In 1962, Daniel Boorstin crystallized a notion that had been around since at least the 1890s, writing of the new kind of celebrities: “Their chief claim to fame is their fame itself. They are notorious for their notoriety.” The same might be said of cryptocurrencies, NFTs, and meme stocks: They are valuable for being valuable.
So were the rare tulip bulbs whose prices rose to such heights in 17th-century Holland that the “tulip bubble” has been the standard to which other financial manias have been compared since. Exactly what drove the bubble is unclear: Futures markets had just been introduced, and tulips were one of the first speculative commodities to be explored. Imports of plants from distant regions, new technologies of plant breeding, and financial innovation made for a heady mix. The prosperity of the rising Dutch colonial empire may have, like today, produced abundant capital eager to be invested and looking for outsized returns in a market that offered tantalizing prospects. People bought tulip bulbs at outrageous prices with the seemingly reasonable expectation that they could sell them for even higher prices in future.
But the idea that crypto is simply a bubble may miss something important that this suite of technologies has to teach us about the economy. In Tulipmania, written in 2007, Anne Goldgar made the case that the tulip mania was far less widespread and damaging than outlined in Charles Mackay’s 1841 book Extraordinary Popular Delusions and the Madness of Crowds, which had made it so notorious. But even in minimizing its impact, she agreed that the tulip bubble called into question the very nature of what constitutes value:
In the 17th century, it was unimaginable to most people that something as common as a flower could be worth so much more money than most people earned in a year. The idea that the prices of flowers that grow only in the summer could fluctuate so wildly in the winter, threw into chaos the very understanding of “value”.
The question of what makes things “valuable” in the first place is a wonderful lens through which to think about cryptocurrencies, NFTs, and meme stocks. As economist Mariana Mazzucato outlines in her book The Value of Everything, the notion of value is not fixed. For early economists, only land and agricultural production created value. Trade, finance, and the power of princes were just moving that value around. By the time of Adam Smith, manufacturing was also understood to create value, but trade and finance—well, they were still just moving that value around. Over time, trade, finance, and entertainment have been brought inside what Mazzucato calls “the value boundary.” Meanwhile, household labor—child rearing, caring for aging parents, cooking, cleaning, and the like done by members of a household rather than purchased as a service—is clearly intrinsically valuable, even essential, but still remains so far outside the value boundary that it remains unpaid and isn’t even counted as part of GDP. So too, government is widely derided as an extractor rather than a creator of value, despite the efforts of Mazzucato and others to point out its contributions to innovation and economic growth.
Entertainment is a particularly relevant case in point for how sectors cross the value boundary. Adam Smith thought that opera singers, actors, dancers, and the like were frivolous and created no value for society. Today, many of our most highly paid professionals are entertainers: actors, musicians, athletes, TikTok stars and other social media influencers. Creativity has moved to the heart of today’s internet-fueled “attention economy.” (OK, maybe politics competes with it for that position, but modern politics shares with creative expression the bestowing of status through attention.) At the same time, much of what people do to entertain each other—both in person and on social media—remains unpaid and treated as outside the value boundary.
The question of how much value is being created by a new sector is not settled quickly when the boundary shifts. Finance is a good example. After the financial crisis of 2009, Lloyd Blankfein said with a straight face that Goldman Sachs financiers were the most productive workers in the world, even as their machinations brought the global economy to the brink of collapse.
The financial industry is in theory a key enabler of the rest of the economy, managing the flows of capital that allow businesses to invest, to hire, and to build and deliver new products and services. But a large part of finance operates in what we might call the “betting economy.” Hedge funds and other investors place bets on the direction of interest rates and the price of commodities or company stocks, and build sophisticated financial instruments to harvest profits from changes in those prices, regardless of their direction. Are these people creating value when they place these bets, or are they merely extracting it from someone else in a zero-sum game? That question remains up for debate. Nonetheless, those bets eventually are settled based on some measurable impact in the operating economy. What did the Fed do to interest rates? What were people willing to pay for corn or soybeans or scrap iron? What were Apple’s or Amazon’s or Tesla’s profits, and were they growing or shrinking?
With crypto and Web3 more generally, there is a similar kind of real-world bet that blockchain technology will reshape the plumbing of the financial industry. If it succeeds, the winners will eventually be rewarded with enormous profits, justifying the price that has been paid. Crypto might be a bubble, a flash in the pan that will enrich some speculators while impoverishing others. But it might also be a fundamental innovation that will lead to greater prosperity for all of society. And to many, that’s a bet worth placing.
However, much of the betting is not on the intrinsic value that crypto technologies might deliver in the future. Economist John Maynard Keynes compared financial markets to a beauty contest in which the point isn’t to pick the most beautiful contestant but to choose the one that everyone else will think is the most beautiful. And since everyone is playing the game, you’re trying to outguess other people who are constantly changing their votes based on what they think you and others are going to choose. What Keynes didn’t emphasize: it’s a contest! Rich people who have already met their every economic need continue to bet just for the sheer pleasure and addictiveness of playing.
