Bitcoin can be discussed in the context of Post-Keynesian economics, but whether it’s a “good example” depends on which aspects of Post-Keynesian thought one emphasizes. Here’s an analysis:
Compatibility with Post-Keynesian Economics:
- Uncertainty and Speculation:
- Post-Keynesians highlight uncertainty in economic decision-making, and Bitcoin epitomizes this with its volatile price movements driven by speculation, not just by its utility as a currency or store of value.
- Endogenous Money vs. Exogenous Supply:
- Bitcoin has a fixed supply cap of 21 million coins, which might seem more aligned with classical or monetarist views where money supply is viewed as exogenously determined. However, the creation rate of Bitcoin adjusts with network difficulty, which could be seen as a form of endogenous adjustment to demand within the Bitcoin ecosystem, albeit not in the traditional banking sense.
- Decentralization and Institutions:
- The decentralized nature of Bitcoin challenges traditional financial institutions, aligning somewhat with Post-Keynesian skepticism of centralized control over money. However, Bitcoin’s governance by consensus among miners and developers could be seen as a new form of institutional structure.
- Income Distribution:
- Bitcoin’s wealth distribution is extremely concentrated, which can be critiqued through a Post-Keynesian lens that focuses on income inequality. However, it also offers an alternative for individuals in countries with unstable currencies, potentially aligning with Post-Keynesian advocacy for economic empowerment.
- Innovation in Financial Systems:
- Bitcoin represents a significant innovation in financial technology, which could resonate with Post-Keynesian encouragement of new economic structures that challenge or complement existing ones.
Points of Divergence:
- Lack of Policy Tools:
- Bitcoin’s decentralized nature means there’s no central authority to implement traditional Post-Keynesian policy tools like fiscal policy or interest rate adjustments to manage demand or stabilize the economy.
- Deflationary Nature:
- Bitcoin’s design leads to a deflationary asset over time, due to its capped supply. Post-Keynesians typically advocate for managed inflation to encourage spending over saving, which contrasts with Bitcoin’s nature where holding (‘HODLing’) is often incentivized.
- Liquidity Preference:
- While Bitcoin can be seen as a store of value, its use as a medium of exchange is limited by its volatility and transaction issues like speed and cost. Post-Keynesians might critique this as it doesn’t necessarily fit with their views on liquidity and the circulation of money for economic activity.
- Financial Instability:
- Hyman Minsky, a Post-Keynesian economist, would likely have concerns about Bitcoin’s role in potentially exacerbating financial instability through speculative bubbles and crashes, given his theories on financial cycles.
Conclusion:
Bitcoin offers an interesting case study in economics, particularly for its challenge to conventional monetary systems, its operation under uncertainty, and its impact on wealth distribution. However:
- As a currency: It doesn’t fully align with Post-Keynesian views on money supply, liquidity, or the role of government in economic stabilization.
- As an asset: Its speculative nature and potential for wealth concentration might be critiqued, but its technology and distribution model could be seen as an innovative response to centralized financial control.
- As a concept: Bitcoin’s existence challenges traditional economic theories, including those of Post-Keynesianism, by introducing new dynamics around trust, value storage, and the role of digital scarcity in a global economy.
Thus, Bitcoin can be analyzed through a Post-Keynesian lens, but it doesn’t neatly fit as a “good example” of Post-Keynesian economics due to its deflationary design and lack of traditional policy levers. Instead, it might be better described as an economic phenomenon that Post-Keynesians would analyze critically, potentially integrating it into broader discussions about modern money, technology, and economic structures.
