Robert Shiller: cryptocurrencies are doomed to failure

Cryptocurrencies may be yet another in a long line of failed attempts to establish new kinds of money, says Nobel-prize inner and professor of economics, Robert Shiller.

897-shiller

Cryptocurrencies may be yet another in a long line of failed attempts to establish new kinds of money, Robert Shiller wrote on the Project Syndicate's website this week. Shiller, a Nobel prize winner who popularised the cyclically-adjusted price/earnings ratio as a measure of market valuation, and is famous for his warnings about both the US housing market and dotcom bubbles, notes that "attempts to reinvent money have a long history".

Examples include Josiah Warner's "Cincinnati Time Store", which opened in 1827. It sold merchandise for "labour notes", which were backed by "units of hours of work". It shut down just three years after it launched. A similar experiment launched in London a couple of years later by social reformer Robert Owen failed, too. During the Great Depression, economist John Pease Norton proposed a "dollar backed not by gold, but by electricity", which also failed.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

"Each of these monetary innovations has been coupled with a unique technological story," Shiller notes. "More fundamentally, all are connected with a deep yearning for some kind of revolution in society." Cryptocurrencies are no different, he said. They were introduced by "entrepreneurial cosmopolitans" who "hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war". The air of mystique around these innovations not to mention the fact that the means by which money itself derives its value is nebulous and faith-based also helps the ideas to gain traction, at least in the initial stages. For example, says Shiller, "practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity." Yet devotees beware. "None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough."

Advertisement

Recommended

Visit/515579/bitcoin-has-just-crashed-hard-where-will-it-go-next
Currencies

Bitcoin has just crashed hard – where will it go next?

The bitcoin price has taken a beating, down by 15% in one day. Dominic Frisby looks at what’s behind the crash, and where the cryptocurrency might go …
25 Sep 2019
Visit/510743/another-bubble-in-bitcoin
Spread betting

Another bubble in bitcoin for traders to short

This surge in the bitcoin price seems no more likely to endure than the last one, says Matthew Partridge.
16 Jul 2019
Visit/510053/bitcoin-bear-market-but-dont-sell-now
Currencies

Bitcoin is back in a bear market – but don’t sell now

After its recent spectacular rise, bitcoin suffered a whopping great selloff that, technically, put it back in a bear market. But that doesn’t mean yo…
3 Jul 2019
Visit/506814/the-bitcoin-rollercoaster-has-started-up-again-hang-on-tight
Currencies

The bitcoin rollercoaster has started up again – hang on tight!

Sentiment on bitcoin has made an about turn and the cryptocurrency is back on the rise. Dominic Frisby explains why, and whether it's time to buy bitc…
15 May 2019

Most Popular

Visit/investments/property/601065/what-does-the-coronavirus-crisis-mean-for-uk-house-prices
Property

What does the coronavirus crisis mean for UK house prices?

With the whole country in lockdown, the UK property market is closed for business. John Stepek looks at what that means for UK house prices, housebuil…
27 Mar 2020
Visit/economy/eu-economy/601060/the-european-central-bank-throws-away-the-rulebook-to-bail-out-italy
EU Economy

The European Central Bank throws away the rulebook to bail out Italy

The ECB has removed all constraints on asset purchases and will now buy “whatever it takes” to tackle the coronavirus. John Stepek explains what it me…
26 Mar 2020
Visit/investments/commodities/gold/601037/gold-is-on-a-wild-ride-so-should-you-be-buying
Gold

Gold is hard to find right now – so should you be buying?

With demand through the roof and the physical metal hard to find, it's not the best time to buy gold. But right now, says Dominic Frisby, you want to …
25 Mar 2020
Visit/economy/uk-economy/601063/the-uks-bailout-of-the-self-employed-comes-with-a-hidden-catch
UK Economy

The UK’s bailout of the self employed comes with a hidden catch

The chancellor’s £6.5bn bailout of the self employed is welcome. But it has hidden benefits for the taxman, says Merryn Somerset Webb.
27 Mar 2020