NFTs and meme stocks are out at the bleeding edge of this betting economy, because they are largely untethered from traditional notions of value derived from profits in the operating economy. They might best be described as the tokens in a futures market for attention. Like tulips in 17th-century Holland, they represent a challenge to the very notion of “intrinsic value.”
Charlie Warzel captured perfectly the puzzlement that many people are feeling:
When I say I’m thinking a lot about cryptocurrency, what I really mean is that I’m thinking a lot about absurdity. I’m thinking about the way that groups of people who are good at harnessing attention are giddily, proudly using that power to drag absurdist memes/currencies/fortunes into mainstream discourse and force the rest of us to care about/debate/or at least know about it all.
And that’s the point where artist and impresario Andy Warhol, innovation expert Clayton Christensen, and Etherum creator Vitalik Buterin walk into the bar. They don’t start out talking about crypto, but like everyone else, they end up there.
Andy Warhol says: “What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you know that the President drinks Coca-Cola, Liz Taylor drinks Coca-Cola, and just think, you can drink Coca-Cola, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the President knows it, the bum knows it, and you know it.”
Clay Christensen replies: It’s worth noticing that a soft drink like Coke is basically a commodity—carbonated and flavored sugar water—mixed with a whole lot of marketing and branding. That’s actually the secret of the modern economy. I call it the law of conservation of attractive profits. “When attractive profits disappear at one stage in the value chain because a product becomes commoditized, the opportunity to earn attractive profits with proprietary products usually emerges at an adjacent stage.”
Tim O’Reilly and I had a real mind meld about that at the Open Source Business Conference in 2004, Clay continues. Tim gave a talk about how the internet and open source were commoditizing proprietary software. He’d noticed that after the IBM personal computer design had commoditized computer hardware, Microsoft had figured out how to make software the next source of proprietary value. Tim was seeing the pattern and was starting to think that what we now call “big data” was going to be the new source of proprietary lock-in and value. I was giving my talk about the conservation of attractive profits the same day, and so we had a real laugh about it. He’d uncovered a new example of just what I was talking about.
But as Tim and I continued to talk about this idea over the years, we realized that the law of conservation of attractive profits applies to way more than the alternating cycle of modularity and open standards versus tight proprietary integration that we’d both originally observed. Tim likes to point out that in a world where more and more has become a commodity, things become valuable again because we mix in ideas that persuade people to value them differently. Advertising makes a branded product bring a higher price than a generic equivalent. Cycles of fashion make the latest offerings worth more than last year’s perfectly good clothes. But that’s just the tip of the iceberg. Now everything is infused with imaginative value. People say, “This isn’t just coffee; it’s organic single-origin coffee.” We’re increasingly paying a premium for intangibles. In 2015, 55% of the $48 billion US coffee market was for “specialty coffee” of various kinds.
Dave Hickey, who’s been listening, pipes in: That’s been going on for a long time. After World War II, “American businesses stopped advertising products for what they were, or for what they could do, and began advertising them for what they meant—as sign systems within the broader culture.…Rather than producing and marketing infinitely replicable objects that adequately served unchanging needs, American commerce began creating finite sets of objects that embodied ideology for a finite audience at a particular moment—objects that created desire rather than fulfilling needs. This is nothing more or less than an art market.”
He really gets on a roll then, continuing with enthusiasm: “The Leonardo of this new art market was an ex-custom-car designer from Hollywood named Harley Earl, who headed the design division at General Motors during the postwar period. Earl’s most visible and legendary contributions to American culture were the Cadillac tailfin and the pastel paint job.” It’s not just about creating objects of desire, he continues, but about creating new mechanisms for signaling status. “Most importantly,…Earl invented the four-year style-change cycle linked to the Platonic hierarchy of General Motors cars, and this revolutionary dynamic created the post-industrial world. Basically, what Earl invented was a market situation in which the consumer moved up the status-ladder within the cosmology of General Motors products—from Chevrolet to Pontiac to Buick to Oldsmobile to Cadillac—as the tailfin or some other contagious motif moved down the price ladder, from Cadillac to Chevrolet, year by year, as styles changed incrementally.”
Giving a nod to the guy who’d kicked off the conversation, Hickey continues: “As Warhol [is] fond of telling us, the strange thing about the sixties was not that Western art was becoming commercialized but that Western commerce was becoming so much more artistic.”
Vitalik Buterin jumps in: I wish I’d heard about your work before, Dave. I wasn’t thinking enough about art. “I completely missed NFTs.” I was focused on practical applications like DeFi, incentivized file storage, and compute, and I didn’t think a lot about how much of the economy has become an art market.
