What is the praxeological difference between money and other phenomena subject to network effects? The risk is much greater [=possibly losing a lot of money] with money.
How many people do have to find non-monetary use for a phenomenon for it to be classified as money? So glad you asked this. Commonly accepted is the key phrase, which though vague [as it must be] eliminates bitcoin as it is now.
Does speculation and aesthetics count as non-monetary use? Speculation no, because it means passing it on to the next guy contemptuously, not valuing the thing for itself; aesthetic yes
If the government uses force to promote a specific currency, is that currency money? Sadly, yes, because it creates a reason, however artificial, that people want to hang onto some of the money.
If the government uses force and prevents money from satisfying all market participants, will the market use non-money as a substitute? Will have to hear specifics to understand the q.
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It's easy to refute an argument if you first misrepresent it. William Keizer
@smilingdave
Commonly accepted is the key phrase, which though vague [as it must be] eliminates bitcoin as it is now.
I guess the vagueness you have in mind corresponds to a disagreement such as whether 20% or 30% of a population constitutes 'common acceptance'. But there's another vagueness here that prevents you from using the 'commonly accepted' clause to rule out Bitcoin as money.
Which population is the relevant one to consider when thinking about potential acceptors of the currency?
Are we talking about all humans on earth? Or all sentient beings in the galaxy, or in the universe?
If it's the latter, it may turn out that gold isn't money after all. If the former is insisted on instead, what grounds can one offer for arbitrarily drawing the line there, rather than (for instance) around the world's population of cryptography nerds instead? (in which Bitcoin is commonly accepted)? Is there a reason for insisting on a delimitation that excludes Bitcoin? If so, I'd like to hear what it is.
I had in mind more like 90% or 95%. But that's just me.
As for do we need the whole face of the Earth, or the whole Infinite Universe,
my answer is that the population base has to be large enough so that:
You can get anything you want at Alice's Restaurant
Walk right in it's around the back
Just a half a mile from the railroad track
With bitcoins
Sorry I don't follow your reply. Why are you (it seems) assuming that all humans on earth is the relevant population to consider when assessing whether a medium of exchange is commonly accepted (and thus in the running to be considered money), rather than all crypto nerds, or all sentient beings in the universe?
Smiling Dave,
thank you very much for a reply. I'm following up.
Smiling Dave:Seperate from what?
You tell me. Since regression theorem is allegedly a praxeological argument, it means that money is somehow distinct from other goods, and other rules apply to it. Otherwise the regression theorem is a circular argument, either being simply wrong, or a meaningless tautology. So, do different rules apply to money than other phenomena?
Smiling Dave:The risk is much greater (=possibly losing a lot of money) with money.
That's not a praxeological distinction, rather a quantitative one. It does not explain why other rules should apply to money. Can you think of other distinctions?
Smiling Dave:Commonly accepted is the key phrase, which though vague [as it must be] eliminates bitcoin as it is now.
The government fiat we have now does not then fall into this category either. I normally use euros. So from my perspective, dollars are not money. This makes the concept of money subjective and therefore the regression theorem not praxeological. Rather, it appears more like the distinction between production and consumption goods. It's contextual. To continue with the analogy, while consumption gives value to production goods, it does not mean that a production good needs to be a consumption good before becoming a production good. Indeed, some production goods are specifically designed to be production goods. Assuming that this is true (there are production goods that never were consumption goods), why is money different? If it is not, then why is a consumption value necessary for money?
Smiling Dave:Speculation no, because it means passing it on to the next guy contemptuously, not valuing the thing for itself; aesthetic yes.
Good, I think that answers my question. This clearly establishes that Bitcoin does have a non-zero non-monetary value.
Smiling Dave:Sadly, yes, because it creates a reason, however artificial, that people want to hang onto some of the money.
However, people sometimes accept government fiat even if there is no direct force involved. I for example often buy stuff from China, and typically pay in dollars. Neither of the parties involved is forced to accept dollars, nor does the US government give us any other benefit if we choose dollars. Probably what is happening is that there are exchange restrictions on the RMB, and the euro is too young. I'll agree with this answer, but I'd like to stress that the effects of the force sometimes exceed the direct scope of the force (network effect as pointed out earlier).
Smiling Dave:Will have to hear specifics to understand the q.
I explained this in the past (my very first post on mises Forums), but maybe not in this thread. Also, see the example from previous paragraph. My original claim is that because government interferes with money, e.g. by legal tender laws, banking regulations, attacks on gold minters and commodity-backed digital currencies, this creates a market gap. I have spent a lot of time on the forums explaining why neither government fiat nor gold are suited to fill the gap (plus if they could, there would be no gap in the first place), such as transaction fees, regulation compliance costs, no reason for standardisation among competitors, single point of failure and so on. Bitcoin does not suffer from these, so it's better suited to fill the gap. With Bitcoin, you are your own minter and bank: it eliminates the distinction between the creation of money, merchants, consumers, payment processors and the banking system. So let's put this into questions:
Rick Falkvinge wrote good blog posts about "Four Bitcoin Drivers", you can find it if you google for it. Let me then build upon it and create an example. If you accept credit card payments, you pay, say, 3% fee. If you instead accept Bitcoin, you have 0% fee. Then you can trade it, say, once a month on an exchange and transfer the money to your bank account (which will total in lower fees). If more people accept Bitcoin, you can avoid the exchange at all. If you have 6% profit margin (pre-payment), switching from credit cards to Bitcoin doubles your profit. If you are a buyer from a different country, by using Bitcoin you avoid the currency exchange fees (e.g. USD <-> EUR) charged by the credit card company. So already now you can see the advantage for both parties. Why should they care about non-monetary uses?
Smiling Dave:I had in mind more like 90% or 95%. But that's just me.
But then there is no money at the moment. None of the government fiat nor gold is used by 90%-95% of the population for trading.
The regression theorem is praxeological because it follows from the rules of logic and the action axiom. The word "money" may be replaced with the phrase "medium of exchange". That is the definition of money, and what distinguishes it from other goods. If a good is being used as a medium of exchange it is money, if not it isn't. No "other rules" apply to it but the consequences that follow from its being a medium of exchange.
The regression theorem is not circular or wrong. If you will summarize it and show where and how it is circular or wrong you might make a case. Nor is it meaningless, for it has logical consequences that make predictions about the real world, something a "meaningless tautology" is incapable of [by definition]. One such prediction is that bitcoin will never be a currency.
What aesthetic value does bitcoin have? And to how many people? Something invisible that is odorless etc incites no emotional response in anyone.
