The shameful link: http://mises.org/daily/6399/The-Moneyness-of-Bitcoins
Here at the forums, people have been commenting about the decline and fall of this site. One more indication.
Readers of my bitcoin articles know...
1. Which parts of the article are irrelevant.
2. Which are dead wrong.
3. Why they are wrong.
To sharpen the ole intellect, you can do the following. Search for the article Bitcoin All in One Place on my blog. Read it, and what it links to. Then, as an exercise, find the errors in the pitiful Mises Daily article.
One hint to get you started: He says bitcoin satisfies the regression theorem because it is an "investment good." One of many blunders.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
You just can't accept that bitcoin is the future Dave. You're just stuck in your primitive ways of thinking that gold and paper money are the only true types of currency.
You can't handle the truth, Dave.
Neo,
I hope that's in sarcasm font.
Could you handle it if it weren't, Dave?
I think SD did a darn good job of explaining why Bitcoin will eventually find its way to the same destination of the Ithica Hour. After reading the other thread, there really wasn't any convincing argument made to prove otherwise.
It would mean you have slid down yet another spot on the scale: http://mises.org/community/forums/p/33177/516341.aspx#516341
Thanks jmorris.
'Tis a lonely vigil at times debating the bitcoiners, like Zorro fighting off twenty or thirty of the fat sergeant's clumsy soldiers single handedly.
Nice to see encouragement.
[Another day at the office for Smiling Dave]
lmfao! I always agreed. I just don't say anything because your sword-fu is doing fine and I don't care whether people learn the hard way if they want to play hard to get.
I was on the bitcoin IRC channel earlier today educating myself about bitcoin and the atmosphere was like a cross between a religious gathering and investors talking about a rising stock to invest in. It had a significant euphoria to it, which is fine, just understand that those not in its grasp will require solid arguments before they accept the claims.
"It would mean you have slid down yet another spot on the scale: http://mises.org/community/forums/p/33177/516341.aspx#516341"
Where am I now, exactly?
I've actually never even looked into the bitcoin debate, I'm not even entirely sure what it is. From the little bit that I know I'm surprised it even attained an initial value. This inherent fluke could cause it to maintain some stable sort of value in the future, but due to what I know of its nature it seems inherently unstable. It might be a case of a currency "latching on" to another currency. This is almost worthless speculation, however.
Only you can answer that, my son.
I've actually never even looked into the bitcoin debate, I'm not even entirely sure what it is.
Given that, isn't it a bit harsh to suggest I'm getting senile?
"Only you can answer that, my son."
As I recall I decided that none of the rungs fully supported the actual weight of my beliefs, so I guess I'm at the "top" or "bottom", whichever the Austrian end of your ladder would be.
"Given that, isn't it a bit harsh to suggest I'm getting senile?"
Is it if you can't handle the truth that bitcoin is the most brilliant invention since sliced bread?
jmorris84: I think SD did a darn good job of explaining why Bitcoin will eventually find its way to the same destination of the Ithica Hour. After reading the other thread, there really wasn't any convincing argument made to prove otherwise.
jmorris84,
kindly consult these posts that I made on my blog. I unmask how Smiling Dave is contradicting himself, and how he's weaseling out of answering questions. I also thoroughly debunk the analogy to complementary currencies such as the Ithaca Hour, using the very references Smiling Dave himself provided (i.e. even assuming all of his references and assumptions are correct, the conclusion that he draws from them still does not follow).
http://www.economicsofbitcoin.com/2013/02/the-contradictions-of-smiling-dave.html
http://www.economicsofbitcoin.com/2013/02/smiling-dave-responds-or-not.html
Also, you might want to read my master's thesis at http://dev.economicsofbitcoin.com/mastersthesis/mastersthesis-surda-2012-11-19b.pdf, or wait for an upcoming book (to be published by Laissez-Faire Books).
Have a nice day,
Peter
The main problem I see with BitCoins is that they aren't scarce. Anyone can design their own BitCoin2, BitCoin3, etc. and issue as many coins as they want.
