One day, while I was learning about cipherspace, I discovered BitCoin. BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions. The creator put a great deal of effort into ensuring that the system is secure and reliable. Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either). Thus ends BitCoin.
I can imagine, though, a system like BitCoin that allows people to write promissory notes and sign them with an RSA digital signature (to prevent couterfeiting). These promissory notes could be backed by gold, silver, fiat currencies, stocks and bonds, or pretty much anything. Then, these notes could be transfered from one person to another anonymously.
Couple this with an ebay-like service that allows people to swap these virtual currencies. Say, for example, that I have a gold note issued by a bank in South Africa. Since taking delivery of the gold could be a problem, I trade my notes for notes issued by a bank in U.S.A. Then, I can redeem those notes and have them FedEx me the gold (insured, of course).
This system would be Fed-proof, IRS-proof, FBI-proof and judgment-proof. This system would protect the users against monetary inflation, making it Fed-proof. Since nobody has a bossman ratting out their earnings, it is IRS-proof. It is FBI and NSA proof because all transactions are encrypted and anonymous. And, most importantly, it is judgment-proof because it is perfectly legal.
There are, at present, no laws that could be used to criminalize what I propose. Laws against money-laundering, for example, do not apply because there is no way to prove that the money came from an illegal source, such as drug dealing. Laws against tax-evasion do not apply either, because no taxes have ever been levied on imaginary currency. In addition, if you had your day in court, you could defend yourself on First Amendment grounds. Besides, international free trade agreements also have generous loopholes.
So what we are dealing with is anarcho-capitalism and wildcat banking on a global scale. If not for my non-existant programming skills, I'd be forking a new project off BitCoin right now.
Anybody here know C++?
"As long as there are sovereign nations possessing great power, war is inevitable."
@gabriel: Oh, man, you're begging for a flame-war.... ;-)
Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.
Clayton -
No worries, I'm just being inflammatory. I write C/C++ (C#, and some assembly) for a living, so I have a certain affection for them :). Now if there's any "God that Failed" book that should be written about a programming language, it's Ruby. Not a fan.
MoonShadow: Therefore, it only applies to the transition from a barter economy to a monetary exchange economy.
Therefore, it only applies to the transition from a barter economy to a monetary exchange economy.
While I agree with you that this is the case in a free market, I have not seen it stated anywhere that Mises's regression theorem only applies to a transition from barter to monetary economy. This is the entirety of my contention with the theorem. It appears that it attempts to apply globally when it really only applies in a specific scenario.
If you could refer me to where it constrains the application of the theorem I would appreciate it.
Micah71381: MoonShadow: Therefore, it only applies to the transition from a barter economy to a monetary exchange economy. While I agree with you that this is the case in a free market, I have not seen it stated anywhere that Mises's regression theorem only applies to a transition from barter to monetary economy. This is the entirety of my contention with the theorem. It appears that it attempts to apply globally when it really only applies in a specific scenario. If you could refer me to where it constrains the application of the theorem I would appreciate it.
Hmm, that might take some time, but it's actually a product of the theorem itself. As stated, it's the theory of how a money initially gains value, so the theory limits it's own scope. If someone tries to use it to prove that an existing floating currency cannot exist, such as Bitcoin is now, it's misapplied, because it's provable true that Bitcoin has an accepted market value at present. The argument may have had merit before Bitcoin went live two years ago, but it certainly doesn't apply now. Bitcoin initially gained value because there were people who looked at the system, and were willing to speculate that it would work. That stage is past.
MoonShadow: Hmm, that might take some time, but it's actually a product of the theorem itself. As stated, it's the theory of how a money initially gains value, so the theory limits it's own scope. If someone tries to use it to prove that an existing floating currency cannot exist, such as Bitcoin is now, it's misapplied, because it's provable true that Bitcoin has an accepted market value at present. The argument may have had merit before Bitcoin went live two years ago, but it certainly doesn't apply now. Bitcoin initially gained value because there were people who looked at the system, and were willing to speculate that it would work. That stage is past.
This is a quote out of the book Human Action by Ludwig von Mises (bold added):
no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. And all these statements implied in the regression theorem are enounced apodictically as implied in the apriorism of praxeology. It must happen this way. Nobody can ever succeed in construction a hypothetical case in which things were to occur in a different way.
