I think Bitcoin reflects the fact that while commerce is increasingly global and digital, money isn’t. But while Bitcoin may gain traction as a safe, easy to use retail currency in the digital era, I’m not so sure it will ever be a global currency a la the dollar or euro, one in which debt is issued or stocks traded. After all, it has no sovereign to guarantee its value and no central bank to regulate its ups and downs (which tend to be sharp).
For more on whether you should be buying into Bitcoin, check out this week’s version of WNYC’s Money Talking.
Bitcoin has generated a lot of buzz because of its ingenuous design, but how widespread its use will become has just as much to do with government policy as any of the virtual currency’s inherent qualities.
Bitcoin prices, for instance, plunged in December following a decision by the Chinese central bank to ban financial institutions from transacting in the virtual currency. The latest government actions to effect Bitcoin, however, deal with how tax authorities will treat it.
The IRS has yet to weight in on how U.S. taxpayers should treat their bitcoin holdings and transactions as they prepare to file 2013 taxes, leaving many scratching their heads as to how much they owe the government. Jonathan Horn, a certified public accountant in New York told the Wall Street Journal, “If you take a reasonable position, they probably will accept it,” with regards to treating bitcoin like a currency, commodity, or asset.
But when the IRS does eventual rule on how to treat bitcoins, it will have big implications for their popularity. Currency gains, for instance, are taxed at a higher rate than capital gains in assets like stocks. Furthermore, if the IRS agrees with Sweden that bitcoin is an asset rather than a currency, it will force users to deal with complicated tax rules associated with bartering. This would certainly dissuade some businesses from accepting the currency who don’t want to deal with the record keeping and other headaches associated with bartering.
If you live in Hong Kong, Singapore, Australia or Switzerland, the answer is yes. If you live in Zimbabwe, Cuba or North Korea, then no. And if you live in the United States, your economic freedom is slipping away—with dire consequences.
This, at least, is the warning sounded by Terry Miller, director of the Center for International Trade and Economics at the Heritage Foundation, which has teamed up with TheWall Street Journal to produce the “2014 Index of Economic Freedom.” The Index evaluates the commitment to free enterprise using 10 categories, including fiscal soundness, government size and property rights.
According to the Index, the United States has dropped out of the Top 10 economically freest countries and now occupies 12th place, below Mauritius, Ireland and Denmark. “The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy,” Miller asserts. “The intervention impedes both personal freedom and national prosperity.”
To many of these results and claims, we believe, Peter Drucker would have cast a skeptical eye.
It’s not that he would have supported current U.S. economic policy; in many areas, he would not. But Drucker often questioned the utility of evaluating the world’s nations primarily through the prism of economic freedom.
When it comes to liberty, Drucker wrote in The Future of Industrial Man, what really matters to people is the freedom to choose and act in what he called “the socially constitutive sphere”—the “sphere in which the values are the social values of a society, the rewards the social rewards, the prestige the social prestige, and the ideals the social ideals.” This sphere would differ from place to place. Yes, it might be economic. But it might also be religious, or tribal, or (as in Germany of the 19th century) cultural.
“If the socially constitutive sphere in a society is not free,” Drucker wrote, “the whole society is unfree.”
Drucker felt that failing to understand this truth led to misguided attempts to introduce one society’s notion of liberty to another. “The Western world, for example, found it almost impossible to understand that capitalist economic freedom was not freedom for the Balkan peasant,” he wrote. “Their society was tribal and religious. Economic freedom to the Balkan peasants simply meant insecurity, the tyranny of the international market and the compulsion to choose and to act as a responsible individual in a sphere in which they saw neither need for, nor justification of, choice and responsibility.”
I am a retired accountant & tax consultant now devoting much of my time to upgrading my own website, writing up my blog. I play sports on a weekly basis and is engaged in some voluntary work. I am also an amateur astronomer doing online research and quite proud of my research project. Details of my research in astronomy can be viewed on my website. Just click on any blog title ( in green colour ) or hit the link in my complete profile to access my website.
