trump wants the United States to make money with cryptocurrency, here’s a better idea: create a new cryptocurrency; let’s call it the DT. This would be a non-circulating, non-legal tender, non-reserve, non-redeemable parallel virtual currency issued specially for gamblers . . . er, investors.
Only 1,000,000,000 DTs would be issued, and all would be deposited in a special account in the U.S. Treasury. A minimum acceptable bid would be posted, and investors would be allowed to bid on units of the cryptocurrency.
When the bidding reaches an acceptable level (say, U.S.$50,000 per DT, less than half the value of the Bitcoin today), bids will be accepted, and the DTs sold. ONLY U.S. dollars will be accepted in payment for the DTs, and ALL proceeds will be applied to debt reduction or meeting existing obligations. The balance will be applied to future budget deficits.
Given that the current U.S. national debt is a shade under $37 trillion and the annual budget deficit is roughly $2 trillion, this should not only eliminate all existing government debt but remove the need to incur new debt for at least five years. This would buy time to adopt the Economic Democracy Act and get things up and running so that the government need never borrow money again, except to meet temporary shortfalls in tax collections.
As for the people with the DTs? They can do whatever they want, even purchase goods and services if other people will accept the DTs. The issuer, the U.S. government, is off the hook, because the DTs would be non-redeemable and couldn’t be used for tax payments or government expenditures. It’s the perfect thing for people with more dollars than sense to invest in, and even Keynes would agree, assuming he was telling the truth in his General Theory. It’s a way to tax the rich and give them the illusion they are getting even richer.
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