Smiling Dave: To call them fools and suckers in the first place is where you are begging the question. What I call them is not germane to the argument. Substitute "respected citizen" if you wish. The question remains, how will you convince the person who worked hard and wants something of value for his work to accept a bitcoin, after listening to his reason for not wanting it?
To call them fools and suckers in the first place is where you are begging the question.
What I call them is not germane to the argument. Substitute "respected citizen" if you wish. The question remains, how will you convince the person who worked hard and wants something of value for his work to accept a bitcoin, after listening to his reason for not wanting it?
It would seem to me that the kind of "convincing" of the type you are talking about would only have to be done in the initial stage...getting the first people to accept something that no one else even knew about. It would also seem that's already largely been done.
And I mean, who "convinced" you to use PDF format? Did someone sit you down and explain benefits? Or did you start using it because it was useful in your exchanges with other people because they were using it? How were you "convinced" to use a telephone? Email? Did someone have to persuade you of any benefits or did you try them out after enough people were using them that you felt is was worth your while to do so?
Unless by saying this, you assume that the only way for bitcoin to grow is through the rhetoric (i.e. if I can't convince the average man to accept my bitcoin, bitcoin can't grow, and if bitcoin can't grow, bitcoin is useless).
This is what I am indeed saying, plus more. That the default assumption of the average man is that since he cannot eat or drink bitcoins, neither can anyone else. Also, he assumes that since he is unwilling to accept something that will not give him happiness, neither will anyone else. Thus he will not be able to eat his bitcoins, nor will he be able to pass them on to the next guy in exchange for something real, because the next guy cannot eat the bitcoins either. So the next guy has the same reason to reject bitcoins as the first guy. Bottom line, the first guy will refuse to accept bitcoins. And the same for everyone who thinks like him, obviously.
I am also saying that these are very sound assumptions he is making. It is not rhetoric or convincing that will change his mind. It is a question of showing him why his line of reasoning is mistaken. And I think this is impossible, that there is no mistake in his reasoning.
To John:
Your questions about PDF and email etc only strengthen my case. I used those because they gave me happiness. Indeed there was no reason a priori to think they wouldn't. But, as I explain in the first half of this post here, I see great logical reasons to think that accepting a bitcoin will bring me great unhappiness. Thus I, and everyone who thinks like me, [which I assume is everyone because there is no flaw in my reasoning], will not accept bitcoins in exchange for $17 of hard work.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Smiling Dave: Unless by saying this, you assume that the only way for bitcoin to grow is through the rhetoric (i.e. if I can't convince the average man to accept my bitcoin, bitcoin can't grow, and if bitcoin can't grow, bitcoin is useless). This is what I am indeed saying, plus more. That the default assumption of the average man is that since he cannot eat or drink bitcoins, neither can anyone else. Also, he assumes that since he is unwilling to accept something that will not give him happiness, neither will anyone else. Thus he will not be able to eat his bitcoins, nor will he be able to pass them on to the next guy in exchange for something real, because the next guy cannot eat the bitcoins either. So the next guy has the same reason to reject bitcoins as the first guy. Bottom line, the first guy will refuse to accept bitcoins. And the same for everyone who thinks like him, obviously. I am also saying that these are very sound assumptions he is making. It is not rhetoric or convincing that will change his mind. It is a question of showing him why his line of reasoning is mistaken. And I think this is impossible, that there is no mistake in his reasoning. To John: Your questions about PDF and email etc only strengthen my case. I used those because they gave me happiness. Indeed there was no reason a priori to think they wouldn't. But, as I explain in the first half of this post here, I see great logical reasons to think that accepting a bitcoin will bring me great unhappiness. Thus I, and everyone who thinks like me, [which I assume is everyone because there is no flaw in my reasoning], will not accept bitcoins in exchange for $17 of hard work.
I'm incredibly surprised at the number of flaws here. It's not like you. Mostly you're just growing your begging the question fallacy. You're assuming that bitcoin will "bring you unhappiness" because it will crash...which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash...because it will crash. So your argument is that it will crash because you assume it will crash...because you assume everyone else believes what you believe.
And you extrapolate this from the notion that there is no flaw in your circular reasoning, that everyone thinks like you, and that everyone thinks like you because there is no flaw in your reasoning (which I would have to guess means you assume no one ever makes mistakes in reasoning).