"However, people sometimes accept government fiat even if there is no direct force involved etc" That only happens after it has become a currency. We are talking about what is needed to start it off as a currency, a distinction that's been made here countless times.
Yes there may well be a market gap for money, but it can only be filled by money, not by bitcoins, which are not now money, and the regression theorem predicts they never will be. It's like saying that in times of famine the market gap for food can be filled by bitcoins.
These Bitcoin threads become so lengthy I have not been able to follow all of the discussion. One thing to me is crystal clear. Bitcoin has opposition on Mises.org and Lewrockwell.com. I have yet to understand why. The most plausible explanation I have seen yet is a lot of Austrians are holding metal :).
What perplexes me is that for all of the bitching about Bitcoin I can't think of one Austrian write up complaining about virtual currencies used in MMORPG's such as Entropia Dollars, WOW gold, etc.
Smiling Dave:The regression theorem is praxeological because it follows from the rules of logic and the action axiom.
We'll see below.
Smiling Dave:The word "money" may be replaced with the phrase "medium of exchange". That is the definition of money, and what distinguishes it from other goods. If a good is being used as a medium of exchange it is money, if not it isn't. No "other rules" apply to it but the consequences that follow from its being a medium of exchange.
Clearly, this is either wrong or tautological. I also believe you are misstating the definition, which is more likely to be "dominant medium of exchange". Anything can be used as a medium of exchange, merely some goods are better suited for specific exchanges and some are worse. The differences can be regional, specific to industries or ways people interact. This means that the acts of trade have differing utility. Other human action is also subject to utility analysis. The regression theorem requires a specific connection between these utilities. But we know that utility is heterogenous. So you cannot conclude anything specific here. If you can, what is it, and why is it true?
Smiling Dave:If you will summarize it and show where and how it is circular or wrong you might make a case.
Ok, let me then formulate it, in the way I consider it valid but meaningless: In order for a good to become money, the good must have non-monetary value prior to being a medium of exchange. Furthermore, due to network effects, in the absence of force, a small number of such goods will end up being dominant.
Smiling Dave:Nor is it meaningless, for it has logical consequences that make predictions about the real world, something a "meaningless tautology" is incapable of [by definition].
What are the exact conclusions that follow from this?
Smiling Dave:One such prediction is that bitcoin will never be a currency.
The regression theorem is about money, not about currencies. I'll just assume it's an ommission rather than error. Furthermore, even if it was true, it would be, as I said above, meaningless, since apart from having to use a different name for it in economic discourses, there is no other effect.
Smiling Dave:What aesthetic value does bitcoin have? And to how many people? Something invisible that is odorless etc incites no emotional response in anyone.
Its design has aesthetic value to geeks. You have not yet explained what number of people is relevant. Furthermore, my wife is pretty excited about Bitcoin and she's not a geek.
Smiling Dave:That only happens after it has become a currency.
Smiling Dave: We are talking about what is needed to start it off as a currency, a distinction that's been made here countless times.
Smiling Dave:Yes there may well be a market gap for money, but it can only be filled by money, not by bitcoins, which are not now money, and the regression theorem predicts they never will be. It's like saying that in times of famine the market gap for food can be filled by bitcoins.
Circular argument.
To summarise: by referring to the regression theorem, you are making the appearance as if you were making a praxeological argument. However, as you explain the meaning of the claims, it turns out that it's an empirical argument.
Now the questions: is your claim that Bitcoin has no non-monetary value, or that it has an insufficient one? If the latter, can it be praxeologically defined what amount of non-monetary use is necessary, or is it rather an empirical question? If it is an empirical question, then why is the regression theorem supposed to be praxeological? Also, if it is an empirical question, how do you know whether the critical mass has been reached or not?
I also asked about the utility differences in trades, and you left it unanswered.
Smiling Dave:I don't understand you. The population of where? The universe?
That's what you have to explain, not me. Without explaining this, the definition has a gap.
Smiling Dave:I am talking about a community large enough to offer in trade whatever people buy from each other.
You're forgetting international trade. Based on data from Wikipedia, the international trade in 2010 was about 22% of world trade volume, slightly more than the GDP of USA. You're just going to ignore this?
Smiling Dave:Bitcoin has no such community.
Of course it does, it's just is not regional but virtual.
Smiling Dave:You can buy a couple of things from a couple of stores, but you cannot buy most things.
But who determines this necessary composition? That's not a praxeological argument. It's like measuring price increases ("inflation") by building a basket of commodities. It's an empirical approach.
Smiling Dave:Take a sears catalogue, or any catalogue, and note the vast variety of stuff available.
I don't know who Sears is. Why should I care what currency they charge in?
Smiling Dave:Japan is such a community, etc, and 90 to 95 percent of the trade in these places accepts a single currency [dollars in USA, yen in Japan etc]. If bitcoin had such a thing, it would be money; now it doesn't, so it isn't.
Who decides what aspects of the community are relevant? Why is the regional aspect relevant in any way? That's just a historical datum, it's not a praxeological argument.
So, why does the community need to be regional, and cannot be virtual? If it can be virtual, what composition of goods is relevant for determining whether it's money or not?
OK, I give up. My last post on the subject.
All you say about the regression theorem is indistinguishable from gibberish, to my poor understanding. Perhaps someone more intelligent will grasp what you are saying.
Saying your wife is excited about bitcoins is also incomprehensible to me. What aesthetic value is she getting excited about? Its pretty image on the screen? She can have that without paying $17 for it. Again, perhaps someone more gifted than me will get it.
Of course it can be an online community. But large enough to be able to sell all that is sold in Walmart's. Oddly enough, you ignored that part, seizing on the inessential.
About how much non monetary value it has. I will spell it out. Imagine that you own an empty Walmart and are trying to stock the empty shelves, buying all goods from the suppliers in bitcoins. Bitcoin is not yet the coin of the realm. If there are not enough suppliers who will accept the bitcoins, even if you offer them a trillion bitcoins for a toothpick to fill all your shelves, [and even less suppliers who will take it in lieu of $17 in exchange for their goods], then it has insufficient non monetary value. If you can fill your shelves by paying all suppliers in bitcoin, at whatever rate, it has sufficient non monetary value. All that is included in the definition of medium of exchange.
I expect you to reply that Walmart's did not exist in Mises' time, thus making my argument irrelevant.
Live free or die:
Yes, you clearly do not understand the arguments, judging by the 5 irrelevant perceptions you posted.
There are two ways you can deal with your problem, the intelligent way and the Marxian way.