Hickey replies that he wishes everyone would think more deeply about what art teaches us about how economies and people tick. I didn’t subtitle my book Air Guitar “Essays on Art and Democracy” for shits and giggles, he says.
Hickey then starts rhapsodizing about his fascination with cars growing up “in the American boondocks” during the 1950s and ’60s. “My first glimmerings of higher [art] theory grew out of that culture: the rhetoric of image and icon, the dynamics of embodied desire, the algorithms of style change, and the ideological force of disposable income. All of these came to me in the lingua franca of cars, arose out of our perpetual exegesis of its nuanced context and iconography. And it was worth the trouble, because all of us who partook of this discourse, as artists, critics, collectors, mechanics, and citizens, understood its politico-aesthetic implications, understood that we were voting with cars….We also understood that we were dissenting when we customized them and hopped them up—demonstrating against the standards of the republic and advocating our own refined vision of power and loveliness.”
In the computer industry, you can see how Steve Jobs did for Apple the exact thing that Earl had done for GM. From the 1984 Macintosh ad to the “Think Different” campaign, Apple wasn’t selling hardware and software. It was selling identity and a sense of meaning. The new $40 billion market for NFTs—essentially digital collectibles whose chief value is in the bragging rights of how much you paid for them or how cool and unusual they are—takes this idea to the next level.
Buterin replies: Your point about “demonstrating against the standards of the republic and advocating our own refined vision of power and loveliness” really resonates with me, and I suspect it will with a lot of the crypto community. We aren’t just thinking about how to advance blockchain technology. We’re also thinking a lot about upending the current financial system and about deep questions like legitimacy. “An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same.”
“Why is it that Elon Musk can sell an NFT of Elon Musk’s tweet, but Jeff Bezos would have a much harder time doing the same? Elon and Jeff have the same level of ability to screenshot Elon’s tweet and stick it into an NFT dapp, so what’s the difference? To anyone who has even a basic intuitive understanding of human social psychology (or the fake art scene), the answer is obvious: Elon selling Elon’s tweet is the real thing, and Jeff doing the same is not. Once again, millions of dollars of value are being controlled and allocated, not by individuals or cryptographic keys, but by social conceptions of legitimacy.”
But there’s more to it than that. “Which NFTs people find attractive to buy, and which ones they do not, is [also] a question of legitimacy: if everyone agrees that one NFT is interesting and another NFT is lame, then people will strongly prefer buying the first, because it would have both higher value for bragging rights and personal pride in holding it, and because it could be resold for more because everyone else is thinking in the same way.”
“If you’re not in a coordination game, there’s no reason to act according to your expectation of how other people will act, and so legitimacy is not important. But as we have seen, coordination games are everywhere in society, and so legitimacy turns out to be quite important indeed. In almost any environment with coordination games that exists for long enough, there inevitably emerge some mechanisms that can choose which decision to take. These mechanisms are powered by an established culture that everyone pays attention to these mechanisms and (usually) does what they say. Each person reasons that because everyone else follows these mechanisms, if they do something different they will only create conflict and suffer, or at least be left in a lonely forked ecosystem all by themselves.”
So one way to understand what we’re working on in the crypto world is that we’re building new mechanisms for solving the problems of consensus and coordination and legitimacy. And that’s also exactly what “the market” is doing when it tries to settle the messy question of value. So when we talk about building a new financial system with crypto, we’re not talking about just rebuilding the plumbing of the existing system with fancy new pipes, we’re questioning how value is created and who gets it.
We can change the way we distribute wealth. Crypto made a lot of people rich through the betting economy, but we don’t have to spend our gains just on new bets that make the rich richer, looking for the next breakout cryptocurrency or company. We can take those gains and give them away, as I did when I donated over a billion dollars of Ether and Shiba Inu coins to India for COVID relief. But more importantly, we can build new mechanisms for people to coordinate around socially valuable goals.
“The concept of supporting public goods through value generated ‘out of the ether’ by publicly supported conceptions of legitimacy has value going far beyond the Ethereum ecosystem. An important and immediate challenge and opportunity is NFTs. NFTs stand a great chance of significantly helping many kinds of public goods, especially of the creative variety, at least partially solve their chronic and systemic funding deficiencies.…If the conception of legitimacy for NFTs can be pulled in a good direction, there is an opportunity to establish a solid channel of funding to artists, charities and others.”
Buterin adds: Ethereum, NFTs, and DAOs are building blocks. “There’s a lot of different ways to connect every one of these components and most of the interesting applications end up connecting different pieces together.…I don’t see one kind of dominating use case. I just see it opening up the floodgates for a thousand different experiments.” NFTs are one experiment. DAOs are another. Who would have thought a few years ago that someone would organize a DAO to compete with billionaires to buy a rare copy of the US constitution or to buy land in Wyoming?
At this point, Blaise Aguera y Arcas, who’s been sitting over at the next table sketching out for his buddies the latest progress on Google’s LaMDA large language model and its implications for our notion of personhood, can’t resist leaning over and jumping into the conversation.
“We’ve been having these conversations for a long time about robots taking people’s jobs, and we’ve been thinking about it entirely in the domain of actual robots with arms and things. But the real impact is going to be that most middle class people nowadays are doing what David Graeber called bullshit jobs. And it’s clear that large language models can already do many of those jobs. We’re approaching the point where it feels like capitalism is maybe about to rupture, or something is about to rupture.”
He continues, “Graeber was questioning the legitimacy of labor in its modern form, and also the ideas of efficiency that supposedly underlie capitalism, which is actually tremendously inefficient in a variety of ways. And in particular, the thesis is that Keynes was right, in the ’20s and ’30s, in saying that, by now, due to automation, we’d all be working 15-hour workweeks. But rather than turning this into a utopia, in which we all have all these free services and don’t have to work a lot and so on, instead we’ve made a socialism for the middle class, socialism for the bourgeois, in the form of inventing all kinds of bullshit jobs.” And all the people who still have essential jobs—they still have to work, and we don’t pay a lot of them very well.
* * *
So what will people do if they no longer have to do bullshit jobs? Maybe they’ll make up cool shit and share it with each other, eventually building a world like the one Cory Doctorow imagined in Down and Out in the Magic Kingdom and Walkaway, where measures of status are the actual currency. In the meantime, some of them might show their creativity on YouTube or TikTok and convert status to value by directing attention to products and other people. Some might create and sell NFTs. Others might peddle bullshit startups or fancy new get-rich-quick schemes. But is that really new? The future always has its share of hucksters along with its inventors. Sometimes the same people are both.
Bill Gates once said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” That doesn’t mean to rush out and buy the latest meme stock, meme coin, or overpriced NFT. But it does mean that it’s important to engage with the social, legal, and economic implications of crypto. The world advances one bubble at a time. What matters is that what’s left behind when the bubble pops makes the world richer in possibilities for the next generation to build on.
Looking at the arc of the modern economy, we are on a path for the market for status to become a central part of how value is measured.
Let’s give John Maynard Keynes the last word, even though he left the bar long before we arrived. In “Economic Possibilities for Our Grandchildren,” the 1929 piece that Blaise referred to earlier, he wrote:
For the first time since [our] creation [we] will be faced with [our] real, [our] permanent problem—how to use [our] freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for [us], to live wisely and agreeably and well.…
To judge from the behaviour and the achievements of the wealthy classes to-day in any quarter of the world, the outlook is very depressing! For these are, so to speak, our advance guard—those who are spying out the promised land for the rest of us and pitching their camp there. For they have most of them failed disastrously, so it seems to me—those who have an independent income but no associations or duties or ties—to solve the problem which has been set them.
I feel sure that with a little more experience we shall use the new-found bounty of nature quite differently from the way in which the rich use it to-day, and will map out for ourselves a plan of life quite otherwise than theirs.
We’re now coming on to nearly 100 years since Keynes dreamed that optimistic, egalitarian dream and made his critique of the idle rich who were already living it. Abundance seems as far away as ever, or even further, and the rich haven’t changed as much as Keynes hoped.
It may seem deeply out of touch to talk about an economy of abundance when so many people face such great economic hardship. But that was also true for those alive in 1929. They had a worldwide depression and a great war ahead of them, and turned all their energies to dealing with both. Their success ushered in decades of widely shared prosperity. We face climate change, new pandemics, and persistent economic inequality and consequent political instability. Wars are not out of the question. Can we also rise to the challenge?
Through it all, the Next Economy beckons. We see its signs all around us. Keynes was right that humanity’s job in an economy of abundance is to learn to live together wisely and agreeably and well, but he was wrong to think that abundance will mean the end of competition and striving. If we do reach Keynes’s predicted future, in which more and more of what people depend on for survival has become cheap—a commodity—and our labor is not needed, how will the circulatory system of the economy sustain itself? Might the seeming froth and craziness of the crypto markets be an early implementation—not Web3 but NextEconomy1—of the next stage by which humanity engages in the ongoing imaginative competition to make things valuable again?
John Maynard Keynes died in 1946, Andy Warhol in 1987, Clay Christensen in 2020, and Dave Hickey just at the end of last year. I wish that they could have had this conversation with Vitalik Buterin, who joins them in thinking deeply about the intersection of art, economics, business, politics, and culture. I have put my own words into their mouths; those that are in quotation marks are their own, from their books, published articles, and interviews, though the order in which paragraphs appear may be different from the original. The quotes from Blaise Aguera y Arcas are from a recording of a Zoom conversation that we had while I was writing this piece. I told him what I was working on, and his thoughts were so relevant that I couldn’t help but include them.