Unspoiler: I got carried away by a totally unnecessary thousand words here so if you don’t feel like reading silly stories about dead monarchs you can skip to the last section that begins “Would you please.” I won’t be mad.
Suppose you are the king of a pre-industrial island nation. You have hopes of hanging on to a glorious empire, but glorious empires are history’s avocados: Everyone wants one and they have unpredictable expiration dates, and if you go after them too often you’ll have trouble paying the rent. Anyway since 71% of the earth is water, and since you are the king of a pre-industrial island nation, a good first checkbox here is to build a lot of wooden boats.
Problem is, all the other nations with hopes of a glorious empire had the same idea. Also you’re the only one that’s an island. Also you already cut down all your trees. Island nation empires are all fun and games until ecology catches up to you.
Did I mention you’re King George III?
You could source timber from the Balkans where nobody hates you yet. Problem is half the kings in the way are not big fans. Besides it’s costly and you’re having trouble paying the rent. So you come up with a better plan. Forget the Balkan wood, you’ve got America, the latest and greatest colony, which is just plain replete with wood. So much wood. And those New England white pines make a mighty mast, let your shipbuilders tell you. Why buy the Balkan cow when you can get the Colonist’s milk for free?
You decree that the largest trees in America are property of the king (that’s you), and send surveyors to leave a mark on those suitable trees, until you can come collecting.
And here lies the rub.
You’ve got something valuable, O’ King, but is it really yours?
The American colonial riches appeared like an asset to the king, but the value of an asset is always in relation to something else, in time, space, or possession. Some to ponder:
- Italian lira were exchanged for many a bread loaf between 1861 and 2012, but not after.
- The Zimbabwean dollar was more valuable than the US dollar in the 80’s, though some years bread might cost you Z$10 billion, and some days there might not be any bread. (Zimbabwe stopped using their own currency altogether in 2009 and uses the US dollar, among other foreign currencies).
- Monopoly money is good to have, while the game is still running.
- The exchange rate for birds in hand vs birds in bush is 1:2.
- Gold can be worthless and water worth quite a lot, when you’re about to die.
- “Buy the biggest house you can afford” was popular advice in 2005. but how do you know how much you can afford, if you cannot see 30 years into the future?
- If you owe the bank a million dollars, you have a problem. If you owe the bank a billion dollars, the bank has a problem.
- Bauxite was a worthless ore until a couple chemists figured out how to get aluminum out of it. Then its value increased way faster than bitcoin.
Back to the colonies. The king’s law was so flouted that it became popular to have pine floors at least a foot wide. Turns out if the powers that be require — but cannot enforce — something, it becomes an irresistible delight to prove it.
Backlash back at the colonies really began circa 1766, when the New Hampshire governor decided to actually start enforcement. Some NH folk were caught pine-handed, and the Pine Tree Riot ensued. It’s hard to pinpoint the beginning of what you (the king) will later call the American-English war, but now you know why they kept flying flags with pine trees on them.
I think we all know how that war ended.
There’s untold wealth in all the trees not yet cut down, but unless you can assert control over your claims, that wealth is not yours. It might as well not exist at all. The trees of New England are not an asset to the king, they are an asset to whoever has control.
France and Spain had something of a touchy relationship but they’re always willing to have a chat when it comes to disrupting whatever Great Britain is doing. King George successfully kicked French influence out of North America with the Seven Years War (1756–1763), forcing the French to evacuate the Louisiana territory after several decades of holding it, leaving it mostly under Spain’s weak influence, in 1762. France and Spain hatched naughty plans to stuff the American’s pockets with gunpowder in return.
The Louisiana territory is about four times the size of France or Spain, and the port at the mouth of the Mississippi naturally controlled all trade of the western territories, since shipping access to the Atlantic is key. One might call this valuable.
Then two things happened in quick succession:
- Spain gave the land, relatively cheaply and quietly, back to France, as long as they promised not to give it to anybody else.
- France sold the whole thing, quite on a bargain, to the United States.
Like Great Britain, Spain at the time had trouble paying the rent. And what’s worse, George had made a hobby of attacking trans-Atlantic Spanish convoys. Probably for rent money.
Napoleon, another strapping lad with ambitions of a global empire, hoped to regain the Louisiana territory to re-establish an Atlantic empire. But wouldn’t you know it, kings are just so bad at paying rent. Must be their hobbies. He decided to sell it in 1800 to shore up some funds for an all-new war with England.
