Bitcoins (2)

However, having said bad things about bitcoins, we must stop and consider:
http://delong.typepad.com/sdj/2013/04/bill-janeway-the-two-innovation-economies.html#more

The Two Innovation Economies by William Janeway:

For 250 years, technological innovation has driven economic development. But the economics of innovation are very different for those at the frontier versus those who are followers striving to catch up. At the frontier, the innovation economy begins with discovery and culminates in speculation… progress has been achieved through trial and error. The strategic technologies that have repeatedly transformed the market economy – from railroads to the Internet – required the construction of networks whose value in use could not be known when they were first deployed.

Consequently, innovation at the frontier depends on funding sources that are decoupled from concern for economic value… cannot be reduced to the optimal allocation of resources. The conventional production function of neoclassical economics offers a dangerously misleading lens through which to interpret the processes of frontier innovation.

Financial speculation has been, and remains, one required source of funding. Financial bubbles emerge wherever liquid asset markets exist. Indeed, the objects of such speculation astound the imagination: tulip bulbs, gold and silver mines, real estate, the debt of new nations, corporate securities. Occasionally, the object of speculation has been one of those fundamental technologies – canals, railroads, electrification, radio, automobiles, microelectronics, computing, the Internet – for which financial speculators have mobilized capital on a scale far beyond what “rational” investors would provide. From the wreckage that has inevitably followed, a succession of new economies has emerged. Complementing the role of speculation, activist states have played several roles… transcend[ing] narrow economic calculation: social development, national security, conquering disease….

Bubbles are part of nature.
When the bubbles burst, there may yet remain a valuable technology, sometimes not.

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