And the bit about "there's no reason a priori to think that email would bring you unhappiness" is quite circular as well. My point is that you didn't need to be convinced to use PDF...that you used it because you found it to be useful...precisely because other people were using it. Just like email. And you somehow claim that helps your argument that people need to be convinced to use things. And then you claim that you used those things "because they gave you happiness" whereas you believe bitcoin will give you "unhappiness"...because you think it will crash because you assume everyone thinks like you....and they assume it will crash because everyone thinks like them...because they believe their reasoning is not flawed...and therefore everyone would agree with it....because no one ever believes in anything with flawed reasoning.
No circular reasoning here. I'll lay it all out:
1. If Item X will not lead, directly to or indirectly, to some good or service that increases my feeling of contentment, such as food or drink [for example], I will not accept Item X as payment for my hard work.
2. Other people also have the same atitude as expressed in 1.
3. Bitcoins are not edible or drinkable, and thus the only possible way they could increase my feeling of contentment is if there exists a person, call him Smith, who will take them from me in exchange for food or drink.
4. But the only possible way Smith will accept them is if they lead to him being able to trade them for food or drink, by 2.
5. Thus Smith will only take them if there exists a Smith the Second who will take them from Smith.
6. By mathematical induction [ for the nth Smith to take the bitcoin, there must exist an [n+1] Smith] there must be infinitely many Smiths in this world for me to be able to get contentment from my bitcoin.
7. But there are only finitely many people in the world.
8. Thus bitcoin can never bring me satisfaction. Knowing this, I will never accept it.
9. Similar reasoning applies to every person. Thus no one who thinks things through will accept bitcoins.
Just a second ago you told me that everyone thinks like you because there is no flaw in your reasoning, thus implying that no one ever follows a flawed reasoning. Would you really argue that that reasoning isn't flawed?
@Smiling Dave
This is incorrect. Being useful as food or drink is not the only way a good can ultimately increase your (and everyone elses) contentement. You're implying that people only ultimately value the satisfaction of hunger and thirst, to the exclusion of all other ends. That's obviously not the case, I hope you agree, so the reasoning downwind of here fails.
(See also: Bitcoins and Mises´s Regression Theorem )
FWIW, here is a quote, [emphasis mine], from Mises proving he intended the regression theorem to be "forward looking". It's from Money and Credit:
If the objective exchange-value of money must always be linked with a pre-existing market exchange-ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange-value based on some other use. This provides both a refutation of those theories which derive the origin of money from a general agreement to impute fictitious value to things intrinsically valueless' and a confirmation of Menger's hypothesis concerning the origin of the use of money. This link with a pre-existing exchange-value is necessary not only for commodity money, but equally for credit money and fiat money.' No fiat money could ever come into existence if it did not satisfy this condition...
Now, to be honest, I'm still not clear about the Ithaca Hour. Does it disprove the regression theorem? I'm going to start a new thread on that topic and hope for enlightenment..
Smiling Dave:FWIW, here is a quote, [emphasis mine], from Mises proving he intended the regression theorem to be "forward looking". It's from Money and Credit...
I'm glad you found that, as it does sound as though Mises is saying the theorem is not just an explanation of how current money evolved. I'll have to forward that to Wenzel and Kinsella who both admit to being of the position I described earlier.
However, it would appear than not only does the Ithcac HOUR disprove the theorem, but bitcoin itself does. You will likely claim that bitcoin hasn't been around "long enough" to be considered a currency and claim it's "just a fad" or a "bubble" or something, but that is irrelevant (not to mention whatever time frame you choose would be completely arbitrary). The question is whether the object "already possessed an objective exchange-value based on some other use at the moment when its use as money began". This obviously wasn't the case with either of these two examples. So it would seem that despite whatever other claims and qualifiers you might like to make—and I realize I'm probably committing some kind of sacrilege here—Mises has already been proven wrong in this case.
However, it would appear than not only does the Ithcac HOUR disprove the theorem, but bitcoin itself does. You will likely claim that bitcoin hasn't been around "long enough" to be considered a currency and claim it's "just a fad" or a "bubble" or something, but that is irrelevant (not to mention whatever time frame you choose would be completely arbitrary).
That is a continuum fallacy. There is a well defined subset of the population that hitherto drives Bitcoin circulation. (See this thread for details.) Get back to us when its users are a good cross section of the population (not cliques). Then there will be something to talk about. (Ditto for Ithica Hours.)
