Elon Musk has announced that he is to buy $1.5 billion of Bitcoin, and that Tesla is to accept Bitcoin in payment for its cars. How Musk decides to gamble with his own money is one thing, but making a decision that Tesla will accept worthless bitcoins in exchange for its cars is another, because that risks bankrupting the company, and causing the loss of the jobs of all its workers, plus then the jobs of many more workers in supply companies and so on. This is just another example of why shareholders should not have control over the socialised capital they do not own, and why such control should rest with its collective owners, the associated producers within the company.
In a recent article, Peter Bofinger set out why Bitcoin, as with other cryptocurrencies is essentially a pyramid scheme. He sets out many of the arguments I have put forward against Bitcoin over the last few years. He misses out, of course, that Bitcoin, unlike gold, has no value. He doesn't do that, because he's a bourgeois economist, for whom the concept value and market price are identical. In other words, he suffers from commodity fetishism. There are, in fact, many things that have a market price, but which have no value, but the difference is that some of them have a use value, which is the basis of that market price, whereas Bitcoin, and other cryptocurrencies have no separate use value, other than that of being an object of speculation.
Air has no value, but people may be prepared to pay to visit an area of clean air, or even to pay for bottled clean air, if they live in an area of high air pollution. Land has no value, but it has a market price determined by the capitalised rent. Tenants, are only prepared to pay this price, because the land itself, whilst having no value, does have use, a use value that a farmer needs to produce crops, a miner needs to extract minerals, or a builder needs on which to build houses, shops, factories and offices. Capital has no value, but it too has a market price, the rate of interest, because capital too, whilst having no value, does have use value, that of being able to produce the average annual industrial rate of profit. Its these use values that are being bought, and for which the market price is paid.
What enables the owners of these assets to charge a market price for these use values, despite them having no value, is the fact that those that own them have a monopoly. A capitalist farmer who wants to farm, must either buy or rent land. More land cannot be produced in the same way that more cars can be produced, if the demand for cars rises. The existing land can only be bought or rented from its current owners, and they will then charge a market price for that. If land enables a capitalist farmer to make above average profits, then capital will seek to move into agricultural production, increasing the demand for land, creating the potential for Absolute Rent. If a particular piece of land enables a capitalist to make additional profits compared to other land, then the demand for this particular land will increase, creating the basis for Differential Rent.
Similarly with capital. In order to undertake capitalist production, a capitalist must first have possession of capital itself. If they do not own capital they must obtain possession of it by borrowing it from someone else. That may take the form of borrowing a machine, for example, or borrowing money to use as money-capital to be able to buy the machine, materials, buildings, labour-power and so on. What they buy in borrowing the machine or the money is the use value of capital to be able to produce the average industrial rate of profit. What price they pay for that use value, the rate of interest, will depend upon the supply of such capital as against the demand for it. When the average industrial rate of profit rises, the demand for capital will rise, as capitalists seek to obtain capital in order to be able to make these higher profits, and vice versa. But, when profits are high, these realised money profits for an increased supply of potential money-capital, also, which then acts to reduce the rate of interest. In other words, industrial capitalists can use their own realised profits to finance their capital accumulation, and so have less need to go into capital markets to borrow it. In addition, they can throw any unused money profits into the capital markets themselves, so as to obtain interest on it, and that increases the supply of money-capital, so causing interest rates to fall. Where the rate settles depends on the interaction of these elements of supply and demand.
For every other commodity, they have both a market price, and a value, because they are both a use value, and a product of labour. It is that, as Marx sets out in Theories of Surplus Value, that makes each such commodity money. In other words, I can buy any commodity with some other commodity, provided the seller is prepared to accept it. That is the basis of barter. The ratio of exchange, the exchange value, is determined by the value of one commodity as against the other. The money commodity is simply one commodity out of all others that society picks out to act as a general commodity, universally accepted in exchange for all others. The necessary requirements of such a commodity, of being portable, non-perishable, homogeneous, of high value, and so on, leads to societies choosing precious metals, and usually gold to perform this function. But, the requirement is that the money commodity must itself be a commodity in its own right, i.e. it must not only have value, but also use value. Gold for example, can be used for jewellery, for decoration, for use in electrical components and so on. If it is not being used as money, it can still be used in these other functions, and so still has value.
That is not true of Bitcoin or other cryptocurrencies. In this respect they are the same as paper banknotes, i.e. they are worthless in and of themselves. They have no use value other than for the specific function of acting as means of circulation and payment in the case of banknotes, and of speculation in the case of cryptocurrencies. Take away those functions, and they are useless and worthless. With paper banknotes, they have value because they circulate as tokens for money, and they are able to perform that function, because they are backed by the state. They are a claim to a given amount of social labour-time. But, as Bofinger says, cryptocurrencies only exist because those that speculate in them decide to engage in such speculation. You could just as well speculate in Tulipbuls as Bitcoin, and in a previous speculative mania, people did, before, like all manias, the bubble burst.
Its true, that in the past, people have also speculated in the money-commodity gold. All that proves is that, when the supply of a given commodity is restricted in supply its market price can rise way above its exchange value, at least for a time. Its one reason that societies replaced the actual money-commodity gold with money tokens, which represented it, be they gold coins, coins made of other metals, or paper banknotes, and, today, simply electronic entries in bank ledgers. The reality is that set aside the commodity fetishism and what people actual exchange is equal amounts of labour, or labour-time, and money is simply one means of representing this quantity of labour-time. Why would you want an economy whose exchange relations were being constantly disrupted in the wild swings in the speculatively determined market price of your currency? Of course, you wouldn't.
In previous centuries, for example, when the Conquistadors brought back large amounts of gold from South America, this influx of gold depressed its price significantly, and as prices were measured in gold that resulted in a surge in inflation. The same was true when gold rushes occurred in the US, Australia, and South Africa. But, also consider matters from the other perspective. Between 1970 to 1980, the price of gold went from $30 to $800. If prices had been measured in gold, there would have been a significant deflation. But, those kinds of wild swings happen by the day or the week for Bitcoin. Imagine trying to run your business when the price of a Tesla would have to vary from say 20 Bitcoin, when its price was just $5,000 to being just 2 Bitcoin when its price has risen to $50,000!
Worse still, imagine that you have sold 10,000 Teslas in exchange for just 20,000 Bitcoin, and then the price of Bitcoin drops to zero, as the bubble inevitably bursts. That means that the company would have handed over $1 billion of value in cars, and would now be sitting on a pile of Bitcoins worth absolutely zilch, zero, nada, nothing.
We need a rational way of running companies based upon the industrial democracy of the workers and managers within them whose futures are tied up in the future of that company, not on the flights of fancy of shareholders who have simply loaned money to the company in return for shares, and the interest on the money they have loaned.
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