What if someone creates a SuperBitCoin system which accepts BitCoin but also allows more coins beyond the 21 million allowed by BitCoin; say 210 million coins pre-mined by the designer? Per Gresham's law, won't the bad money chase away the good? What if it has backing of Amazon where you can use them to buy books or other goods?
Honestly I don't see how it would play out exactly, but it's not my job too. The free market will, sooner or later, find a way to set these non-scarce goods to the equllibrium objective exchange value, viz. nothing.
Bitcoins -are- scarce, and creating an alt-currency copy doesn't suddenly magically produce more bitcoins, it only affects that alt-currency.
Furthermore, having more than 21m coins isn't automatically a benefit to anyone, so it doesn't constitute a reason to prefer that over an established cryptocurrency.
"Per Gresham's law, won't the bad money chase away the good?"
Gresham's law says that money overvalued by the government will disapear into hoards or flee abroad. It only has to do with government intervention
Hayek would have supported bitcoins
"A Free-Market Monetary System"
http://mises.org/daily/3204
no, gresham's law applies to free market coinage and other money as well. ask yourself, if the merchant will accept either one for the same item, do you spend the shiny, new silver coin or the one that has been scratched and dinged up?
You look at it from the side of the consumer only but the merchants will only take up the worn coin at a discount
"if the merchant will accept either one for the same item" A merchant like this would go out of business fast everyone will bring the worn coins to him. In fact I would assume a merchant will most likely pay more attention to the quality of coins than most consumers
I believe I specified that they would not insist on a discount. when we look at actual transactions oftentimes volume is more important than precision and so they would not necessarily discount the coin and so Gresham's law applies. however this means that bitcoin+ would trade at a discount to bitcoin unless it somehow represented an improvement.
quit assuming and look at it from the perspective of the merchant. of course no one suggested that he would accept any and every coin. time is money and at a certain volume of business (when you have a line at the register) then it becomes more important to move product than haggle over a tenth of a pence. any business with margins so thin that they would have to discount any coin that wasnt a perfect 70 is going under soon anyway, unless its a coin shop, so I dont see what your point is. minor imperfections arent readily discernable, look up "dusting" where one would shake a bag of bullion in order to spend the coins and sell the dust as scrap precious metal. every merchant isnt going to weight every coin, youre being ridiculous.
Edit: Posted before I saw your last post. I agree but in this case the wearing of coins isn't enough to make much of a difference so Greshams law wouldn't apply on a hampered or unhampered market. The point I was making was that Gresham's law does not happen on the free market
End edit
I think if we had no legal tender laws people would not care as much what is stamped on the coin but would care more about the metal it is made out of. Old worn coins might start trading at a discount and on a free market with no legal tender laws it might be profitable to melt the older coins thus only keep the highest quality money in the economy. On the free market only the highest quality money would survive
Even with paper money old paper money is frequently replaced with new ones so we don't see alot of old torn paper money
In Hayek's book on a free monetary system he gave examples of governments ceasing the free minting of coins thus making the government minted coins a higher quality than regular gold bullion, so Hayek gave examples of a higher quality money outperforming lower quality money
Edit again: Hayek was talking about silver coins not gold. Anyway this is a good article to read http://mises.org/daily/3204
The government happened to have a really good adviser on monetary policy, Carl Menger, and he told them, "Well, if you want to escape the effect of the depreciation of silver on your currency, stop the free coinage of silver, stop increasing the quantity of silver coin, and you will find that the silver coin will begin to rise above the value of their content in silver." And this the Austrian government did and the result was exactly what Menger had predicted. One began to speak about the Austrian "Gulden", which was then the unit in circulation, as banknotes printed on silver, because the actual coins in circulation had become a token money containing much less value than corresponded to its value. As silver declined, the value of the silver Gulden was controlled entirely by the limitation of the quantity of the coin.
The same happened with British India with silver coins
And with Sweeden on the gold standard
Now, Sweden also happened to have one or two very good economists at the time, and they repeated the advice which the Austrian economists had given concerning the silver in the 1870s, "Stop the free coinage of gold and the value of your existing gold coins will rise above the value of the gold which it contains." The Swedish government did so in 1916 and what happened was again exactly what the economists had predicted: the value of the gold coins began to float above the value of its gold content and Sweden, for the rest of the war, escaped the effects of the gold inflation.