In the end the Louisiana territory was sold for $261 million. This is cheap. This is half as much as Mel Gibson’s divorce cost him. Or Rupert Murdoch’s divorce could have paid for ten Louisiana territories. Point being it wasn’t much.
Why sell something for so cheap? Why didn’t they value something that seemed so worthwhile? Land is one of the most valuable things out there. They aren’t making any more of it.
Well, none of that matters if there’s nothing to defend it.
President Jefferson didn’t want to negotiate a sale because it implied that France had a right to be there at all, and was prepared to go to war to prevent a strong french influence. He sent Monroe to Paris to negotiate a settlement with back-up plans to negotiate a truce with England if they didn’t reach a deal to round out his pre-war checklist.
Spain, even though they asked for it to not fall into non-French hands, were too powerless to resist.
“The sale of Louisiana to the United States was trebly invalid; if it were French property, Bonaparte could not constitutionally alienate it without the consent of the French Chambers; if it were Spanish property, he could not alienate it at all; if Spain had a right of reclamation, his sale was worthless.”
Of course the sale wasn’t worthless, it happened and the check cleared. The sale price was really just enough to stop a tiny global incident (or half a Hollywood divorce). Control was ceded from Spain to France and then one month later from France to the USA. Ferdinand VII, sniffling, declared that this was totally what he wanted anyway.
Meanwhile Napoleon made plans to go to war with Britain, but Britain decided to go to war first, and Spain said “why not” and joined Britain’s side. In the middle of that the US goes to war with Britain (again) and the British march all the way to Washington D.C. to burn down the white house just to prove a point that maybe you are getting the poignancy of, here.
Would you please get to the end of this allegory?
Okay fine. Where was I? Oh yeah Bitcoin: It’s like cross-fit but you don’t even have to work out.
We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.
— Preamble to the Constitution
Think hard about these words, they are not there by accident. If it helps, remember that the framers did not work for Buzzfeed and were not paid by the click.
“Defense is superior to opulence.”
— Adam Smith
Land and some other hard assets have value, on and off. Money? It’s all make believe. Promissory notes. IOUs. What its backed by doesn’t matter, what matters is the discipline of the body that manages its supply and the utility it has to pay off debts and taxes within the spheres of government control.
American dollars have value because the US Government taxes things, like land, and if you do not pay those taxes they will send you mean letters (trust me) before resorting to other means (trust Al Capone). You pay these taxes in US dollars. You just having dollars does not make them valuable. And dollars are not valuable because they are backed by gold or silver or sea shells. What makes dollars valuable is that the government wants them back.
In exchange, the American government apparatus exerts all the influence it can to ensure that Americans, their possessions, and the reputation of the dollar (as a stable store of value) are upheld. This is what the preamble to the Constitution is about. The result is that everyone wants some dollars because they need them to pay the government so it can protect us from existential risks. As a nice bonus, the US dollar is respected well enough that even foreigners trust when the US says “we’re good for it.” Remember, Zimbabweans use the U.S. dollar.
Bitcoin value is make-believe just like money. But even though there is bitcoin-sphere governance, there are no bitcoin-sphere assets. Taxes are not paid in bitcoin. There is no FDIC, only hackers that lift a million here and there. And when nation-states decide its a nuisance, what are the guns of bitcoin? It’s anonymity? From the same government that created PRISM and then used mind-magic* to make everyone forget about PRISM? Please. You may think crypto-currencies that require more power than a small country to run can fly under the radar, but somehow I think not indefinitely. After all, becoming the next big thing would mean its a threat to the American dollar, do you really think the US Gov will shrug and say “shucks bitcoin went from a ponzi-novelty to something that will totally usurp this hegemony we worked so hard to make. Guess we’ll have to call it a day.” (If you think this, sell your Bitcoin and buy an imagination.)
The day you can pay tax bills to a government in Bitcoin is probably the day you can rest easy. Until then dear Bitcoin holders, you do have something of value, just like the Louisiana territory has value. But in this 1800’s metaphor, what makes you so sure you’re America?
Monopoly money is good to have, while the game is still running.
* by mind magic I mean the US government waited like a month for everyone to get back to useless bickering about toilets, flags, football, the birth of Prince George, or whatever else people thought was compelling in 2013.
This was written for fun because I’ve got writers block trying to write about something important. I tried to pick anything but tulips. Sorry if its way too US-centric, I know bitcoin afflicts us all.