Dr. Klaus Holthausen
CEO of TEAL
“Does a crypto currency count as money or not? “- ever since the invention of the Bitcoin ten years ago this question is repeatedly being discussed. A monetary unit has mainly three functions: it is a means of exchange, an arithmetic unit, and a value storage. However, currently the bitcoin is mainly used as object for investment, making it a value storage like many other crypto currencies. So, it fulfils only one of the three monetary functions. What is happening to the vision, that crypto currencies are going to be a normal part of our economic cycle?
What amount of money is economically appropriate?
The following question for Euro and Crypto currencies like Bitcoin will have to be answered: What amount of money of a currency is economically appropriate? The Hayek Geld (1) is a proposal to create a stable unit of account. In this concept the amount of Krypto monetary units is periodically adapted to the purchase power. This idea could for example be illustrated with a pre-defined shopping basket. Aim would be to keep the price of the shopping basket, measured in Krypto monetary units as stable as possible. Should the value of the crypto money change, monetary units are destroyed. Should the value of the crypto money increase, the offer will be extended, and new monetary units will be created.
The Money theory of Keynes
The proposal of Hayek is interesting; however, its logic appears too imbalanced. Those who look deeper into the theory of money by John Maynard Keynes, will be able to detect a better approach to finding a solution. Of course, we do not know how Keynes would assess today’s crypto currencies. But we can match his basic principles and his attitude to the situation of today. In chapter V of his third book “A Treatise on Money” Keynes discusses the context of bank-rate (i.e. interest) and the amount of money: “A change in bank-rate may in itself modify the velocities of circulation, by changing the amount of sacrifice involved in holding balances. To the extent that this is the case a fall in bank-rate will decrease velocities. On the other hand … an increased briskness of trade is likely to increase velocities. Thus a reduction of bank-rate which is associated with a stagnation of trade may decrease velocities, but one which is associated with brisk trade may serve to increase them on balance.”(3)
Dominating factor for Keynes: The amount of money
At present we are not really interested in the detailed relationship between amount of money and interest rate. We highlighted the words “likely” and “can” since they correspond with the means Keynes had available to him: Statistics and probability calculation. Keynes himself laid the foundation with his thesis “A Treatise in Probability”. To keep it very simple: Keynes had to solve equations with many unknowns. (Therein the human behaviour as the most significant unknown, see below). Due to the lack of empiric information Keynes counted mainly on the examination of the amount of money: “The total amount of money stays, if not a ruling but in the long term a dominating factor, a factor which will remain of greatest practical importance because it can be controlled the most.” (4)
Now, every crypto currency is based on blockchain technology. The latter corresponds to a distributed, forgery proof register of the transactions. This also means that potentially very comprising information about circulation of money and consumer- as well as saving behaviour of humans can be obtained in, so to speak, real time.
Unlike Hayek money, which relies on the purchase power as parameter, the Keynes money would use a multitude of empiric parameters, mapping the real economic exploitation of the crypto currency.
The biggest unknown factor in the crypto currency world remains the human being
Needless to say, that even in the crypto currency cosmos, the human factor remains the biggest unknown – mainly due to the fact that market participants behave in a completely different way to the assumed rational beings in our textbooks. Reading the paragraph where Keynes describes speculative transactions you are immediately reminded of current developments: “Thus, so long as the crowd can be relied on to act in a certain way, even if it be misguided, it will be to the advantage of the better-informed professional to act in the same way – a short period ahead. Apart, moreover, from calculations of greater or less ignorance, most people are too timid and too greedy, too impatient and too nervous about their investments, the fluctuations in the paper value of which can so easily obliterate the results of so much honest effort, to take long views or to place even as much reliance as they reasonably might on dubieties of the long period;- the apparent certainties of the short period, however deceptive we may suspect them to be, are much more attractive.” (5)
Empiric data are the key
Thus the only conclusion remains, to collect as much empiric data on the behaviour of the “audience” as Keynes describes in his closing remarks: “In the case of monetary science there is a special reason why statistics are of fundamental importance to suggest theories, to test them and to make them convincing. Monetary Theory, when all is said and done, is little more than a vast elaboration of the truth that, “it all comes out I the wash”. But to show this to us and to make it convincing, we must have a complete inventory. That the amount of money taken by the shops over the counter is equal in the aggregate, to the amount of money spent by their customers; that the expenditure of the public is equal, in the aggregate, to the amount of their incomes minus what they have put on one side; – these simple truths and the like are those, apparently, the bearing and significance of which it is most difficult to comprehend.”(6)
Keynes Money – a crypto currency
We define crypto money as a crypto currency which uses as much economically relevant information from the blockchain as possible and then analyses it in accordance with John Maynard Keynes’ rules in mind. These do not connect to political conclusions – like deficit spending. Our focus lies on the link of the data pool of the crypto currencies with the empiric money theory. It is possible to accept the theory of added value by Karl Marx without sharing his conclusions. The theory of a global crypto currency has not been written yet and requires years of experience, experiments, and occasional failure.
We at TEAL are – like many others – convinced that the trend to decentralized networks is irreversible and that we will have to discuss such future questions already today. We want to contribute to objectification and promote public discussions in our community.
 Fernando M. Ametrano. “Hayek money: The cryptocurrency price stability solution.” 2014
 Aleksander Berentsen, Fabian Schär, “Bitcoin, Blockchain und Kryptoassets. Eine umfassende Einführung” 2017
 John Maynard Keynes, A Treatise on Money vol i 1930, page 218
 [John Maynard Keynes, Vom Gelde (A Treatise on Money) 1931 (unveränderter Nachdruck
1955, August Raabe, Berlin)a.a.o. Seite 334
 John Maynard Keynes, A Treatise on Money vol ii 1930, page 361
 John Maynard Keynes, A Treatise on Money vol ii 1930, page 408