Sunday, 05 July 2020


Captains of finance capital have long aspired to automate work. Machines, after all, don’t demand raises or vacations.
They deliver steady returns, particularly when protected by strict intellectual-property laws. The “dark factory”—so bereft of human workers that not even lights are needed to illuminate it—is a rentier’s dream, promising wealth without end.

In our era of financialization, a perpetual profit machine need not even make anything. For early adopters, cryptocurrency has been a software-underwritten nirvana, increasing in value as it gains popularity. Critics fear these new, hard-to-track currencies are greasing the skids of a pirate economy of data thieves, money launderers, and drug dealers.1 The cyberlibertarian rejoinder is a simple one: people deserve to do what they please with their assets—tax authorities, court judgments, and financial regulators be damned.

Three recent books critically examine this laissez-faire ideology of monetary technophilia. Each offers searching inquiries into asset holders’ attempts to immunize their holdings from state scrutiny or control. Katharina Pistor’s The Code of Capital takes a longue durée perspective, masterfully demonstrating how the wealthy have succeeded in protecting assets from state intervention ever since the Middle Ages. Her work suggests that cryptocurrency may simply be the latest tool—like trade secrecy, shell corporations, and other legal devices—for thwarting regulators and tax authorities. This concern is supported by Finn Brunton’s Digital Cash, which contextualizes today’s fascination with the computerization of money. Though Brunton and Pistor suggest that cryptocurrency may eventually be put to better ends, David Golumbia takes a darker view. In The Politics of Bitcoin, he argues that the leading cryptocurrency’s foundational ideology is right-wing libertarianism.

The distinctions these authors make may seem abstruse at first—particularly to those adepts of “rough consensus and running code” responsible for so much of our computational infrastructure. A distributed-ledger protocol—checking and rechecking transactions across massive computer networks—appears neither fascist nor liberal nor socialist. However, as the philosopher of technology Langdon Winner argued in 1980, “artifacts can contain political properties,” as some systems “appear to require, or to be strongly compatible with, particular kinds of political relationships.” Untraceable money transfers fit uncomfortably well with a world of kleptocrats, tax havens, and dark money–influenced political campaigns. This is a dark reality that techno-utopians all too rarely acknowledge, but that these books confront squarely.

Before addressing the books in more detail, I should review some basics of cryptocurrency transactions. Imagine distributed software that allows you (and those you transact with) to opt out of using banks altogether. When you buy something online, a distributed ledger automatically debits your account—and credits the seller’s—with the exact amount of the purchase, permanently recorded in all computers connected to the network. Connect enough computers, and disqualify any entity or group from controlling too high a percentage of them, and it may become effectively impossible to tamper with the common record.

Now imagine that arrangement scaled up to include the sale and purchase of equities, bonds, data—almost anything. Fees on investing might fall precipitously, so they are set just high enough to keep the distributed ledger maintained and updated. If the ledger itself could automatically “pay” those who do its work with tokens valued as money, perhaps fees could drop to zero.

The system I’ve just described is developing. We can think of the distributed data as a representation of who has what: of who owes, and who owns. Bitcoins and other cryptocurrencies function as the tokens described above, while blockchains serve as the distributed ledgers. Bitcoins originated as a way of rewarding those who expended the computational power necessary to maintain the ledger. Brunton delves into the creation of this system. He describes his book as a “history of how data was literally and metaphorically monetized,” as promoters of digital cash tried to make digital data about stores of value itself valuable. This bootstrapping is reminiscent of the history of fiat money, which arose in part to pay tributes, taxes, and fees imposed by the state.

So will new cryptocurrencies eventually replace state-backed money? Their implications are far from clear. Alternating between rigorous theoretical reflections and entertaining vignettes, Brunton tells the stories of “renegades” kludging their own systems of currency beyond, beside, or hidden from the state. As soon as the “anti-system” digital assets get sufficient traction, there tends to be a scramble to convert them into more familiar currencies, or to hoard them in hopes of their eventually being worth even more. That makes cryptocurrencies far more volatile than their state-backed peers, and thus very unlikely to replace them. Bitcoin, for example, seems destined to function more as a security than a currency—a store of value, but not a stable way of denominating its measure.

