Why Bitcoins Won’t Become “Money”


by Prof. Reuven Brenner

In his book Money Mischief, Milton Friedman reported the well-known story of the monetary system of a small island in Micronesia. At the end of the 19th century, the inhabitants used stone wheels as a medium of exchange and as a store of wealth. The colonial government imposed “fees” on disobedient district chiefs by painting black crosses on these stone wheels thus “confiscating” them. This induced the locals to change their ways and work harder, paving roads they were previously reluctant to do, in order to have these marks erased and get their wealth back. Friedman concludes that this example illustrates how important appearance, belief and myth become in monetary matters.

My interpretation is completely different. This story shows how important the somehow agreed upon monetary standard to price goods and services is and the effort people make to keep or restore it (just how people stumbled on it is lost in the mist of times).

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