The intelligent way is to hit the books until you can summarize the position you disagree with in a way that satisfies those who believe it, and then show why it is mistaken.
The Marxian way is to ignore the chain of reasoning itself, instead claiming it must be wrong because of some feature possessed by its author, such as his owning gold. This is appropriate whether you know he owns gold or not. Caution: only a certain type of audience will be convinced by that sort of thing.
I asked you clear questions. If answered, they would tremendously help in making other people understand your position. Yet, you fail to do so and instead start metaarguing. To me, that is an indication that you are not interested in resolving the issue (either because you're dishonest or do not understand your position yourself). This is why I consider the socratic approach superiour, because I figure out much sooner who is a waste of time.
Anyone else willing to answer the questions?
Smiling Dave:my answer is that the population base has to be large enough so that: You can get anything you want at Alice's Restaurant You can get anything you want at Alice's Restaurant Walk right in it's around the back Just a half a mile from the railroad track You can get anything you want at Alice's Restaurant With bitcoins
Alright, if the definition of money is "commonly employed media of exchange", then bitcoins, by this definition, might not be money.
But the opponents claim bitcoin will never become commonly employed.
Lets for the sake of argument agree that bitcoin has some value, for example as a collectors item for cryptography geeks, in the same way stamps are valued by philatelists (and perhaps we could say gold once was by jewelers).
If a rational person wanted to use a medium of exchange he would consider the advantages and disadvantages of using different media. If the advantages outweigh the disadvantages he would be prepared to accept it.
While stamps are small and potentially valuable compared to its weight, it's hard to predict how much I would get in return from a philatelist, it might be hard to find a philatelist to exchange the stamp with and stamps are pretty fragile (even slightly damaged, it would loose value). Stamps are perhaps not the worst possible choice, but still not a good medium of exchange.
Gold however is also small and valuable (might still be a bit heavy for some uses), it's relatively easy to determine how much I would get in return for a piece from a jeweler (by weighting it) and gold is sturdy and doesn't degrade with time. Gold, history has proven, is a good medium of exchange.
Bitcoins have most of the benefits of gold, and then some. It takes up negligible space and weight, it can be transfered electronically without anyone else taking a transaction fee, It's easy to determine how much I would get in exchange from a cryptography geek by looking at a website and bitcoins are also sturdy and don't degrade (you can even back them up!). If I worry the bitcoins I receive will lose value tomorrow I could exchange them immediately for dollars (or other goods) on one of many websites. (We could make a long list and argue about the details but I think we can agree bitcoins has many attractive properties if they function as advertised.) So bitcoin sounds like a pretty good medium for exchange?
Why wouldn't Alice's Restaurant accept both traditional currency and bitcoins if the advantages outweigh the disadvantages? (maybe not so convenient for a "physical" restaurant yet, but for an Internet based shop it would be trivial to implement). One might even expect more and more people would want to accept bitcoin until, one day, it could be considered "commonly employed" and thereby, by definition, money..? In fact, isn't that already happening?
I meant that [in order to be considered commonly accepted] there are enough people willing to accept bitcoins that you can buy whatever a guy with dollars can in the US, or a guy with yen can in Japan, etc."
It sounds like you're using comparisons with existing fiat currencies as the test of whether a medium of exchange is commonly accepted. This is question begging. You first need to establish that these fiat currencies qualify as commonly accepted. To do this, you need to explain how we determine what the relevant population under consideration should be when we try to establish whether a medium of exchange qualifies as commonly accepted or not. I see no non-arbitrary way to do this.
Bear in mind the possibility that somewhere there's a galaxy where Mineral X is the dominant medium of exchange. There are so many entities accepting Mineral X, that gold, silver and all other earthly money's are in fact disqualified from being monies, (since they're accepted by a vanishingly small minority) assuming that the 'relevant population' is all sentient beings in the universe.
Live_Free_Or_Die: These Bitcoin threads become so lengthy I have not been able to follow all of the discussion. One thing to me is crystal clear. Bitcoin has opposition on Mises.org and Lewrockwell.com. I have yet to understand why. The most plausible explanation I have seen yet is a lot of Austrians are holding metal :).
I'm holding both bitcoins and silver. I'm an 'austrian', or more accurately, a praxeologist. This doesn't hold water.
Perceptions from an observer: 1. Bitcoins are created with a combination of electricity, computing power, and an internet connection required to perform an algorithm. 2. Bitcoins are voluntary. 3. Bitcoin software is open source. 4. Public awareness of Bitcoin as a possible currency alternative is growing. 5. Bitcoin is a belief based currency which makes it no worse off intrinsically than any fiat paper issued by any State. What perplexes me is that for all of the bitching about Bitcoin I can't think of one Austrian write up complaining about virtual currencies used in MMORPG's such as Entropia Dollars, WOW gold, etc.
Perceptions from an observer: 1. Bitcoins are created with a combination of electricity, computing power, and an internet connection required to perform an algorithm. 2. Bitcoins are voluntary. 3. Bitcoin software is open source. 4. Public awareness of Bitcoin as a possible currency alternative is growing. 5. Bitcoin is a belief based currency which makes it no worse off intrinsically than any fiat paper issued by any State.
False flag/mole. Those "Austrians" producing anti-bitcoin articles are either uninformed (which I will assume most of the detractors on this forum are) or actively in league with those who would wish to undermine Austrian Economic theories if the need should ever arise. All of those who argue against it's use and value on this forum, that I have seen, argue falsehoods to begin with.
I don't have anything against "metal" either. I have gold as well as Bitcoins. I keep some Bitcoins for aesthetic purposes, keep mining new ones and speculate with the rest (trading bot I wrote). I keep the gold as a hedge against inflation. I consider myself close to the Austrian school (I'm a falsificationist first and Austrian second).
marten,
I seem to have no common language or logic with the other respected posters here, but think you might grasp what I'm saying, which is why I'm replying.
Lets for the sake of argument agree that bitcoin has some value, for example as a collectors item for cryptography geeks.
Hold it right there. You are describing a universe where cryptography geeks will pay good money to keep a bitcoin forever on their computer, never passing it on to the next guy. And not just one bitcoin, the more they have on their computer forever, the happier they are. And the size of the geek community willing to keep it forever on their computers and never ever pass it on to the next guy is pretty large, so large that Farmer Jones is willing to give up a bushel of apples in exchange for bitcoins becaue he knows there are enough cryptography geeks willing to give him dollars for bitcoins that he will have no problem finding one and handing him more and more bitcoins to keep forever on that cryptography geeks computer.
If that is the case, then yes, bitcoin can become a money. Is this the situation now? I don't think so. I think the vast majority of bitcoin holders, say 99.999999% have no intentions of keeping their bitcoins on their computers forever, never passing it on to the next guy.
Is anyone claiming that it is? Will it ever be? And if it is, will it last for twenty years, or will it be a fad like Beany Babies?
But yes, if that is ever the case, then bitcoin will then have the prerequisite to become money. And because of the many conveniences it has that everyone points out, it may become a very popular money. My personal opinion is don't hold your breath.
Why wouldn't Alice's Restaurant accept both traditional currency and bitcoins if the advantages outweigh the disadvantages?
Because why don't people use bitclothing if the advantages outweigh the disadvantages? Never needs ironing, takes up no closet space, etc. Just as clothing needs to cover the body of the owner, which bitclothing cannot do, so too money has to be useful for me in order for me to accept it. Mises' regression theorem asserts that we can also deduce that money has to start out as being useful to me to keep in my house, not to hand on to the next guy. If it doesn't have that usefullness right off the bat, it will never be money, claims Mises. And I think he's right. I see no flaw in his reasoining.
If indeed the people at Alice's Restaurant will sell you anything you want for bitcoins, and indeed will be able to stock up their store by paying their suppliers exclusively in bitcoin, then bitcoin is a money. Because it is then a commonly accepted medium of exchange. Is this the case now? No, of course not. You can buy a few odds and ends with bitcoins, but not everything in a Walmart. So it's not a money now. Will it ever be the case that Alice's Restaurant will pass the test? Maybe. I doubt it. And the gamble of $17 per bitcoin that it will happen seems to me the height of folly.
Marten said
@Smiling dave, you said:
Hold it right there. You are describing a universe where cryptography geeks will pay good money to keep a bitcoin forever on their computer, never passing it on to the next guy.
Hold it right there ;) you're stacking the deck. In order to be a collector, to hold a good with no plan of trading it, there's no requirement that you will keep it forever, and never pass it on. At some point in the future, when the conditions of the world have changed, and your value scale has changed, you may well decide to pass it on, if you can satisfy your future preferences better at that moment by doing so.
We already live in a universe in which cryptography geeks have mined bitcoins and held them with no apparent plan (or possibility) to spend it, as a prestige symbol. It's quite possible that these same people later did trade those coins, even though they may not have initially planned to do so.
And not just one bitcoin, the more they have on their computer forever, the happier they are.
(Perhaps it's not super relevant to the disagreement, but I think the the law of diminishing marginal utility applies here: At some point the opportunity cost of holding one extra bitcoin will outweigh the expected increase in marginal utility that holding that coin will provide. This limit could be reached after even one bitcoin. So it's not true that the more coin they store the happier they are, with no limit.
If indeed the people at Alice's Restaurant will sell you anything you want for bitcoins, and indeed will be able to stock up their store by paying their suppliers exclusively in bitcoin, then bitcoin is a money. Because it is then a commonly accepted medium of exchange.
How are you determining what constitutes commonly accepted? Specifically: How are you determining the relevant population that should be considered? (why are you considering the human population of planet earth, rather than the population of sentient beings in the universe, or of crypto geeks on earth?) Since a proper answer to this is crucial to the success of your case against Bitcoin as money, I'd really like it if you tried to address this.
Yes, you clearly do not understand the arguments, judging by the 5 irrelevant perceptions you posted. There are two ways you can deal with your problem, the intelligent way and the Marxian way. The intelligent way is to hit the books until you can summarize the position you disagree with in a way that satisfies those who believe it, and then show why it is mistaken. The Marxian way is to ignore the chain of reasoning itself, instead claiming it must be wrong because of some feature possessed by its author, such as his owning gold. This is appropriate whether you know he owns gold or not. Caution: only a certain type of audience will be convinced by that sort of thing.
The most important property of money, that something is spendable, is based on belief. In a free market anything can be money.
We have claimant A asserting Bitcoins aren't money because they can't fill an empty Walmart warehouse. Arguing from the regression theory of the most widely used commodity is the most spendable. It's a good thing a Walmart example was used because who can save inflated fiat money to make an inventory purchase in the millions? Bitcoin is obviously a market outcome. There are dyamics at work in which people are freely choosing to value the decentralized, crytographic properties of Bitcoins over dollars. The regression theory obviously does not account for the Bitcoin phenomenon. Just what does the regression theory have to say exactly on valuing a labor commodity? Or a labor commodity that is heavily taxed?
If you want to make a valid argument tell me when Bitcoins aren't going to be money because a free market without coercion is going to come into existence and challenge the reasons people presently value Bitcoins. If you do not have an answer to that, I suggest you yield to the existing coercive market valuation of Bitcoin. I agree if a free market emerging was on the horizon Bitcoin would be a highly risky investment. I personally think Bitcoin has a very healthy future in the underground economy. I can envision tobacco, alchohol, or any other luxury item heavily taxed being traded in Bitcoins.
Let's take pot. Right now the marajuana producer is going to accumlate Bitcoins. If the pot consumer can purchase Bitcoins from the marajuana producer in dollars and then turn right around and purchase pot using Bitcoins... how does the marajuana producer lose? The concept of money changer could be completely revamped by Bitcoin. You might go to one vendor where you can purchase bitcoins from the producers you want to purchase goods from.
The only thing government can do to easily intervene is outlaw Bitcoins, which is as difficult as outlawing P2P. P2P isn't still around because Hollywood and the Music industry love P2P. P2P isn't still around because major P2P search engines or developers haven't been sued....
Regarding the false/flag mole comment.... Try commenting on some topics other than Bitcoin during your tenure at Mises.org. I did see you take a Glenn Beck tangent a few pages into your post history then it's all Bitcoin before that as well. As I was scanning that post history did you mention you are a Bitcoin forum moderator?
How do you measure belief? Action baby. Try levying a false/flag mole accusation when your actions are credible...
Disclaimer. I am holding neither metal or Bitcoins.
1.
I beg to differ with both those sentences. I think the regression theorem implies they are both incorrect.
2. I am glad we agree that in a free market bitcoin is doomed. I believe it follows from the regression theorem that bitcoin is doomed in a coercive market as well [unless one is coerced into taking bitcoins, of course]. The regression theorem applies whether there is a free market without coercion or not, it seems to me. If you will show me which step of its reasoning does not apply in a coercive market I will be enlightened.
Perhaps it will make things easier on my poor powers if you summarize Mises' elaboration of the regression theorem in your own words, to ensure we are on the same page, then show which line exactly is wrong in a coercive market, and why.
Live_free_or_die said
I agree if a free market emerging was on the horizon Bitcoin would be a highly risky investment.
You replied
I am glad we agree that in a free market bitcoin is doomed
"Highly risky investment" isn't the same thing as "doomed" smilingdave. I reckon it's bad form to attribute views to people that they don't hold.
I accept your rebuke, bitbutter.
Live_Free_Or_Die: As I was scanning that post history did you mention you are a Bitcoin forum moderator?
As I was scanning that post history did you mention you are a Bitcoin forum moderator?
Yes, I did.
2. The Emergence of Indirect Exchange The tremendous difficulties of direct exchange can be overcome only by indirect exchange, where an individual buys a commodity in exchange, not as a consumers' good for the direct satisfaction of his wants or for the production of a consumers' good, but simply to exchange again for another commodity that he does desire for consumption or for production. Offhand, this might seem a clumsy and roundabout operation. Actually, it is indispensable for any economy above the barely primitive level. Let us return, for example, to the case of A, with a supply of eggs, who wants a pair of shoes in exchange. B, the shoemaker, has shoes for sale but does not desire any more eggs than he has in stock. A cannot acquire shoes by means of direct exchange. If A wants to purchase a pair of shoes, he must find out what commodity B does want in exchange, and procure it. If A finds that B wants to acquire butter, A may exchange his eggs for the butter of C and then exchange this butter for B's shoes. In this case, butter has been used as a medium of indirect exchange. The butter was worth more to A than the eggs (say the exchange was 10 dozen eggs for 10 pounds of butter, then for one pair of shoes), not because he wanted to consume the butter or to use the butter to produce some other good in a later stage of production, but because the butter greatly facilitated his obtaining the shoes in exchange. Thus, for A, the butter was more marketable than his eggs and was worth purchasing because of its superior marketability. The pattern of the exchange is shown in Figure 30. Or consider the enormous benefit that D, the owner of a plow, acquires by using a medium of exchange. D, who would like to acquire many commodities but finds that his plow has a very limited marketability, can sell it in exchange for quantities of a more marketable commodity, e.g., butter. Butter, for one thing, is more marketable because, unlike the plow, its nature is such that it does not lose its complete value when divided into smaller pieces. D now uses the butter as a medium of indirect exchange to obtain the various commodities that he desires to consume. Just as it is fundamental to human experience that there is great variety in resources, goods desired, and human skills, so is there great variety in the marketability of various commodities. Tending to increase the marketability of a commodity are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances. It is evident that people can vastly increase the extent of the market for their own products and goods by exchanging them for more marketable commodities and using the latter as media to exchange for goods that they desire. Thus, the pattern of D's, the plow-producer's, exchanges will be as shown in Figure 31. D first exchanges his plow for X1's butter, and then uses the butter to exchange for the various goods that he desires to use, with X2 for eggs, X3 for shoes, X4for horses, etc. As the more marketable commodities in any society begin to be picked by individuals as media of exchange, their choices will quickly focus on the few most marketable commodities available. If D saw, for example, that eggs were a more marketable commodity than butter, he would exchange his plow for eggs instead and use them as his medium in other exchanges. It is evident that, as the individuals center on a few selected commodities as the media of exchange, the demand for these commodities on the market greatly increases. For commodities, in so far as they are used as media, have an additional component in the demand for them-not only the demand for their direct use, but also a demand for their use as a medium of indirect exchange. This demand for their use as a medium is superimposed on the demand for their direct use, and this increase in the composite demand for the selected media greatly increases their marketability. Thus, if butter begins as one of the most marketable commodities and is therefore more and more chosen as a medium, this increase in the market demand for butter greatly increases the very marketability that makes it useful as a medium in the first place. The process is cumulative, with the most marketable commodities becoming enormously more marketable and with this increase spurring their use as media of exchange. The process continues, with an ever-widening gap between the marketability of the medium and the other commodities, until finally one or two commodities are far more marketable than any others and are in general use as media of exchange.[3] Economic analysis is not concerned about which commodities are chosen as media of exchange. That is subject matter for economic history. The economic analysis of indirect exchange holds true regardless of the type of commodity used as a medium in any particular community. Historically, many different commodities have been in common use as media. The people in each community tended to choose the most marketable commodity available: tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and many others, including beads, tea, cowrie shells, and fishhooks.[4]Through the centuries, gold and silver (specie) have gradually evolved as the commodities most widely used as media of exchange. Among the factors in their high marketability have been their great demand as ornaments, their scarcity in relation to other commodities, their ready divisibility, and their great durability. In the last few hundred years their marketable qualities have led to their general adoption as media throughout the world. A commodity that comes into general use as a medium of exchange is defined as being a money. It is evident that, whereas the concept of a "medium of exchange" is a precise one, and indirect exchange can be distinctly separated from direct exchange, the concept of "money" is a less precise one. The point at which a medium of exchange comes into "common" or "general" use is not strictly definable, and whether or not a medium is a money can be decided only by historical inquiry and the judgment of the historian. However, for purposes of simplification, and since we have seen that there is a great impetus on the market for a medium of exchange to become money, we shall henceforth refer to all media of exchange as moneys.
Let us return, for example, to the case of A, with a supply of eggs, who wants a pair of shoes in exchange. B, the shoemaker, has shoes for sale but does not desire any more eggs than he has in stock. A cannot acquire shoes by means of direct exchange. If A wants to purchase a pair of shoes, he must find out what commodity B does want in exchange, and procure it. If A finds that B wants to acquire butter, A may exchange his eggs for the butter of C and then exchange this butter for B's shoes. In this case, butter has been used as a medium of indirect exchange. The butter was worth more to A than the eggs (say the exchange was 10 dozen eggs for 10 pounds of butter, then for one pair of shoes), not because he wanted to consume the butter or to use the butter to produce some other good in a later stage of production, but because the butter greatly facilitated his obtaining the shoes in exchange. Thus, for A, the butter was more marketable than his eggs and was worth purchasing because of its superior marketability. The pattern of the exchange is shown in Figure 30.
Or consider the enormous benefit that D, the owner of a plow, acquires by using a medium of exchange. D, who would like to acquire many commodities but finds that his plow has a very limited marketability, can sell it in exchange for quantities of a more marketable commodity, e.g., butter. Butter, for one thing, is more marketable because, unlike the plow, its nature is such that it does not lose its complete value when divided into smaller pieces. D now uses the butter as a medium of indirect exchange to obtain the various commodities that he desires to consume.