Even if cryptocurrency seems doomed to fail as a global alternative to state currencies (just as Esperanto failed with respect to national languages), we can still marvel at its promoters’ success at creating purchasing power from almost nothing. What can make Bitcoins so valuable that persons have gladly traded $18,000 for one of them? The answer is narrative: the stories we (and our friends, the media, and our social media feeds) tell ourselves about how value is created and stored.

Nobel Prize–winning economist Robert J. Shiller has recently highlighted the importance of “narrative economics” for understanding why certain conceptions (and misconceptions) of commercial life come to dominate the thought of policymakers, politicians, and people generally.2 Brunton vividly demonstrates the role of imagination in cryptocurrencies’ success or failure. “The history of digital cash,” he argues, is “a particularly vivid example of the use of money and technologies to tell stories about the future.” Get enough people talking about, and then using, a technologically advanced alternative to state currency and—voilà!—the alternative exists. What remains to be seen, though, is how well new digital infrastructures can approximate familiar features of older monetary systems—such as chargebacks for mistaken bills, or fraud protections to help victims of swindlers.

The social theorist Bifo Berardi has observed that “money and language have something in common: they are nothing and yet they move everything. They are nothing but symbols, conventions, flatus vocis, but they have the power to persuade human beings to act, to work, and to transform physical things.”3 In daily commerce, we tell ourselves (and others) a common story about the likely stability of the value of dollars, bonds, and stocks. This is the narrative foundation that “moves everything” when it comes to monetary exchange. But given the reflexivity at the core of finance, prophecies of a loss of value can also be self-fulfilling. A small sell-off can spark ever larger ones, as a desire to cash out contagiously spreads among an asset’s holders, perhaps based on nothing more than an inkling that earlier sellers knew something the “dumb money” does not.

Viral tales of distrust of and disillusionment with the existing financial order were a vital catalyst for cryptocurrency. Bitcoin was announced in late October 2008, and the first entry in its ledger (the so-called “genesis block”) included a reference to bank bailouts. Many Bitcoin devotees talked up its prospects by talking down the stability and value of dollars and euros.

And so, while Golumbia agrees with Brunton in decrying Bitcoin as a waste of energy and time, he diagnoses it as something worse: a dangerously political project designed to destabilize critical financial regulation and monetary policy. Golumbia explores the thought of cyberlibertarians who constantly complain that the Fed is incompetent and politicized, incapable of ensuring the dollar has a stable value. Given the wild swings in Bitcoin’s value, and the frequency of hacks and scams in cryptocurrency generally, their indictment of central banking is a classic case of projection. But in Golumbia’s telling, it is something more: a calculated effort to accelerate (and not merely prepare for) financial crises of confidence.

Well versed in both critical theory and the philosophy of language, Golumbia interprets key texts in cryptocurrency advocacy as cyberlibertarian propaganda. Cyberlibertarianism, as Langdon Winner explained in 1997, links “ecstatic enthusiasm for electronically mediated forms of living with radical, right-wing libertarian ideas about the proper definition of freedom, social life, economics, and politics.”4 Libertarian thought tends to derogate government as the chief enemy of liberty, rather than recognizing, as nearly all other political philosophies do, that government is critical to assuring freedom (since anarchy is little more than rule by the strongest).

Insights like these serve, for Golumbia, as an Ariadne’s thread to guide him through remarkably solipsistic, fantastical, or dense tracts. His Politics of Bitcoin is a first-rate work of interpretive social science, carefully extrapolating meaning from a set of contested, murky, or ostensibly contradictory texts. As Golumbia explains early in the work, his purpose is “to show how much of the economic and political thought on which Bitcoin is based emerges directly from ideas that travel the gamut from the sometimes-extreme Chicago School economics of Milton Friedman to the explicit extremism of Federal Reserve conspiracy theorists.” While Friedman’s monetarist disciples accommodated themselves to the Federal Reserve (the central bank of the US), they sought to tightly constrain it. Friedman himself even said he would prefer a computer to take over key functions of central banks.5 Golumbia reviews the origins of such ideas, and then describes their appropriation in the present day.

“It is a cardinal feature of right-wing financial thought,” Golumbia explains, “to promote the idea that inflation and deflation are the result of central bank actions, rather than the far more mainstream view that banks take action to manage inflation or deflation in response to external economic pressures.” Bitcoin’s most libertarian enthusiasts seize upon this skepticism about central banking as one more rationale to shift assets out of national currencies. They would counsel us all to flee the “volatile” or “messy” political and legal governance of money for the “safety” and “stability” of code. Pistor’s The Code of Capital shows how foolish that aspiration may turn out to be. Although only one of Pistor’s chapters addresses cryptocurrency directly, I can heartily recommend the book to anyone seeking a better understanding of the promise and limits of digitization in finance.6

Pistor is primarily concerned with legal, rather than computational, code, since law is constitutive of financial markets, not merely a side constraint on them. The vast edifice of currency exchanges, derivatives, swaps, options, and countless other instruments rests on a foundation of law—or, to be more precise, rests on the relative power of one party to force another to obey the terms of contracts they have made. Though law to some extent shapes all markets, in finance it is fundamental. In fact, the “products” traded are very little more than legal recognitions of obligations to buy or sell, own or owe.

“Finance,” Pistor argued in an earlier work, “is essentially hybrid between state and markets, public and private.”7 And we can see immediately the enormous problems this social fact poses for cyberlibertarians. They want the state out of the (or at least their) money business. But Pistor’s legal theory of finance reminds us of just how strange such a wish is: monetary anarchy is only desirable until some hacker or thief takes your assets.

Nevertheless, she gamely recounts the assumptions of cyberlibertarians, on the way to a more realistic account of how the “coding” of capital—the ability of experts to ensure that certain claims to assets and income streams are durable, transferable, and enforceable—may increasingly depend on technological (rather than merely legal) prowess. Automated recordation of assets and transfers is presumed to be cheaper and more egalitarian than an army of clerks and lawyers. But as Pistor patiently reminds us, “Someone has to write the code … and fix its bugs; and someone must find an answer to the question of whose interests the code serves, or perhaps ought to serve.” One cannot escape the infirmities of people via code, as people write and maintain it.

Nor are inequalities in power avoidable. Rather than exemplifying the “flat world” of Thomas Friedman’s dreams, automated finance just introduces new hierarchies: among cryptocurrencies; within them, among high-level coders and those who just do what they are told; and, of course, between the coder class and ordinary users. Powerful corporations can capitalize on each of these asymmetries. Indeed, Pistor predicts that large financial institutions will try to co-opt the utopian energy that Brunton describes, by “enclos[ing] the digital code in law and leav[ing] little space to the digital utopists.”

This skepticism about the future of digital money is not meant to excuse its present. Cryptocurrency is alluring now because finance is so alarmingly exploitative and inefficient. But things could always get worse. In very different ways, Pistor, Brunton, and Golumbia expose the hidden costs of digital efforts to circumvent or co-opt state monetary authorities. They help us overcome the disciplinary divides—between politics and economics, or law and business—that have obscured the key narratives driving utopian conceptions of digital currency.

Left unchecked, popular stories of governmental incompetence risk becoming a self-fulfilling prophecy. Voters may become too demoralized to even try to redirect the financial system toward democratic ends. So we face a stark choice. We can recognize the public nature of money and redirect its creation toward public ends. Or we can allow the power of the state to be annexed to the privateers best poised to stoke public enthusiasm for private monies, and to profit immensely from the uncertainty they create. As ugly as the public provision of money can sometimes be, its digital privatization is all too likely to be vastly worse.


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