One of the earliest definitions of money, the labor theory of value (LTV) was given by Karl Marx in 1867 in which he said the number of hours of labor to produce a commodity determines its value. Perhaps this is one of the ideal definitions to identify money as the medium of exchange in terms of commodity exchange value since money by default has the value of labor power, according to lead economist Paul Cockshott, Honorary Research Fellow at University of Glasgow.
Interestingly, this 19th-century definition applies to modern day digital assets such as cryptocurrencies say economic and financial theorists. But there is more to cryptocurrencies underlying principles of ‘Proof of Stake’ and ‘Proof of Work’ and distributed networks. It signifies the decentralization of coins which are mined on the basis of labor such as bitcoins or proof of stake as Ethereum’s ETC.
The goodness of these digital assets is their “proof of” labor –tag. Thus, Marx’s Labor Theory of Value has relevance nearly two centuries apart with decentralized digital currencies of today.
But the big question today is how much further will bitcoin have to grow before there is universal adoption. For at this stage, these coins and alternates are a matter of belief rather than an actual financial product in the conventional sense.
However, the classic money definition has undergone a change sharply in 1971. Until then currency was ‘represented’ as paper notes and was pegged to gold or were direct representatives or symbols of gold. But in 1971, all of this changed, with the US government banning Gold as the standard. It then launched a new system, and this system is followed even to this day for the United States Dollar. Apparently even Euro, the unified currency of the European Union value is also determined in a similar manner.
The theories by which these currencies were raised are also called the State Theory of Money. This is so because the nations need to collect tax debts and these have to be paid only in the state-appointed money which is United States Dollar and Euro in the EU. Thus, there is a lot of clarity on the use of fiat currencies. The theory thus identifies the “process” of the state taking over surplus labor to bring value to the currency.
In the view of fiat-currency economists and purists, bitcoins and their ilk are slowly but surreptitiously being accorded state recognition via the same rules which are ostentatiously put into place to monitor currencies. Long live digital currencies!