The only idea that merits consideration for refuting Regression Theorem is that you can create a self-fulfilling prophecy by promoting something as money thereby leading to it becoming money. This by definition works and applies to anything. It has no special relation to Bitcoin, Ithica Hours or anything else.
Here's a quick summary of what I see general agreement on here so far:
1. There is no reason to buy Bitcoins.
2. There is no reason to believe that it will expand beyond a particular type of person.
I gotta disagree with some of my fellow Bitcoiners. From where I stand Bitcoin does not disprove the regression theorem, rather it's an interesting and very illustrative example of it.
Bitcoin's value early on came from the novelty - people who liked the concept from a technical point of view wanted them just enough to engage in some - mostly tongue-in-cheek - trades. One often cited example is the two pizzas that went for 10000 Bitcoins in May 2010. But this is actually a rather late example, there were lots of trades with large and small amounts of Bitcoins before then, but in 2009 especially nobody really knew what a Bitcoin was worth. (To a lot of people it was worth absolutely nothing, which is why a significant percentage of 2009 coins should probably be assumed lost.) The breakthrough was right around a year ago when exchanges like MtGox appeared on the scene. While trading Bitcoins for US dollars was not new, the fact that MtGox published a Bitcoin "price" was and it was significant because now people knew what you could expect to get for your coins. Selling anything for Bitcoin was no longer guesswork, but simply a matter of looking at the current market rate. Once Bitcoins had an organized exchange market, trade started to shift from joke transactions to actual merchants accepting Bitcoins for their goods. By February 2011 the Trade page had grown to over a hundred companies and was moved to the wiki, because it had become to complicated to maintain otherwise. (Now, only four months later, it lists over 600 companies.) Acceptance was what triggered speculation. People saw that the currency was starting to be used as such and suddenly they seriously considered the possibility that it might find widespread adoption some day. Speculation is the reason why the exchange rate went up more quickly (16x since February) than the acceptance (6x since February). Jörg Guido Hülsmann has a good YouTube video on deflation explaining that interest rates can't go negative so instead currencies appreciate quickly as people anticipate deflation. So here is why Bitcoin is a great example for the validity of the regression theorem. Bitcoin's exponential growth could have started 18 months earlier in 2009, but it took one and a half years before anybody used Bitcoin as a money. Bitcoins couldn't develop monetary value while it didn't have non-monetary value. And non-monetary value was hard to come by. Clearly a lot of the early trades were irrational, it was only when this irrationality was captured in a somewhat stable market rate that other people started using Bitcoin. You can accept Bitcoin, even if you don't believe in the concept if you know you can sell them to somebody else at a certain rate. The more that happened, the more the demand for Bitcoins for monetary uses developed and eventually vastly outgrew the early non-monetary demand. One thing to point out is that this same principle is hard to imagine happening with paper money. Early transactions consisted of tens of thousands of coins for value that is today only fractions of a coin, so Bitcoin's divisibility and transportability were critical properties. Another reason for the hard-to-explain early demand is the fact that Bitcoin is the first implementation of a peer-to-peer network solving the decentralized, anonymous agreement problem, so some geeks wanted to own Bitcoins not because they thought it had a chance to become an actual currency, but purely to own a piece of history. Again, this stuff didn't make Bitcoins expensive, it just gave them *some* value that was bigger than zero.
Disclaimer: This is not investment advice, I'm merely intested in this debate. In fact I would recommend against Bitcoins as an investment, since even if the economics are sound, it can still fail technically, socially, etc. At the same time I do invest time and effort in Bitcoin myself, mostly because I'd like it to succeed - independent of what I think its chances are.
Get back to us when its users are a good cross section of the population (not cliques).
A cross-section of which arbitrarily delimited group of 'the population'? Are you going to maintain that gold users are currently a 'good cross section' of 'the population'? Sounds like a double standard to me.
Here's a quick summary of what I see general agreement on here so far: 1. There is no reason to buy Bitcoins.
Puzzling thing to say. There's clearly no general agreement in this thread--Opinion is strongly polarised on the question.
Here are my primary reasons for buying and using Bitcoin right now (note that these considerations do not depend on any expectation of growth of the BTC economy).
I can pay a provider of a service in a foreign country in bitcoins.
'No reason to buy bitcoins' indeed!
Selling anything for Bitcoin was no longer guesswork, but simply a matter of looking at the current market rate.
