Any truly capitalist economic system is instilled with an embedded remedy for the natural progression of business and production toward monopoly. The very success that society needs and benefits from capitalist progression, owing to innovation, naturally thins the herd of producers. The most successful producers continually suppress their own production costs through “small-scale” innovation and productivity – to the point that they drive out the marginal producers. That is called “deflation” by conventional economics, but it really is the natural state of productivity increasing living standards.
The natural problem that results is monopoly or cartel. Fortunately, in a truly free market, innovation is not solely contained in the production process. There are always exogenous actors seeking to build a better mousetrap – and they often succeed. The interplay between innovation and the life cycle of businesses is that new innovators spring up and displace past successors, breaking up the natural monopolies, rendering them anachronisms.
Such truth about capitalist remedies does not reach beyond into the domain of politics, however. Government monopoly is the only true durable monopoly. And it is not cost-free.
The common myth about FDR’s confiscation of gold in 1933, part of his first hundred days, in fact among his first actions as president, was that it was a usurpation of republican government through Executive Order, 6102 to be specific. In fact, the end of private money in America was accomplished through Constitutional means. Only a few days after FDR’s inauguration, Congress passed the Emergency Banking Relief Act that, among other things, gave the president statutory authority to consolidate monetary authority in a full monopoly at the Federal Reserve, thus depriving the American public of the right to private money.
There has been no real alternative to fiat US dollars inside the domestic economy until Bitcoins. It is derided as a “crypto-currency”, but it performs all the needed functions of money (though it’s still a volatile store of value). It is a fascinating experiment into private money through a dispersed networking system. There is no central agency to control it, once it was released into the wilds of the internet, it operates completely free from “control”. The only variable is its acceptance by users.
I wrote more in detail about Bitcoins and private money here. Now Bitcoins have attracted the US government’s attention, durable monopolies can only survive through threat of “law enforcement” (not unlike fascism).
Apparently the Department of Homeland Security has targeted Mt Gox, one of the most popular conduits in the process to exchange government-approved fiat (Federal Reserve Notes) into the “crypto-currency” (Bitcoins). Why DHS instead of the Treasury or Secret Service? In any event, Mt Gox is believed to be operating a money transfer service without a license (the monopoly).
The smaller legal issue, the basis of the charge, is related to a Wells Fargo account opened on behalf of a Mt Gox subsidiary. The account opening papers from Wells specifically asks if the account is to be used as a means to exchange currency for customers or act as a money “transmitter”. If Mt Gox is being charged as a money changer for sending fiat US dollars to Dwolla to further be exchanged into Bitcoins, it seems the US government has a larger legal problem on its hands.
If Mt Gox is in fact a money transmitter or exchanger as defined by the Wells Fargo account agreement, that would mean an admission by the government that Bitcoins are not “crypto-money” but actual money.
The gaining momentum of government interest in Bitcoins, including comments from the CFTC, has been justified as fighting crime. From allegations of Bitcoins facilitating the purchase of illicit drugs without tracking to money laundering, the authorities are putting together a narrative that private money is a tool for crime. And they are absolutely accurate.
That does not, however, mean that they are correct in cracking down on private money. The largest tool of illicit crimes, particularly in the drug trade and money laundering, is the US dollar. Cash in any form will always be the preferred means of mediating trade in illegal activities because it provides anonymity. Paper dollars provide that as well as Bitcoins; it is a feature of money not just “crypto-money”. This is not a basis to deprive citizens the right to private money and anonymity in transactions; crime will occur regardless.
The larger legal issue here is the Emergency Banking Relief Act and the durable monopoly of money. The demand for stability in currency and money has never been suppressed and the rise of Bitcoins (and the demand for gold now) is a product of equally durable dissatisfaction with that durable monopoly. However, what we may have in Bitcoins is the first instance of true capitalist innovation escaping the iron grasp of government power to foster monopoly. I still have high hopes for Bitcoins.
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