I agree but in this case the wearing of coins isn't enough to make much of a difference so Greshams law wouldn't apply on a hampered or unhampered market. The point I was making was that Gresham's law does not happen on the free market
my point is that youre wrong because greshams law always applies. so you spend a dirty coin and the merchant discounts it. so you spend two dirty coins and the merchant gives you a smaller dirty coin as change. both of you keep your shiny coins in your pockets.
Peter,
Sorry, I'm not reading 90+ pages on why you think Bitcoin is money. It can be explained why gold is money in a paragraph, maybe two. The same can be done as to why we pass around fiat. Condense your thesis into a couple pages and I'll take a look at it.
Malachi,
1. At least post a link to my blog in your infantile signature.
2. You don't understand Gresham's Law.
Hint: there's this thing called wikipedia. It's not part of my blog, so you can read it.
so you spend a dirty coin and the merchant discounts it.
An example of grisham's law not in effect.
so you spend two dirty coins and the merchant gives you a smaller dirty coin as change.
Ditto.
both of you keep your shiny coins in your pockets.
Non sequitor. What if you want full, not discounted, value for your coin? You use the shiny one.
You can write a lot in your blog or you can put some skin in the game.
If you think bitcoin is going to collapse you can always short a bunch a futures right now and wait to cash in a nice profit.
https://icbit.se/futures
All predictions are only worth the odds and stakes you're willing to accept for them. Otherwise it's just abstract nonsense like how many angels can fit in a pinhead.
In case you've already made the trade please disconsider this... it's that I just got this vibe from the few things I've ready that you're talking out of your ass, but hey, maybe I'm wrong.
Toxic,
Your post is exactly what a gambler would write. Take a risk, what the heck. The bitcoin crowd kind of thinking. A few have even said that the whole value of bitcoin is to gamble with. Of course, that's a total fail of understanding the regression theorem, but they said it.
In any case, AE does not say when bitcoins will collapse. If you look at my blog, you will see that the Ithaca Hour lasted 20 years before falling dead. other currencies lasted 5 years.
How many people do you know who short something 20 years hence?
Just to give you some perspective on how an economist thinks, Mises said it was dead certain that Socialism would collapse. 100% guarenteed, as sure as the sun will shine. It took SEVENTY YEARS. Would you have told him to short Russia, because otherwise he is talking out of?
In "Principles of Economics" by Carl Menger he gives a traveler's account of Burma and the merchants were concerned about the fineness of the silver.
http://mises.org/books/mengerprinciples.pdf
Electronioc page 282
“When a person goes to market in Burma,” Bastian relates, “he must take along a piece of silver, a hammer, a chisel, a balance, and the necessary weights. ‘How much are these pots?’ ‘Show me your money,’ answers the merchant, and after inspecting it determines a price at this or that weight. The buyer then asks the merchant for a small anvil and belabors his piece of silver with his hammer until he thinks he has found the correct weight. He thereupon weighs it on his own balance, since that of the merchant is not to be trusted, and adds to or takes away from the silver on the scales until the weight is right. Of course a good deal of the silver is lost as chips drop to the floor, and the buyer therefore usually prefers not to buy the exact quantity he desires but one equivalent to the piece of silver he has just broken off. In larger purchases, which are made only with silver of the highest degree of fineness, the process is still more complicated, since first an assayer must be called who determines the exact degree of fineness, and who must be paid for this task.”
Of course in an anarcho capitalist society people would most likely use mostly bank notes backed by precious metals and they could also use silver and gold minted by trusted private mints so people don't have to go through all the trouble of testing weight.
If merchants decide that bitcoin is a desirable currency they will accept bitcoins, they will however not accept what they consider to be inferior imitators. Bitcoin owners have nothing to fear from Gresham's law. If bitcoin turns out to be the best currency then it will beat out everything else
However bitcoin seems extremely dangerous right now can't believe it shot up over $200
in light of your qualification I am unsure as to what signature you allude. however I will inform you that I am reporting you for attempting to instigate violation of forum rules.
who is grisham?
non sequitur. money is fungible.
neither gold nor Bitcoin are money. Money is, per Mises/Rothbard/etc, a generally accepted medium of exchange. Gold and Bitcoin are media of exchange, but they are not generally accepted.
