Brad DeLong suggests the difference between BitCoin and conventional currencies is:
Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).
Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.
Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?
Okay, well, I don’t think that the floor value of gold suggested by DeLong is going to be much of a relief to anyone who buys it at $1,200 per oz. But it’s, um, at least semi-true that there is intrinsic value to physical assets. Gold may be one of the least useful, but it has some intrinsic worth. And I’ll grant that the US dollar has intrinsic value in that the US government is the most powerful in the world, and it transacts its business in its own currency.
But um, how about all the other currencies out there? How about the Pakistani rupee? Or the Nigerian naira? Do they have meaningful “floor”? Or how about stocks? At least for companies without major physical assets, they have no effective “floor.” And maybe Pakistani rupees, Nigerian nairas, or any random stock are bad investments. I don’t invest in BitCoin precisely because I have no particular reason to believe that it’s a good investment. But DeLong (and Krugman) don’t write angry blog posts whining about all the other investments out there which have no “floor.”
They’re writing about BitCoin because they don’t like its politics. Their economic opinions of BitCoin are inseparable from their political opinions of it. And that’s true of a lot more than BitCoin, and both DeLong and Krugman would be better economists if they had that much self-understanding.