The two huge misconceptions surrounding goldbugism and bitbugism:
The Antisocial Network, by Paul Krugman, Commentary, NY Times: Bitcoin’s wild ride may not have been the biggest business story of the past few weeks, but it was surely the most entertaining. Over the course of less than two weeks the price of the “digital currency” more than tripled. Then it fell more than 50 percent in a few hours. ...
The biggest declared investors in bitcoins are the Winklevoss brothers ... and they make claims for the digital product similar to those made by goldbugs... “We have elected,” declared Tyler Winklevoss recently, “to put our money and faith in a mathematical framework that is free of politics and human error.”
The similarity to goldbug rhetoric isn’t a coincidence, since goldbugs and bitcoin enthusiasts — bitbugs? — tend to share both libertarian politics and the belief that governments are vastly abusing their power to print money. ...
However,... let’s focus on the two huge misconceptions — one practical, one philosophical — that underlie both goldbugism and bitbugism.
The practical misconception here — and it’s a big one — is ... that we live in an era of wildly irresponsible money printing, with runaway inflation just around the corner... The truth is that Ben Bernanke’s promises that his actions wouldn’t be inflationary have been vindicated..., while goldbugs’ dire warnings of inflation keep not coming true.
The philosophical misconception, however, seems to me to be even bigger. Goldbugs and bitbugs alike seem to long for a pristine monetary standard, untouched by human frailty. But that’s an impossible dream. Money is, as Paul Samuelson once declared, a “social contrivance,” not something that stands outside society. Even when people relied on gold and silver coins, what made those coins useful wasn’t the precious metals they contained, it was the expectation that other people would accept them as payment.
Actually, you’d expect the Winklevosses, of all people, to get this, because in a way money is like a social network, which is useful only to the extent that other people use it. But I guess some people are just bothered by the notion that money is a human thing, and want the benefits of the monetary network without the social part. Sorry, it can’t be done.
So do we need a new form of money? I guess you could make that case if the money we actually have were misbehaving. But it isn’t. We have huge economic problems, but green pieces of paper are doing fine — and we should let them alone.