How Can Machiavelli Inform the Bitcoin Debate?

So far, the debate on bitcoin and whether it can replace gold or other currencies as a medium of exchange or store of value has been very contentious. 

For a currency to be a medium of exchange, a significant majority of people should believe that it will be accepted by all or a large number of people in a given economy, and to be a store of value, it should not be extremely volatile. It seems that in the absence of credible central government sanctions backing bitcoin or other virtual currencies, it is very unlikely they would replace currencies. And since bitcoin lacks any intrinsic value, the likelihood that the gold would be replaced by it is nil. 

As we know, with the advent of the fiat money, the only reason that A is willing to accept a piece of paper as a banknote/legal tender is that B is willing to accept it from A and C is willing to accept it from A and B, ad infinitum. This means that in a given economy, everybody believes that everybody else believes that banknotes have some sort of credibility attached to them so that everybody in the economy will accept those notes. However, if one day, everybody loses his faith in the currency, the currency will lose its value entirely. Since the faith in a currency is of a dynamic and variable nature, it can be changed or lost by vicissitudes of the state of affairs in a given society.

Here is where the use of force and credibility originating from state’s monopoly on the legitimate use of physical force or violence would come in handy. Machiavelli, writing in the 16^th century on prophets and conquerors, and the reasons for their great achievements, notes:

“the nature of the people is variable, and whilst it is easy to persuade them, it is difficult to fix them in that persuasion. And thus it is necessary to take such measures that, when they believe no longer, it may be possible to make them believe by force.”

Like people's belief, their faith in a given currency is subject to change. Although people are willing to accept the virtual currencies right now, and they have come to believe that there are enough people with whom they can exchange virtual currencies, no one knows whether these virtual currencies would survive without the backing of the state if an exogenous shock, that can lead to loss of faith in the currency, occurs.

Therefore, to fix the people's belief in a given currency, every now and then, the use of state's monopoly on the use of force that backs up the currency is necessary. And without the use of such a credible force, it is less likely that a currency can survive the winds of time.

On Trash Culture

Mr. Abazari’s controversial remarks about Mr. Pashai’s artistic style sparked a host of reactions from a spectrum of intellectuals, academics, and the general public regarding deplorable cultural life of the Iranians. This note is an attempt to explain why some styles of artistic works are more popular than the others and what can be done to enhance the cultural taste of a nation. 

(Assuming that there is such a thing as trash/low culture and high culture) there seems to be a positive correlation between the level of trash culture and the level of economic underdevelopment. Meaning that higher underdevelopment correlates with higher levels of trash culture in a given society. Why is it so? One explanation might involve the fact that the cultural products are luxury (superior) goods. 

As we know, the consumption of luxury goods depends on the level of income. With higher income, the consumption of luxury goods rises disproportionately, and with lower levels of income, there will be a disproportionate decline in the consumption of such goods.

This basic idea suggests that in high-income households, one should expect more of cultural products with better quality. By contrast, trash culture products can, by definition, be produced cheaper and hence would be more affordable for low income or middle-class households. Therefore, one would expect higher levels of trash culture among low income and middle-class households.

The problem is that the high culture proponents want to impose high culture on those for whom the culture is the least concern, because of their involvement in everyday life and struggle for making a living. For such families, since investing in culture and investigating which artistic product is of higher quality entails higher opportunity costs, they are better off forgoing such an inquiry at the first place (rational ignorance). Indeed, it is best for them to rationally ignore the cultural concerns, because they have a lot of more important concerns. Therefore, the artistic taste of low income and middle-class families may not change unless their economic status changes. 

Since it is not difficult to explain the abundance of trash culture among low-income households, the more intriguing question involves the presence of trash culture products among the rich. So, the main question is why one might see trash cultural products among the rich. There are two possibilities; first, those having trash culture tendencies among the rich might be outliers; second, the change in cultural tendencies is sticky and such a change cannot happen overnight or even in one generation. In other words, “it is impossible to become both educated [rich] and a gentleman in one generation.”

Based on such a simple analysis, to those cultural prophets who want to enhance and make an impact on the cultural education of the masses, I have three pieces of advice (if I may):

1. Forget about the poor, and probably the middle class. They most likely and perhaps rightfully will not heed you.

2. For the rest of the people including the rich, keep calm and let the water find its level.

3. Since there is huge economies of scale in selling cultural products, the artists are also better off engaging in producing trash culture and selling it to more people in low prices rather than producing high quality cultural products and selling them to fewer number of people. Therefore, it is not surprising to see a higher tendency towards trash culture not only among the general public, but also among artists. The third advice then follows: about culture, take it easy. Without substantial changes in economic livelihood, it is very unlikely to change cultural life by arrogantly yelling at the people.