"Market rate/price" is a concept with no real substance. Publishing a price for something has the effect of encouraging some confused people to offer that price. Otherwise it is merely a news ticker on previous trades.
Nielsio: Why goods attain prices: A produces an item because he speculates there will be a demand for the thing in the future. B buys it because he speculates there will be a demand for the thing in the future. C buys it because he speculates there will be a demand for the thing in the future. D buys it because he speculates there will be a demand for the thing in the future. E buys it because it because he demands it for consumption or production. Suppose the object is gold. And suppose that D has paid a high price. And suppose that E estimates that the products he's going to use gold in are only selling for a low price, then he will only give D a low price. If E instead would pay a high price for the gold then he would suffer a loss, which he won't do. D is forced to sell at a low price and suffers a loss. D speculated wrongly. Insights: - Past paid prices do not determine future paid prices (people can speculate wrongly). - What drives prices is consumer demand (in this case: E's customers). - Money relies on the production-consumption cycle. This is a theory that doesn't suffer from circularity (for example, it doesn't say: "people buy it because it's valuable, and it's valuable because people buy it"). It can be applied to historical market moneys (gold, silver), to stocks, and to government fiat money. We're asked to show why a money good requires commodity value. From the above theory, having no commodity value it follows why speculation above 0 will lead to losses. So it's actually on bitcoin sellers and promoters to come up with a theory why it is not faulty speculation. In video-form, for easy sharing: VforVoluntary.com | Youtube.com/Nielsio | Reddit.com/r/austrian_economics | Post Points: 35
Why goods attain prices:
Nielsio,
you omit to consider the features of the trades themselves, which is also important because it is subject to human action. Various methods of trade have different utility. Bitcoin provides, from some perspectives, a better utility for money transactions than the alternatives. This utility creates demand. So, as long as one person wants Bitcoins for purposes other than monetary transactions and thereby kickstarts the trading, bitcoin will be used for trades. As for the equillibrium of the number of trade participants, that's an empirical question and anyone's guess is as good as mine. However, if you look at history of the trade page in bitcoin wiki, http:// https://en.bitcoin.it/w/index.php?title=Trade&action=history, you will see that the number has been increasing, despite the MtGox incident, allinvain's stolen bitcoins and other occurrences when the naysayers were prophecising the doom. I see one drop around June 20th, but it does not look like it was related, most of the deletes appear to be due to uncertain legal status of the trader, like selling of music.
I already brought up the example with English language which shows that on a free market, a good that belongs to a category subject to network effects can outcompete others even if it cannot be consumed. Money is merely a case of a good subject to network effects. The regression theorem is a badly phrased definition of the network effect. When evaluating Bitcoin, instead of looking at fiat money, you should look at languages and other widely deployed standards.
Betamax lost to VHS, HDDVD lost to BluRay, although neither have uses other than facilitating watching movies (apart from some fringe groups like collectors, cryptographers and likes). The imperial and metric systems coexist, but both are heavily influenced by government intervention. If the government intervention vanished, it would be ridiculous to claim that they would be both displaced by a standard that has other uses than measurement. Windows and Linux both have significant chunks of the market, although neither of them has uses other than being an OS (again, linux has a fringe use for studying programing). There is a gazillion of programming languages, they are all artificially designed, and all compete with each other.
Instead of remaining affixed at the regression theorem, the Austrians should spend more time studying the more generic phenomenon, network effects.
So, as long as one person wants Bitcoins for purposes other than monetary transactions and thereby kickstarts the trading, bitcoin will be used for trades.
One person? You gotta be kidding.
Money is merely a case of a good subject to network effects. The regression theorem is a badly phrased definition of the network effect. When evaluating Bitcoin, instead of looking at fiat money, you should look at languages and other widely deployed standards.
You must have been good at writing college term papers graded by weight.
Peter Šurda: Nielsio, you omit to consider the features of the trades themselves, which is also important because it is subject to human action. Various methods of trade have different utility. Bitcoin provides, from some perspectives, a better utility for money transactions than the alternatives. This utility creates demand.
you omit to consider the features of the trades themselves, which is also important because it is subject to human action. Various methods of trade have different utility. Bitcoin provides, from some perspectives, a better utility for money transactions than the alternatives. This utility creates demand.
Circular reasoning. An object requires demand before it has utility in trading.