Just as it is fundamental to human experience that there is great variety in resources, goods desired, and human skills, so is there great variety in the marketability of various commodities. Tending to increase the marketability of a commodity are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances. It is evident that people can vastly increase the extent of the market for their own products and goods by exchanging them for more marketable commodities and using the latter as media to exchange for goods that they desire. Thus, the pattern of D's, the plow-producer's, exchanges will be as shown in Figure 31.
D first exchanges his plow for X1's butter, and then uses the butter to exchange for the various goods that he desires to use, with X2 for eggs, X3 for shoes, X4for horses, etc.
As the more marketable commodities in any society begin to be picked by individuals as media of exchange, their choices will quickly focus on the few most marketable commodities available. If D saw, for example, that eggs were a more marketable commodity than butter, he would exchange his plow for eggs instead and use them as his medium in other exchanges. It is evident that, as the individuals center on a few selected commodities as the media of exchange, the demand for these commodities on the market greatly increases. For commodities, in so far as they are used as media, have an additional component in the demand for them-not only the demand for their direct use, but also a demand for their use as a medium of indirect exchange. This demand for their use as a medium is superimposed on the demand for their direct use, and this increase in the composite demand for the selected media greatly increases their marketability. Thus, if butter begins as one of the most marketable commodities and is therefore more and more chosen as a medium, this increase in the market demand for butter greatly increases the very marketability that makes it useful as a medium in the first place. The process is cumulative, with the most marketable commodities becoming enormously more marketable and with this increase spurring their use as media of exchange. The process continues, with an ever-widening gap between the marketability of the medium and the other commodities, until finally one or two commodities are far more marketable than any others and are in general use as media of exchange.[3]
Economic analysis is not concerned about which commodities are chosen as media of exchange. That is subject matter for economic history. The economic analysis of indirect exchange holds true regardless of the type of commodity used as a medium in any particular community. Historically, many different commodities have been in common use as media. The people in each community tended to choose the most marketable commodity available: tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and many others, including beads, tea, cowrie shells, and fishhooks.[4]Through the centuries, gold and silver (specie) have gradually evolved as the commodities most widely used as media of exchange. Among the factors in their high marketability have been their great demand as ornaments, their scarcity in relation to other commodities, their ready divisibility, and their great durability. In the last few hundred years their marketable qualities have led to their general adoption as media throughout the world.
A commodity that comes into general use as a medium of exchange is defined as being a money. It is evident that, whereas the concept of a "medium of exchange" is a precise one, and indirect exchange can be distinctly separated from direct exchange, the concept of "money" is a less precise one. The point at which a medium of exchange comes into "common" or "general" use is not strictly definable, and whether or not a medium is a money can be decided only by historical inquiry and the judgment of the historian. However, for purposes of simplification, and since we have seen that there is a great impetus on the market for a medium of exchange to become money, we shall henceforth refer to all media of exchange as moneys.
Allow me to highlight the important key parts that are based on a belief:
Tending to increase the marketability of a commodity are its demand for use by more people, its divisibility into small units without loss of value, its durability, and its transportability over large distances
As the more marketable commodities in any society begin to be picked by individuals as media of exchange, their choices will quickly focus on the few most marketable commodities available.
I am just going to stop there but there are two more I could easily add....
Please tell me you are not going to attempt to argue a medium of exchange is not based on a belief something has "marketability" or is "most marketable'?
So let's review my post with a little word interjection to determine what is blatantly false or untrue....
The most important part of money, that something is spendable, is based on a belief
The most important part of money, that something is spendable, is historically based on a belief something has marketability.
In a free market anything can be money.
In a free market anything can be money but commodities that are in high demand, divisible into small units without loss of value, durable, and transportable over large distances are likely to be the most widely used medium of exchanges or commonly accepted monies.
Now let's get into the real argument and benefit of Bitcoin which you haven't addressed. Bitcoin is merely an intermediary indirect medium of exchange because of its distinct privacy feartures. It does not matter if Bitcoin is in high demand, divisible into small units without loss of value, durable, or transportable over large distances. Bitcoin can interface with any money as already illustrated. Producers can sell Bitcoins to consumers for any money or producers can contract with third party money changers to sell Bitcoins to consumers for any money.
If selling Bitcoins is outlawed. Producers can sell Bitcoins in eGold or money changers can simply set up shop in Somalia.
Unless Bitcoin revamps it's usefuillness such as creating a cloud computing currency for computing resources or something useful to function as an indirect medium of exchange, an intermediary indirect medium of exchange is most likely the future of Bitcoin in my opionion. But being an intermediary indirect medium of exchange does not doom Bitcoin to uselessness. Bitcoin has privacy usefullness and I feel optimistic the Bitcoin market or community may very well work out a decentralized, private way for consumers to purchase the coins of specific producers. As soon as duty free tobacco suppliers start accepting Bitcoins I may very well give Bitcoins a spin... :)
Maybe humanity will get lucky and the underground economy will innovate an efficient decentralized, anonymous shipping network using modern tracking technology where no shipping records are stored long term. Maybe such a network would achive such usefullness and reliability insurers would take notice and start offering decentralized shipping insurance.
Live free,
1. A careful reading of that very relevant piece from Rothbard shows clearly that we are talking about a commodity. Meaning something useful in and of itself, not just to pass along to the next guy. Almost every single sentence shows this, but in particular this line:
This demand for their use as a medium is superimposed on the demand for their direct use, and this increase in the composite demand for the selected media greatly increases their marketability.
Key words here are "superimposed" and "direct use". Which eliminates bitcoin.
It is no accident that Rothbard spoke about superimposed on top of direct use, for he was being careful to adhere to the requirement of the regression theorem, that a money must start with having a direct use.
2. I see no mention of "belief" in that whole long section. Rather he talks about verifiable facts. The two are not the same. For instance I can believe in the Flying Spaghetti Monster. but I will be wrong. He will not be a good money, for he does not exist.
Rather he talks about verifiable facts. The two are not the same.
Would you please educate me on the difference between a belief and a verifiable fact? How many people does it take for a belief to become a fact?
If one person witnessed Jesus raising Lazurus from the dead, is it a fact? If two witnessed it? Three? Hundred? Thousand?
If a fact is something that is not validated from inherently flawed human observation then please explain how something becomes a "fact"...
Is there any difference in conceptual meaning between this simple word substitution:
Verifiable fact
Verfiable belief
I will provide a definition you are unlikely to find in Webster's:
A fact is a belief that is not in dispute.