Regarding my theses, all chapters have conclusions, and there's a final conclusion at the end. You can skip over the other parts and just read the conclusion.
Smiling Dave:Your post is exactly what a gambler would write. Take a risk, what the heck. The bitcoin crowd kind of thinking. A few have even said that the whole value of bitcoin is to gamble with. Of course, that's a total fail of understanding the regression theorem, but they said it.
And that's not a compliment I suppose.
But "gambler" can be anything from a poor schmo seeking to get rich quick with what he perceives to be sure-things, or a thrill-seeking individual with a somewhat large and disposable networth, or an expert forecaster that makes his living by prospecting favorable odds and placing calculated bets on them.
But if you happen to identify the mistakes of the "fish" (the gambling addicted schmo or the deep pocketed thrill-seeker) it makes no sense not to become the "shark", and bet against them.
Of course, talk is much cheaper.
Smiling Dave:In any case, AE does not say when bitcoins will collapse. If you look at my blog, you will see that the Ithaca Hour lasted 20 years before falling dead. other currencies lasted 5 years. How many people do you know who short something 20 years hence? Just to give you some perspective on how an economist thinks, Mises said it was dead certain that Socialism would collapse. 100% guarenteed, as sure as the sun will shine. It took SEVENTY YEARS. Would you have told him to short Russia, because otherwise he is talking out of?
Just to give you some perspective on how a "real gambler" thinks, you don't need a "sure thing" to place a bet.
If you expect something, say "bitcoin", to have, say, 10% chance of collapsing in the next year, and the market seems to believe that on aggregate the chance is 1% or less, in the sense that they are paying the corresponding odds, you should take the bet.
Of course, not with your entire bankroll, because in any case, even if you're right about bitcoin risk, you're going to win money only 10% of the time. But you size your bet by some risk-management criteria, and you look for similar odds happening elsewhere, and you repeat the process. Such favorable odds will make these wins large enough to compensate the 90% of the time you loss, so in the long run you expect to profit.
Now if you're not willing to walk your talk, and show your performance by beating the market, there's not much relevance in your prophecies.
Anything that has a small chance of happening will happen after enough time has passed. It's like that Fight Club quote: "On a long enough time line, the survival rate of everyone drops to zero."
So if your claim is that "eventually" bitcoin value will revert to zero, eventually meaning anytime between now and the eternity, I totally agree, but, then again, that's a useless platitude.
Peter, it is true that gold is not money today but it was at one point. There are reasons, which I'm sure you are aware of, that gold is not being used as money today but I don't believe that matters. I thought that this debate was about bitcoins and whether it is or could be money. I used gold in my previous reply because, like I said, it was once used as money and the reason for that could be explained in just a couple of paragraphs. The fact that it takes you and many others pages upon pages of explanations to defend bitcoins, quite honestly, tells me that you and others don't really have a simple explanation as to why bitcoin is or could ever become money. It shouldn't take a 90+ page thesis to have to explain something like that in my opinion.
On the prediction of soviet collapse.
It's one thing to make a theoretical argument of the eventual impracticality of central planning within a complex economy.
This is a very valid argument, when it's correctly understood, and not mistaken with a prediction.
In his "Economic calculation in the socialist commonwealth" Mises studied the implications of this particular element in the coordination of production, an argument further refined by Hayek.
Everybody knows the anecdotes of soviet bureaucrats struggling to affect millions of prices in and the subsequent losses in shortages and surpluses they created, sometimes intentionally, but almost always by accident and lack of better information.
But it's a mistake to assume that the validity of such arguments are enough to establish the collapse of the soviet economy in any reasonable timeframe.
Soviet style socialism was a very complex self-perpetuating and adaptive political system, with certain elements of economic central planning.
But a huge number of other factors were involved in determining the survival rate of the regimen.