Think of an island with two people. One guy has a margarita and the other guy has a unique looking rock. There is no reason for the guy with the consumable good to give it up for the rock.
The only reason he would have to give up his consumable would be if the rock represented a contract, to give a specified consumable in the future.
Bitcoin specifies nothing, as far as the future is concerned.
Nielsio: Monetary use aids in the fulfillment of wants itself, by furthering the division of labor. So people are willing to buy and sell money at a loss, so long as it solves the double coincidence of wants for them. I.e. if they can get it by selling something they value less than the thing they later buy with it.
Or in other words, even if everybody thought the value of Bitcoins was going to go down, it wouldn't crash, because there would still be demand by people willing to take a loss, because it's not an investment for them, just a vehicle of exchange - they just need them to do a transfer or to purchase things. It's the demand for money.
The demand for money depends largely on how widely it is accepted and whether it has good properties as money. That's why I demand Bitcoins, and not Nielsio fortune-telling vouchers. Bitcoins represent for me the Chinese lessons I can buy with it, the programming work I can buy with it, etc. This demand doesn't require an ultimate use. Bitcoins are not an investment, I don't care whether I make a profit. That's why this demand doesn't go away - money can circulate forever, and every time it circulates it pays its keep with its usefulness.
Of course, money is subject to competition. If a better currency comes along and everybody started switching, then yes, Bitcoin's would go to zero, because nobody wants to own money that's on the way out.
Funny story, I actually lived through a hyperinflation once. When I was 13 or something there was a project where I grew up called Simsalon. Basically children would go there two weeks during the summer every day and it was like a whole simulated economy. Of course I was super excited about it and joined immediately. I ended up working at Simsalon's copyshop and even back then I was already a workaholic, so I put in extra hours, expanded our offerings (we started just offering copies and ended up offering different kinds of paper, publishing a newspaper, etc.) and I saved almost all of my money. Come the last day, I wanted to spend all that I had saved, but it was impossible - all the shops were closed, because everyone had had the same idea. A few shops were still selling of their remaining inventory at hugely inflated prices, so I managed to buy a hand-made boomerang. Other than that, everybody lined up outside the "government-run" cinema, which had a fixed entry fee, but as overcrowded as it was, it wasn't very much of a satisfaction for all the hard work.
This is what Nielsio, Peter Schiff and others say will happen to Bitcoin. Suddenly noone will accept it and you will be left holding the bag. But I find it hard to imagine what event could match Simsalon closing down or government printing of money in terms of triggering this. And remember that unlike a ponzi scheme or a scam investment it won't collapse just based on people expecting it to go down. People demanding it as money rather than as an investment don't care if it will go down some. So to trigger a collapse it would have to be some news or realization, causing everyone to doubt its usability as a currency at the same time. That's possible, but most certainly not inevitable.
There's nothing circular about it. Utilty for use in trade, and associated demand, arise concomitantly.
There is no reason for the guy with the consumable good to give it up for the rock.
Again you're making a claim that's far too strong. The margarita owner may really like the look of the rock, he may want to adorn his alchoholic-bevarage-filled cave with this rock. This would be a reason to make the trade (Edit. agreed with justmoon's post below that this is irrelavant in the context of a discussion about money though).
Nielsio: Just saw your latest post. On an island with only two people the problem that money solves doesn't exist. You need at least three people (A sells good/service to B for money, buy good/service from C with money) and in practice obviously a lot more in order to even have the coincidence of wants problem.
So to expand your example: If there was only one rock like that on the island, I might give my margherita away for the rock, if I thought I could give it to a third person in exchange for their t-shirt. And the third person might accept the rock, because they want to use A's fishing net. A being willing to accept the rock planning to purchase some labor from B with it, who is willing to accept it to get land from C on the top of the hill for his signal fire, etc. As the rock circulates, it becomes "money" - pretty crappy money (no divisibility), but money nonetheless. There is no reason to expect a sudden "rock crash" unless something new happens, like someone discovered a million more of the same kind of rock.
justmoon: Nielsio: Monetary use aids in the fulfillment of wants itself, by furthering the division of labor.
Nielsio: Monetary use aids in the fulfillment of wants itself, by furthering the division of labor.
Circular reasoning. Same as above.
Quick addendum: Note that the regression theorem applies. In order to *become* money the rock has to have some value to begin with, like being shiny and pretty to look at. It doesn't matter if it's a huge amount of value (it probably won't be) and the rock will acquire more value when it becomes apparent that everyone on the island accepts it.