My next question should be obvious. If verifiable facts are not in dispute why are all mainstream economists in America Keynsian's and why does America use fiat money that has less demand for direct use than Bitcoin's?
"What perplexes me is that for all of the bitching about Bitcoin I can't think of one Austrian write up complaining about virtual currencies used in MMORPG's such as Entropia Dollars, WOW gold, etc."
Well.. that'd probably have something to do with them not pretending to be money..
@Sam Armstrong: Pretty slick presentation, do you do this kind of thing professionally? If not, you should consider it.
Thanks. That was my first educational video. I've never really thought about it as a profession. I'm a programmer.
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 -
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 -
I'd tend to agree with this, but a couple caveates.
1. Bitcoin has vastly better marketing that hashcash, which might push it over the edge in terms of wide spread use over hashcash. Marketing it as a real currency is/was a brilliant idea.
and
2. If it's "exchange value added" worth increases as more merchants accept it, it might sustain it's current price and become a full fledged money (where that line is exactly I'm not entirely sure, but I'd be willing to say that it's not at that point right now). This would follow the gold model where gold's store of value worth is much higher than it's use worth.
I'm not as optimistic as some are on bitcoin, thus my only owning 2.5 bitcoins right now. But I do see a route for it to become a money unlike others. It truely could be that 100 bitcoins is really only worth $1 in terms of use value (again I'm not sure what the conversion rate of bitcoin to capcha would be, and then from capcha to dollars).
If you wanted to do a conversion you'd have to find out how much work would be required to show your not spam, then convert that into how many bitcoins that amount of work could create averaged over the lifespan of bitcoin (to account for those coins made very cheaply), and convert that work into how much it cost to perform that work, and then take off some percentage based on the risk/how far in the future it will take for someone to build and deploy a bitcoin based hash cash system.
I can't tell you any of those numbers, I was merely trying to explain that it's not zero.
Rohbard quote:
Smilingdave:
2. I see no mention of "belief" in that whole long section. Rather he talks about verifiable facts.
Belief is there allright, it's implicit in the mention of demand. A crucial component of demand for X is the expectation that X will be serviceable in satisfying desires (or removing felt unease). This expectation is a belief, an inference.
[...] a commodity. Meaning something useful in and of itself, not just to pass along to the next guy.
This idea of being 'useful in and of itself' vs 'useful only to pass on', (consumption vs trade) is a false distinction. Nothing is 'useful in and of itself'. All goods are valued only according to the most optimal use the valuer can think of with regard to satisfying his desires. Now, Whether the imagined use is ingesting the good, skimming it along the surface of a pond, ritually burning it, or passing it on to another person in exchange for something else is utterly irrelevant, they're all just alternative uses as far as praxeology is (or should be) concerned.
Live Free,
If we are to use the word belief in the manner you seem to, then indeed one can say that money is based on belief.For no one will do anything at all unless they believe that what they do is good for them. For example, if you believe your food is poisoned, you will not eat it.
And if we enter into the realm of philosophy and question what is sufficient evidence for something etc, yes, it all boils down to belief.
So yes, in that sense money, and love, and breakfast, are all based on belief.
I understood you to mean that money is based on belief and nothing more. That if everyone believes that X is money, it is money. Which is true after a fashion. But there is an underlying question one should think about. "Are all objects equally likely to inspire belief in their being money? Are there some things [say excrement] that we can safely assume will never be accepted as money? Can we discover what features of a thing will preclude so many people from believing it is money that we can predict with a great degree of confidence that it will never be believed to be a money?
The discussion here is about those questions. Mises claims to have deduced from self evident axioms and impeccable logical deduction that people will only believe a thing to be money [other than a few fools here and there, who will believe anything] if it has direct use. I invite you to summarize his line of reasoning and show where it is flawed.
bitbutter,
The mind has the ability to catagorize objects based on certain features. Sometimes a particular catagorization proves fruitful in extending our understanding of the world [for example, bread without mold is good to eat, bread filled with mold is risky], other times it proves not very useful [for example, water that has had an incantation recited over it by a witch doctor is no different that water that has not].
Mises and Rothbard have claimed, and their arguments are there for all to see and summarize and lay out the flaw if it exists, that their categorazion of objetcs into those that have direct use and those that do not is a useful one, and that the two types of object differ in that one may be accepted eventually as money, but the other never will. To dispute them, it is not enough to deny the categorization, but point out the flaw in their reasoning, if one can be found.
@Smilingdave
Mises claims to have deduced from self evident axioms and impeccable logical deduction that people will only believe a thing to be money [other than a few fools here and there, who will believe anything] if it has direct use. I invite you to summarize his line of reasoning and show where it is flawed.
I invite you to explain how this line of 'impeccable' reasoning is useful as anything more than:
1. A backwards-looking explanation of how historical moneys emerged form barter systems, and 2. A reason to believe that, all else equal, a good with non-trade uses will be more likely to become money than a good with only trade use.
Of course neither of these establish than only goods with non-trade uses can become money.
Pehaps the skeptics here, like me, are misunderstanding some crucial step in Mises' argument, but it's in no way obvious why it's necessarily the case that only 'a few fools' would believe that Bitcoin could be money. I'd hazard a guess that the 'pro-bitcoin' audience here is more receptive than most to the general approach and ideas of the austrian masters, but I think we're not seeing how this claim is anything more than an unsupported assertion.
Mises and Rothbard have claimed, and their arguments are there for all to see and summarize and lay out the flaw if it exists, that their categorazion of objetcs into those that have direct use and those that do not is a useful one, and that the two types of object differ in that one may be accepted eventually as money, but the other never will
I've yet to see a sound argument to this effect, or even anything that looks superficially like an argument at all--rather than a flat assertion. I really don't understand where this bizarre idea is coming from. I'm still hoping that someone can enlighten me.
On the claim that :
people will only believe a thing to be money [other than a few fools here and there, who will believe anything] if it has direct use.
This sounds suspiciously like the no true scotsman fallacy: if it turned out that Bitcoin was adopted by a majority, it would be objected that the majority were fools. Okay, but why should they to be considered fools? Because they've accepted something that can never earn the magical label 'money', according to some dead Austrians? Fine, why should these happy 'fools', successfully using Bitcoin in their evryday lives exactly as though it were money, care whether you, or anyone else insists that the digital currency doesn't qualify for that label? (if you believe this situation could never obtain for praxeological reasons, please explain why).
My dear bitbutter,
You skipped Step One, summarizing the reasoning of the regression theorem in your own words. This is not an unfair request on my part, as it is the common procedure amongst educated men. The regression theorem is the sound argument you have yet to see. Maybe you misunderstood it, or failed to grasp the implications of it. I await Step One, your summary.
if it turned out that Bitcoin was adopted by a majority, it would be objected that the majority were fools.
Oh no, no, no. If that magic day ever comes, then I will certainly eat humble pie and be proven wrong.
@Smiling Dave As I understand it, the theory is that gold became used as money not only because it was valued for it's use as jewelry, but because it had relatively high value compared to its weight and volume (it was easy to travel with for example) and also because the demand was common enough that it could be traded in far away places. (Gold also has many other intrinsic properties making it practical, but so does bitcoins.)
The critics of bitcoins say, since bitcoin only has a tiny initial demand, less than a dime, and it's only traded by a tiny group of computer geeks, it can't become money.
I think, perhaps, part of the disagreement then is because of some unique advantages that comes from using a digital and Internet based medium which might not be immediately apparent. It would certainly have sounded like science fiction 50 years ago.
First of all, even if bitcoins are worth less than a dime, bitcoins have no weight or volume. Both 0.00000001 BTC and 21 million BTC fits on a USB flash drive. Transferring the smallest fraction cost as much as transferring all bitcoins that exist. So even if bitcoins only have a tiny value, it makes it possible and practical to use them as a medium of exchange. Secondly, even if there is only a handful of fools that are willing to exchange bitcoins for money, thanks to the Internet, anyone can get in touch with them (for example at mtgox.com) in an instant and they can make the exchange in less than a few minutes. I think the Internet might have lowered some requirement physical money has that rules out, say beanie babies, as impractical.
Also, I think an important point is that there are other, more practical, alternatives to physical money than beanie babies, like USD or precious metals. Given no better alternative people might actually use beanie babies as money. Most people use some national fiat currency rather than, say precious metals, despite the disadvantages, probably because paper money is more practical than gold coins.
If we could use gold or other traditional forms of cash on line, most people would probably prefer to do so in favor of bitcoins, but currently the only alternative is credit cards or centralized services like paypal who a takes large fees. (Despite these fees, many people still prefer credit cards when they could have used cash, because digital transactions are more practical (and the fees are hidden.)) If people perceived bitcoin as more practical and safe (or at least beneficial enough) why wouldn't they use them when paying on line?
My background is with computers so I might find the idea of bitcoins having some intrinsic coolness more believable than someone with a background in economics. Not so long ago I still believed most money was based on the gold standard, and I admit the theory behind currency is completely new to me. I will try to summarize the way I understand the regression theorem in order to rule out any misunderstanding. Based on the excerpts from Mises texts on your blog, I would summarize it as:
In other words, in order for the first trader to accept bitcoins in exchange for his goods he must be able to later trade the bitcoins for some good he wants. This can be done at exchanges such as mt. Gox where bitcoins can be traded for dollars, wich is something many people wants/need. So it's possible, although risky perhaps, to use bitcoins as a medium of exchange.
Since there is a limited supply, if bitcoins where to become a popular medium of exchange it's value would increase due to increasing demand. (And if popular enough it would eventually be considered money by most definitions).
This is what the bitcoin speculators are betting on. Some bitcoiners even seem to argue that the initial demand for bitcoin could come from speculating that the demand will increase when bitcoins are used as a money in the future. This seems paradoxical but I can't think of a reason it's wrong.
The main question is this though: what happens if the initial demand eventually disappear (because it's a fad)? As far as I understand the regression theorem it doesn't say anything about that. Or rather, it actually indicates that the money will retain its value due to the demand for its use in transactions. As far as I can see, the critics claim this would be the end of bitcoins but no one has explained why.
As bitbutter says somewhere, the key difference from gold is that there is some industrial demand for it: "Unlike gold, the price of Bitcoin could fall to zero if there was a loss of confidence it its future tradeability. In the event of a loss of confidence in gold, gold holders could likely still sell their gold to certain buyers (for a fraction of its current price). It's not clear why you, and others, apparently [claim] that this one marginal advantage enjoyed by gold (a better assurance of a minimum sale price) should be considered the dividing line between money and non-money."
I agree there might be several reasons why the confidence in bitcoin as a transaction medium might disappear (if there is a flaw in the encryption scheme used for example). But if we say its usefulness as a transaction medium is constant and the number of bitcoins is constant, why would the demand (and consequently value) drop to zero within a few years?
This article about bottled water in Iraq is very instructive, and a very good example of what Mises was talking about. It puts the whole bitcoin thing in perspective.
The water in the province was not very drinkable, the villagers lost faith in the paper money, and started doing businees by pricing things in sheep. He continues [emphasis mine]:
The bottled water brought in from the larger cities was one of the most sought-after commodities in the village, and I soon noticed villagers pricing items in not only sheep, but bottles of drinking water as well.
Then there was the standard wartime medium of exchange: cigarettes. The villagers smoked cigarettes every evening with chai tea. They were bought in the cities and brought back by the truck load. As a result they were not as valuable as sheep or bottled water; however they served as small change for the villagers.
That's what we are talking about. That's what is going to be the money. One of the most sought after commodities [=useful in themselves, not to pass on to the next guy], that everyone uses every day. Compare this to the trivial non money use of bitcoin, which a few computer geeks value, [if indeed they still do now the novelty has worn off].
That might work nicely in your local village but the problem with sheep, bottled water and cigarettes is you can't send them over the Internet. In fact it would be highly impractical to carry around enough of these if you ever had to travel outside your local village.
1. You keep wanting to bring the conversation back to the same issue. I fail to understand your point. I elaborated in my own words leveraging Rothbard. I described Bitcoin as a "intermediary indirect medium of exchange." What is there to further disucss about direct use? Is there something in dispute on whether Bitcoin fits an Austrian definition of money?
2. I suggested an "intermediary indirect medium of exchange" is a coerced market phenomenon and suggested you should yield to it. I can't recall your exact response and I don't feel like scrolling up but you did object to yielding to coerced market phenomenon's.
3. I asserted whether or not bitcoin is money, is irrelevant to the usefullness of Bitcoin. This is because individuals are forced to pay taxes in private credit and the state is over taxing or over regulating goods. Bitcoin has a distinct usefullness in a coerced market of fiat money.
If you can acknowledge Bitcoin has some usefullness in a coerced market I can exit the conversation in agreement. If you are unable to make an acknowledgement I am going to continue to insist on an explanation other than constantly bringing up a well settled point of what is the Austrian definition of money....