The extent of existent human and physical capital feeding the slave economy of their gulags with large supplies of disposable labor factors from Russia and it's orbiter states, the penetration of soviet academic propagandist and operatives in the West and the credibility and approval of their opponents, Stalin acquisitions after WWII, their virtual control of the U.N. general assembly through their multiple puppets in Africa, the results of their attempts to nuclear blackmail and other brinksmanship tactics and so on.
These and other factors contributed, for a while, to the persistency of the soviet self-perpetuating conspiracy form of government.
They offered opportunities of growth that were, at the time, enough to overcome the production costs of a central system.
The socialist calculation argument was an impressive tour the force pulled by von Mises, but it was by no means a definitive death sentence for bolshevism in any practical sense, and that's why they survived for 70 years threatening the free world.
I can do that briefly if you want, but you'll have additional questions and so on.
I don't know if Bitcoin ever becomes money. However, Bitcoin already is a medium of exchange, and that's a success. In this function, medium of exchange, I expect its market share to grow, because it decreases transaction costs.
I know the reasons why gold isn't money anymore. It wasn't able to withstand the attacks from the banks and the state. But Bitcoin is more resistant in both of these categories, so it has a comparative advantage against gold.
If Bitcoin ever becomes money (i.e. outcompetes other media of exchange), that would be really awesome, because it would provide an inelastic supply and, if you believe in ABCT, end the business cycles. Unlike gold, Bitcoin gaining market share does not require a political reform or a total economic collapse, nor does the enforcment of an inelastic money supply require legal reform of fractional rererve banking.
Simple enough?
So you believe that Bitcoin could become money because it "decreases transaction costs" and it is more resiliant, in your opinion, against "attacks from banks and the state?"
In regards to your last point, are you insinuating that gold needed "political reform" and a "total economic collapse" in order to gain market share in the past?
Here are two paragraphs explaining the original intent of Bitcoin:
Bitcoin: A Peer-to-Peer Electronic Cash System - Satoshi Nakamoto - http://bitcoin.org/bitcoin.pdf
1. Introduction Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
(bold added)
Nakamoto’s intent was to design a payment system that eliminates the middleman in an exchange between two people, and that therefore prevents the possibility of the middleman reversing the transaction. Bitcoin also reduces payment processing fees (Visa, Mastercard, Amex., PayPal, etc.) from 2.5% -3/5% of sales to close to zero. If a small merchant has monthly sales of $50,000, a typical payment processing fee could be $1,400 per month or $16,800 per year. By contrast, Bitcoin transaction fees are negligible.
Merchant (market) demand for a superior payment system would lead to market demand for the various components of that system. With regard to Bitcoin specifically, people will realize that if the Bitcoin payment system were to become widely utilized, the individual Bitcoins which are part of the system would become more widely demanded, would become more marketable, and would gain in exchange value. People might begin to accumulate individual Bitcoins not only for the purpose of using them in the Bitcoin payment system, but also in order to sell them for a profit in the future. Whether individual Bitcoins will become more marketable than fiat currency units or commodity currency units is an empirical question and (perhaps) a technical question. Paraphrasing a famous Austrian economist, I believe it would be preposterous to assert apodictically that individual Bitcoins could never become more marketable than individual fiat or commodity currency units.
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
jmorris84: So you believe that Bitcoin could become money because it "decreases transaction costs" and it is more resiliant, in your opinion, against "attacks from banks and the state?"
I do not know if Bitcoin can become money. I merely cannot exclude it for the time being. I have a more modest proposition, in that the acceptance of Bitcoin (or something similar) as a medium of exchange will probably grow.
jmorris84: In regards to your last point, are you insinuating that gold needed "political reform" and a "total economic collapse" in order to gain market share in the past?
No. I argue that in order to replace fiat, it either requires political reform or a near total economic collapse, because it needs to outcompete fiat, and fiat has various factors working for it at the moment, for example is more liquid, has more beneficial legal standing, its forms have lower transaction costs and so on. In the past, when fiat didn't exist, gold didn't have to outcompete it. It was competing against other commodities only.