It's not my reasoning that circulates, it is money that circulates. :)
John James: You're assuming that bitcoin will "bring you unhappiness" because it will crash...which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash...because it will crash. So your argument is that it will crash because you assume it will crash...because you assume everyone else believes what you believe.
You're assuming that bitcoin will "bring you unhappiness" because it will crash...which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash...because it will crash. So your argument is that it will crash because you assume it will crash...because you assume everyone else believes what you believe.
Just like in every other pyramid scheme. The believers buy/hold the coupons because they believe there will be more and bigger suckers in the future to whom which they can unload them. The unbelievers refuse to accept them because they believe exactly the same as the believers do but are unwilling to take the risk that they may end up being the last suckers holding the bag.
A persuasive dude could start a sect/movement/commune tomorrow and convince his herd to exclusively use sealed and stamped jars with his farts in them as money. Doesn't mean anyone else would ever accept them as anything of value in an exchange. Would this scenario disprove Mises' regression theorem?
My No Arbitrage Theorem states that $10 bills would/should exchange for exactly TWO $5 bills on the market. If dozen morons happen to accept a single $5 bill in exchange for a $10 bill, would that disprove my theorem?
In the Ithaca Hour thread I mentioned the problems inherent in every theory/theorem about markets and human behavior. There will always be islands of stupidity and irrational blind faith within humanity that would seem to falsify it, unsustainably so. On the other hand, Keynes concluded that -- sustainability, rationality, logic, or plausability notwithstanding -- we're all dead in the end.
EDIT: Did USSR and North Korea prove that no such thing as the Calculation Problem exists?
Nielsio: Circular reasoning. An object requires demand before it has utility in trading. Think of an island with two people. One guy has a margarita and the other guy has a unique looking rock. There is no reason for the guy with the consumable good to give it up for the rock.
I don't see how the second part proves the first.
I'm really not sure you want to go there. I guarantee you I could take a diamond and get a piece of bread for it somewhere even today, not on a deserted island.
Replace the word "rock" with "gold", "wood", "television", "painting", "fork", "automobile transmission" or any other "non-consumable" and tell me that makes sense.
And gold, diamonds, arrows, scissors and any other non-contract good does?
z1235: John James:You're assuming that bitcoin will "bring you unhappiness" because it will crash...which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash...because it will crash. So your argument is that it will crash because you assume it will crash...because you assume everyone else believes what you believe.Just like in every other pyramid scheme. The believers buy/hold the coupons because they believe there will be more and bigger suckers in the future to whom which they can unload them. The unbelievers refuse to accept them because they believe exactly the same as the believers do but are unwilling to take the risk that they may end up being the last suckers holding the bag.
John James:You're assuming that bitcoin will "bring you unhappiness" because it will crash...which you assume will happen because everyone thinks like you and they also assume it will bring them unhappiness because it will crash...because it will crash. So your argument is that it will crash because you assume it will crash...because you assume everyone else believes what you believe.
I don't see how my description of Smiling Dave's circular reasoning relates to what you just said.
A persuasive dude could start a sect/movement/commune tomorrow and convince his herd to exclusively use sealed and stamped jars with his farts in them as money. Doesn't mean anyone else would ever accept them as anything of value in an exchange. Would this scenario disprove Mises' regression theorem? My No Arbitrage Theorem states that $10 bills would/should exchange for exactly TWO $5 bills on the market. If dozen morons happen to accept a single $5 bill in exchange for a $10 bill, would that disprove my theorem? In the Ithaca Hour thread I mentioned the problems inherent in every theory/theorem about markets and human behavior. There will always be islands of stupidity and irrational blind faith within humanity that would seem to falsify it, unsustainably so. On the other hand, Keynes concluded that -- sustainability, rationality, logic, or plausability notwithstanding -- we're all dead in the end.
We've been through all this. If you have something new to say, have at it.
John James: We've been through all this. If you have something new to say, have at it.
I just did. If you have something relevant to say, say it.
z1235: John James: We've been through all this. If you have something new to say, have at it. I just did.
I just did.
Um. Noooo...you said basically the exact same thing you said in the other thread. Some of it verbatim. Have a look:
Here you said:
I could have a "No Arbitrage" theorem stating that a $10 bill would/should exchange for TWO $5 bills in the market. If a dozen morons accept SINGLE $5 bills in exchange for a $10 bill, would that disprove my theorem?
And then just a few posts ago you said:
And the rest of that second post was an envoking of bastaio's pyramid scheme drivel and a rewording of what you said here. So again, if you have anything new to add, that'd be great, but I don't consider simply copy and pasting what you've said in other posts and combining it with a paraphrase of yet more posts anything "new".
JJ, addressing either the "old" or the "new" one would be more helpful than comparing the two, IMHO.
Nielsio:Circular reasoning. An object requires demand before it has utility in trading.
Funny you should refer to circular reasoning, because that is exactly what you are doing. You are assuming your conclusion. I have clearly shown that there are goods which are subject to network effects and have a utility without being consumable, and on a free market, they outperform other goods. You insist that this is not the case, and your only "proof" is a reference to what other people said.
Your original picture is misleading, because you only consider consumption to being able to increase utility, while a trade would not do that. Different modes of trade have different utilities. If the utility difference between trading in Bitcoin and the alternatives is greater than the utility difference in consumption between "consuming" Bitcoin and consuming the alternatives, the person whos utility we are assessing will use Bitcoin for trade. Due to network effects, after passing the critical mass, the utility difference between trading in Bitcoin and trading in alternatives will be greater than the utility in consumption of the alternatives alone, and then the whole objection would become pointless.
Of course, there are plenty of open questions, like what is the critical mass, can it be reached, does trading in Bitcoin really have advantages against trading in the alternatives, and so on. But these are all empirical questions and the answer cannot be praxeologically deduced.
Nielsio:Think of an island with two people. One guy has a margarita and the other guy has a unique looking rock. There is no reason for the guy with the consumable good to give it up for the rock.
Why is a margarita consumable and a rock not? What if the other guy does not like margaritas and there are no other rocks on the island? You are making too many unsubstantiated assumptions. I have a question to the island example. If the two people wanted to communicate, is it likely that they would they end up with a common language even though the language would have no other utility than facilitating communication?
I'm sorry, but has this been debunked yet? Because everybody seems to be talking as if it has.
I've made a youtube video out of it.
Nielsio, you claim currencies with no intrinsic value derive their spending power from the fact that governments only accept that currency as payment of tax. If you don't pay tax the government will send some people to your door and make your life miserable. People doesn't want to be miserable so they want at least enough of the currency to pay their taxes. That way the government ensure there will be some demand for their currency.
I agree with that, however, isn’t it more accurate to say the currency derive SOME of it's spending power from the tax requirement. It’s true that creates some demand, but that doesn’t mean there can’t be other incentives that create demand!?
In the end, doesn't it come down to whether people accept bitcoin in return for other items, as long as they do (for whatever reason) there will be a demand for them.
Gold has intrinsic value because it has some properties that is useful in e.g. the electronics industry. (Although once upon a time it's only value was as a display of wealth, i.e. as jewelry.) A bitcoin isn't just something rare, it's something with a lot of attractive properties (for a currency) that other rare things (e.g. gold and dollars) doesn't have. Doesn't these properties, that makes it useful as a transaction medium, give it some intrinsic value?
Read Human Action, Chapter 17, section 4 to see why this analogy is apt. Mises there recognizes the point you make, that after something becomes currency for a good reason, it can gain more value by the fact that it indeed is now a currency. But he presents his argument there, called the regression theorem, that something cannot be a currency without first having usefullness and value outside of trade.
Do a search on my blog for bitcoin, where it's all spelled out in simple language.
@Sam Armstrong: Pretty slick presentation, do you do this kind of thing professionally? If not, you should consider it.
The trouble with suggesting that Bitcoins have some kind of "fallback use" as captchas is that this already exists (hashcash) yet the market seems to be going in the direction of image-based captchas for whatever reason. In addition, the fact that the potential future use of Bitcoins as captchas is a very low value (potential) use cannot simply be waved off. If you are holding 10 Bitcoins ($143 as of today), the fact that these might be useful someday in order to send 10 emails if someone develops and deploys a Bitcoin-based hashcash system and the person you're sending email to happens to use Bitcoins as the spam-filtering system is very little incentive to hold on to your Bitcoins if a flash crash happens as happened on Mt. Gox a few weeks back. As the value in a crash drops to $5, $2, $1, the incentive is "get out now" because even $1/Bitcoin is a hell of a lot more value than the above-stated use as a hashcash.
