From the Conscience of a Liberal by Paul Krugman:
It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be. Indeed, on many of the macro issues I’ve written about it has been obvious that large numbers of economists can’t bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus can’t work and monetary stimulus will be disastrous. I don’t, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a big-government agenda, this didn’t actually happen.
But I come now to talk not about macro but about money — specifically, about Bitcoin and all that.
Brad DeLong puts it clearly:
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?
I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions.