I'll start with a quote from Mises in Money and credit, emphasis mine:
The Necessity for a Value Independent of the Monetary Function before an Object can serve as Money
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 ofthe 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 ofmoney 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...
OK, now for the Ithaca Hour. It is a fiat currency, used in Ithaca, New York and for 20 miles around that city.
Links:
Wikipedia: http://en.wikipedia.org/wiki/Ithaca_Hour
Home Page: http://www.ithacahours.com/
How it got started: http://www.ithacahours.com/archive/0001.html
Cute cartoon: http://ithacahours.com/weprint.jpg
Two quotes:
...on October 19, I bought a samoza at the Farmer's Market with Half HOUR #751 from from Catherine Martinez-- the first use of an HOUR. Neither of us knew what a Half HOUR was worth, since the $10/HOUR rate was then merely suggested.
...He established that each HOUR would be worth the equivalent of $10, which was about the average hourly amount that workers earned in surrounding Tompkins County,[8] although the exact rate of exchange for any given transaction was to be decided by the parties themselves.
Seems to refute Mises' regression theorem. Would appreciate enlightenment.
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It's easy to refute an argument if you first misrepresent it. William Keizer
I think I have the answer to why both Ithaca Hours and Bitcoin are not money. Voila:
If you and your kid sister set up a system of paying each other for lollipops with tarot cards, that doesn't make tarot cards money, right? And why not? Because money has to be something accepted 1. by a whole community 2. in exchange for anything and everything. That's what medium of exchange means. [So it's not a "no true Scotsman" argument]. When everything has a price in tarot cards, for a large group of people, not just a few close friends, then they can be legitimately called money. Bitcoin is not money yet, because there is no community, [even if we call a group of people connected by computers a community], who will buy and sell everything for bitcoins. Same for Ithaca Hours. In my posts, I tried to get across why it will never be a money in the above sense [=medium of exchange].
I think you are oversimplifying the regression theorem. Mises is explicit in saying that in order for money to have value the commodity (or whatever makes up said money) has to have some previous value. That is, the value of money comes from the value of something else. In bitcoin's case, that something else is the dollar.
Yes, bitcoins derive their value from the expectation that one may readily exchange them for actual money (money proper), i.e. dollars. In this sense, bitcoins sort of function like secondary media of exchange, but they're not employed nearly as regularly as traditional secondary media of exchange (precious metals, securities, etc). Thus, we can say that bitcoin are essentially tertiary media of exchange.
But money is defined as a commonly employed media of exchange, which means that, by definition, bitcoins are not money. Your grocer will not accept bitcoins, laborers will not accept bitcoins as payment, etc, etc. In order for bitcoins to emerge as actual money, in a way which consistent with Mises' regression theorem, they would have to be absolutely interchangeable with actual dollars but more convenient, so that eventually the employment of bitcoins completely surpasses the employment of dollars (in all of its various forms) altogether.
If bitcoins actually become money (again defined as a commonly employed media of exchange) in any other way, then Mises' regression theorem will become empirically invalidated.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
"commonly employed"
How many people does it take for it to be considered "commonly employed"? 50? 100? 1000? 1000000?
When workers accept bitcoins as a form of payment; when grocery stores accept bitcoins, when the shops at the local mall accept bitcoins, etc, etc.
Esuric: I think you are oversimplifying the regression theorem. Mises is explicit in saying that in order for money to have value the commodity (or whatever makes up said money) has to have some previous value. That is, the value of money comes from the value of something else. In bitcoin's case, that something else is the dollar. Yes, bitcoins derive their value from the expectation that one may readily exchange them for actual money (money proper), i.e. dollars. In this sense, bitcoins sort of function like secondary media of exchange, but they're not employed nearly as regularly as traditional secondary media of exchange (precious metals, securities, etc). Thus, we can say that bitcoin are essentially tertiary media of exchange. But money is defined as a commonly employed media of exchange, which means that, by definition, bitcoins are not money. Your grocer will not accept bitcoins, laborers will not accept bitcoins as payment, etc, etc. In order for bitcoins to emerge as actual money, in a way which consistent with Mises' regression theorem, they would have to be absolutely interchangeable with actual dollars but more convenient, so that eventually the employment of bitcoins completely surpasses the employment of dollars (in all of its various forms) altogether. If bitcoins actually become money (again defined as a commonly employed media of exchange) in any other way, then Mises' regression theorem will become empirically invalidated.
I could get on board with that. It really does depend on how you define money. So if you go by the notion of "commonly employed media of exchange"—which, I suppose I don't have too much of a problem with the impreciseness of the phrase—then I would say it probably will be the case that bitcoin will have a pre-existing exchange value (most likely with the popular fiat currencies, and probably gold & silver) when it meets that definition of a money. However, again, as everyone here has been so adamant in pointing out, bitcoin has no other use aside from its monetary use...meaning, the moment it ever does become "a money" it would disprove Mises:
"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."
However, as Jonathan has been pointing out, an exchange value with the dollar connects bitcoin in a chain that does regress back to a commodity that started with non-monetary value. So I'm not positive it could be said the even in that case bitcoin would violate the Regression Theorem...but it would definitely prove Mises' above statement to be false.
It's very simple, the hour attatched itself to a currency which had a preexisting rate, and then the people agreed to treat it as money. They could not do this from scratch, they could not simply have founded the hour, it had to be attatched to another currency.
This is how currencies today, like the Euro, which never had backing from gold come to act as monies, they attatch themselves to currencies which at one point did and so through foriegn exchange and the replacement of another currency they can do it.
The people who adopted the hour simply treated it as money, just as someone can treat a money substitute as money.
I thought we already established that the HOUR was a money substitute.
John James:
"Again, the only arguments I have heard are: ... If I've missed anything please enlighten me. But to be honest if this is the best anyone can come up with, I really don't see how people could be so sure of themselves and still call others "irrational.""
Yeah, this. Latter half.
Neodoxy: It's very simple, the hour attatched itself to a currency which had a preexisting rate, and then the people agreed to treat it as money. They could not do this from scratch, they could not simply have founded the hour, it had to be attatched to another currency. This is how currencies today, like the Euro, which never had backing from gold come to act as monies, they attatch themselves to currencies which at one point did and so through foriegn exchange and the replacement of another currency they can do it. The people who adopted the hour simply treated it as money, just as someone can treat a money substitute as money.
Yes, the founders of the Ithica Hour agreed to value the Hour at $10 per hour at the time, but there isn't any formal peg there. Is the Hour still worth $10? Or does it float? Bitcoin was initially valued in a similar manner; when one guy offered $10K BTC in exchange for one pizza delivered to his home. The guy who accepted that offer took a huge risk, but established the initial value of a bitcoin, and it's been on a tear since. So is bitcoin a dollar proxy, then? Sure. Does that mean that it's not a currency? Of course not. The Hour is a currency. So is the Euro, which was founded by political agreement alone, and valued against several existing national currencies. Bitcoin does this as well. How, again, is it not a currency if the Hour is?
I don't think I like the idea of "commonly employed" as part of the definition of a money. A money may not be universally accepted - e.g. dried tobacco or salt - but within the region where it is accepted it is as much money as anything which has wider acceptance. The trouble with Bitcoin, or even Ithaca HOURS, is that they are not universally accepted in any region. If Ithaca HOURS were, in fact, money per se, they would not be accepted only by a limited number of individuals and businesses who have "opted in". I am truly baffled how people who purport to have read Mises, Rothbard and Hoppe on this subject can even be slightly confused about this. US Dollars are money. Euros are money. Yen are money. Rupees are money. Gold and silver still retain a vestigial or shadow money status. But Bitcoins are not money. Ithaca HOURS are not money. GoldMoney is not money. Money is the most marketable good and, for this reason, it is universally accepted. The idea that a money can be "kind of" accepted by a limited sub-community of market participants in payment for select items is contrary to everything that Mises, Rothbard and Hoppe have written on the subject. Please, please, everyone needs to read Mises on Money.
Clayton -
Conza88:Yeah, this. Latter half.
yeah, you're going to have to be more specific. I saw nothing there that proved really anything.
Clayton:I don't think I like the idea of "commonly employed" as part of the definition of a money. A money may not be universally accepted - e.g. dried tobacco or salt - but within the region where it is accepted it is as much money as anything which has wider acceptance.
That sounds like you're saying "it's not so much a drink as it is a beverage."
John James:yeah, you're going to have to be more specific. I saw nothing there that proved really anything.
"More specific"? - the latter half, i.e the part where Michael Suede assumes objective value, and the part about violating Mises Regression from then on. But more specifically - the part about bitcoin being a reaction to the existence of the state. And not being a valid free market money.
Conza88:Bitcoins: - Commodity? No. - The most easily and widely salable good? No. Let me know when people start trading in gold en masse for bitcoins. - With the best humanly possible protection against uncertainty? Haha! Speaks for itself really given what it is based on - 'faith' and nothing else (besides legal tender laws & the state - which gives it the appearance of 'validitity' & 'legitimacy'. Bitcoin is merely a reaction to the existence of the state. It is not a valid free-market money. And I'd be interested to hear the 'positives' / 'arguments for' bitcoin - that would still exist, if there was a voluntary society (free market in money & the law) etc.
Conza88:That might have something to do with the burden of proof resting with you, or the dude attempting to refute the gold standard in favour of bitcoin - who was subsequently found to have all his arguments lacking. But then you weren't requesting proof - so you're guilty of moving the goal posts, you requested additional arguments.
But then you weren't requesting proof - so you're guilty of moving the goal posts, you requested additional arguments.
Oh I get it. You didn't read this thread or the one it was spawned from. I guess that makes sense as to why you would link to a post that had virtually no relevance to anything I said or with the question asked in the OP.
John James:Oh I get it. You didn't read this thread or the one it was spawned from. I guess that makes sense as to why you would link to a post that had virtually no relevance to anything I said or with the question asked in the OP.
No, you quite obviously do not get it... considering I read this thread and the one that it spawned from. What gave you the impression I hadn't? I assume it was because I referenced the point about Mises regression thereom as the starting point for context, yet you ignorantly then concluded I wasn't up to scratch with the "debate" - given your own position on the matter. Well, you were wrong in more ways than one. The link it clear, the relevance is there. I answered your question. And it seems that you & no-one else has been able to / bothered to elsewhere.
I am rested with the burden of proof of what? What did I assert that needs proving? And where in any of that display of obnoxious treatment of suede did you prove bitcoin will fail?