Clayton -
Smiling Dave:Do a search on my blog for bitcoin, where it's all spelled out in simple language.
In other words, if you go back far enough, you get to the day when gold was useful as jewelry only, worth say a dime. Until someone relaized people are happy to take gold coins valued at a dime apiece. What have they got to lose? That's what the gold is worth for jewelry, anyway. And from there, as gold coins became more popular as money, they started becoming worth more than a dime.http://smilingdavesblog.blogspot.com/2011/06/bitcoin-takes-beating.html
http://smilingdavesblog.blogspot.com/2011/06/bitcoin-takes-beating.html
So lets substitute gold for bitcoin, and jewelry-trinket for geek-libertarian-toy-currency-trinket. The regression theory as you explain it doesn't say bitcoin will fail, it only explains how the snowball started rolling in the first place... Bitcoin had some tiny novelty value to some people, people are donating computer power to mine them, and people are slowly starting to use it as a currency (because it has great "currency properties"), demand increases and so it gains even more value, just as Mises predicts.
What you claim here is that bitcoin is going to suddenly LOOSE value because people will suddenly realize they can't eat them (yet you can't eat gold either), you only explain that there will always be some demand for gold and other fiat currencies for different reasons.
I don't think the bitcoin value is going to suddenly plummet, sure the rate will fluctuate, and maybe bitcoins will suffer from some instability especially in the beginning, but simply put: If I bought a bitcoin for $15 I won't sell it for $14 unless I really, really, had to. The same is true for gold, gold prices fluctuate, and in the end it only has novelty use (or use in industry for novelty goods) etc... So maybe I'm a fool, but as long as there is a bunch of fools that think bitcoins are neat they will have some tiny value, just like gold and diamonds. (I realize they don't have novelty value to you and many others, just like diamonds has no value to me, but there only has to be some people that like them enough to get the ball rolling).
So what am I missing?
I'm still worried that the encryption scheme will turn out to be less secure than what bitcoin people claim, or that something unexpected happens making bitcoins less useful, but I'm not convinced about the argument against bitcoins presented here.
2. Next step: read the comments on that blog post, also first post and the two verified answers here: http://mises.org/Community/forums/t/25387.aspx Hint: Which one word of this quote from your post is the weak link: "...Bitcoin had some tiny novelty value to some people..."
3. Finally, there is a flaw in the reasoning when you write, "The regression theory as you explain it doesn't say bitcoin will fail, it only explains how the snowball started rolling in the first place." Hint: reread the analogy in my previous post here about building a three story house.
bitbutter:Marten's concern, which I share, is that it's not obvious why this is so.
Furthermore, it is not supported by empirical evidence. See for example http://en.wikipedia.org/wiki/Rai_stones which never had consumption value (apart from aesthetic, similarly as can be said about Bitcoin)
The main problem I see in the argument is the implicit assumption that money is a separate praxeological category. I have not seen an explanation why it should be so. Without at least one of the following:
the assumption that a non-zero consumption value is necessary cannot be deduced. Furthermore, the "regression theorem proponents" never explain whos consumption value is relevant, how many potential consumers are necessary, if speculative or aesthetic value is sufficient, and so on. It's a badly phrased and confusing claim.
I am not sure what the problem here is exactly. As Jakob said on another post, most people are in arrested development and cannot use logic. Let me add that some people are intellectually dishonest, having made up their minds before the evidence is in for various reasons, and thus consciously or unconsciously toss all rational thinking aside.
Smiling Dave,
in the past, I have come to realise that the best way to determine whether people's interest in a debate is genuine is their propensity to address objections. My objections have not been addressed.
Like here:
Smiling Dave:Bitbutter, you certainly have an initial advantage over Mr Surda, who does not distinguish between "non trade" and "consumption".
Either I do not understand what you mean by this, or it actually confirms exactly what I've been saying since the beginning. Obviously, you can have "non-trade value" without consumption (as clearly shown on examples of languages, standards, difference in utility among payment methods and so on). The "regression theorem proponents" often however use these interchangeably.
Recently I discovered that socratic method can releveal the opponent's arguments (or their unwillingness to debate) much faster than an attempt to formulate my own thoughts. So I'll apply it here too. I would greatly appreciate it if people who disagree with me could answer some of the following: