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Why I don’t post on crypto

Summary:
Tyler Cowen recently noted that monetary economists don’t have much useful to say about crypto: But take [monetary economics] in general — has it had anything interesting to say about crypto developments? I don’t expect it to have predicted crypto, or its price, any more than I expect macroeconomists to have predicted recessions (see Scott Sumner on that one). But surely monetary theory should be able to help us better understand crypto? And its price. Money is one of the most ambiguous terms in the English language. What does it mean to say, “Bill Gates has a lot of money”? That he has a fat wallet full of dollar bills? Or a lot of Microsoft stock? The field of “monetary economics” might better be described as the field of “medium of account economics”. Because

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Tyler Cowen recently noted that monetary economists don’t have much useful to say about crypto:

But take [monetary economics] in general — has it had anything interesting to say about crypto developments? I don’t expect it to have predicted crypto, or its price, any more than I expect macroeconomists to have predicted recessions (see Scott Sumner on that one). But surely monetary theory should be able to help us better understand crypto? And its price.

Money is one of the most ambiguous terms in the English language. What does it mean to say, “Bill Gates has a lot of money”? That he has a fat wallet full of dollar bills? Or a lot of Microsoft stock? The field of “monetary economics” might better be described as the field of “medium of account economics”. Because crypto is not a medium of account, our models are not very useful in explaining changes in its value.

Some people might say, “Wait a minute, crytpo has many money-like attributes. It is often used as a store of value. Like fiat currency, it has no intrinsic value. Occasionally, it is even used as a medium of exchange.” Yes, all that is true. And any true “theory of money” should have something useful to say about crypto.

But the field that economists call “monetary theory” is not a theory of money, it’s a theory of the medium of account. And crypto is not a medium of account. Sorry.

PS. What about stablecoins? Well, we do have models that explain changes in the value of stable coins. Those are the models that explain price inflation (not always very well, but no worse with stablecoins than with other media of exchange.)


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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