I do not get the impression from those statements that the theorem is meant to have a limited scope of application. It seems to me that BitCoin is a perfect example of these statements being false. It is a good employed as a medium of exchange that did not, at it's begriming, have an exchange value.
In short, I agree with you in all aspects except that the theorem was originally meant to have limited scope. The theorem, in it's original writing, seems to claim that it's scope is unlimited. This is my only point of contention and the one that has resulted in the past several pages of discussion.
Micah71381: MoonShadow: Hmm, that might take some time, but it's actually a product of the theorem itself. As stated, it's the theory of how a money initially gains value, so the theory limits it's own scope. If someone tries to use it to prove that an existing floating currency cannot exist, such as Bitcoin is now, it's misapplied, because it's provable true that Bitcoin has an accepted market value at present. The argument may have had merit before Bitcoin went live two years ago, but it certainly doesn't apply now. Bitcoin initially gained value because there were people who looked at the system, and were willing to speculate that it would work. That stage is past. This is a quote out of the book Human Action by Ludwig von Mises (bold added): no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments. And all these statements implied in the regression theorem are enounced apodictically as implied in the apriorism of praxeology. It must happen this way. Nobody can ever succeed in construction a hypothetical case in which things were to occur in a different way. I do not get the impression from those statements that the theorem is meant to have a limited scope of application. It seems to me that BitCoin is a perfect example of these statements being false. It is a good employed as a medium of exchange that did not, at it's begriming, have an exchange value. In short, I agree with you in all aspects except that the theorem was originally meant to have limited scope. The theorem, in it's original writing, seems to claim that it's scope is unlimited. This is my only point of contention and the one that has resulted in the past several pages of discussion.
I'm sorry, I wasn't clear on how it limits it's own scope. The theorem was based on the scenario on the transition from barter to a commodity system, and frames the conditions under which a commodity becomes an accepted medium of exchange. The scope is limited, in the original context, around the definition of a money. Under Austrian Economic Theory, money is always a commodity. Said another way, and as I mentioned previously, the concept of a money is independent, yet related to, the concept of a currency. Money is always a commodity, precisely because it must arise voluntarily. However, a currency is always a unit of measurement, which may or may not be defined as a specific measurement of a money. The argument can be made, historicly, that the US FRN doesn't violate Regression Theory because it was originally backed by a specific weight in gold, and had an established value in the public venue prior to it's losing it's backing. The same cannot be said for the Euro, for it was never backed by anything. The Euro is a pure currency, and always has been. Regression theory doesn't apply to the Euro because it was never a money, and never backed by a commodity. I.E. the Euro is beyond the scope of the theory. The Euro gained it's initial value in two related ways; first the public agreed to transition from their existing national currencies (for political reasons moreso than economic ones) and then their governments further supported the currency in a similar manner as all other national currencies, by declaring it legal tender by fiat and requiring it for the settlement of tax debts. This is not how Bitcoin gained it's initial value. Bitcoin started because a group of people looked at the system, agreed that it could work, agreed that it would be currency for them, and then speculated in their own national fiat currencies that it would increase in value. So far, this has all proven true. So Bitcoin has bootstrapped itself against the existing currencies, because it's a pure currency with advantages over those existing currencies in the digital realm. That's not to say that it cannot collapse, it certainly could. Yet it probably won't without some major outside disruptive force, such as attacks from governments or other groups with large computational resources, the catastrophic failure of the Internet worldwide, or a competitive cryptocurrency that is both better than Bitcoin in some dramatic fashion and beyond the abilities of the Bitcoin protocol to assimulate.
MoonShadow: I'm sorry, I wasn't clear on how it limits it's own scope. The theorem was based on the scenario on the transition from barter to a commodity system, and frames the conditions under which a commodity becomes an accepted medium of exchange. The scope is limited, in the original context, around the definition of a money. Under Austrian Economic Theory, money is always a commodity. Said another way, and as I mentioned previously, the concept of a money is independent, yet related to, the concept of a currency. Money is always a commodity, precisely because it must arise voluntarily. However, a currency is always a unit of measurement, which may or may not be defined as a specific measurement of a money. The argument can be made, historicly, that the US FRN doesn't violate Regression Theory because it was originally backed by a specific weight in gold, and had an established value in the public venue prior to it's losing it's backing. The same cannot be said for the Euro, for it was never backed by anything. The Euro is a pure currency, and always has been. Regression theory doesn't apply to the Euro because it was never a money, and never backed by a commodity. I.E. the Euro is beyond the scope of the theory. The Euro gained it's initial value in two related ways; first the public agreed to transition from their existing national currencies (for political reasons moreso than economic ones) and then their governments further supported the currency in a similar manner as all other national currencies, by declaring it legal tender by fiat and requiring it for the settlement of tax debts. This is not how Bitcoin gained it's initial value. Bitcoin started because a group of people looked at the system, agreed that it could work, agreed that it would be currency for them, and then speculated in their own national fiat currencies that it would increase in value. So far, this has all proven true. So Bitcoin has bootstrapped itself against the existing currencies, because it's a pure currency with advantages over those existing currencies in the digital realm. That's not to say that it cannot collapse, it certainly could. Yet it probably won't without some major outside disruptive force, such as attacks from governments or other groups with large computational resources, the catastrophic failure of the Internet worldwide, or a competitive cryptocurrency that is both better than Bitcoin in some dramatic fashion and beyond the abilities of the Bitcoin protocol to assimulate.
So a money is something that is used as a medium of exchange but is rooted in a commodity. A currency on the other hand is something that is used as a medium of exchange but is not necessarily rooted in a commodity?
I can guess the following two but the third I am lost: A currency that is not a money (BitCoin?). A currency that is also a money (gold coins historically). A money that is not a currency (???).
Or are you suggesting that money is a subset of currency?
Micah71381: So a money is something that is used as a medium of exchange but is rooted in a commodity. A currency on the other hand is something that is used as a medium of exchange but is not necessarily rooted in a commodity?
Not quite. A good money is any commodity that has all of the intristic characteristics of money to a fair degree (durability, fungibility, divisability, portability and recognition). It is these characteristics that lend that commodity towards being used as a medium of exchange. But, as I stated, a currency is a unit of measurement, specificly a unit of measurement of abstract valuation.
I can guess the following two but the third I am lost: A currency that is not a money (BitCoin?).
And US$, and Euros, and every other fiat curency on the planet.
A currency that is also a money (gold coins historically). A money that is not a currency (???).
Gold that not assayed, nor struck as a coin of a known amount. A bent silver spoon. A crushed copper kettle. These things have value (but not use value), and the materials have the characteristics that lend them well to being used as coins, but they are not coins.
No. Both are partially overlapping sets, but either can exist exclusive of the other.
MoonShadow:herefore, it only applies to the transition from a barter economy to a monetary exchange economy.
Incorrect, it applies in the transition from currency to currency.
filc: MoonShadow:herefore, it only applies to the transition from a barter economy to a monetary exchange economy. Incorrect, it applies in the transition from currency to currency.
Does it now? Because you say so? Or do you have an argument to present. And before you say "because that is what (Mises|God|The-voices-in-my-head) say so", that won't be acceptable.
I'll actually agree that it is expected to apply to the transition from one medium of exchange to another, but as has been pointed out to you already, not only is that provablely not so in particular cases (disproving your application of the theory, it only takes once) but the theory is limited in it's scope.
MoonShadow:And before you say "because that is what (Mises|God|The-voices-in-my-head) say so", that won't be acceptable.
I understand you not appreciating appeals to authority. I am not saying it is so because Mises said so. I am saying that Mises articulates the argument best and if you want to learn it you'd read it before aarogantly arguing against it. Technically it's not Mises's argument. The fact that so many of you only think the bulk of this theorum belongs to Mises is further proof that most of you have done only enough research to debat me in this thread.
You can start reading about it here.
I already explained it adequately enough once. I explained why bitcoin or a currency like it would not be an adequate replacement for the dollar even if the dollar collapsed. I don't need to explain it to you again simply because you have a condescending tone.
filc: I understand you not appreciating appeals to authority. I am not saying it is so because Mises said so. I am saying that Mises articulates the argument best and if you want to learn it you'd read it before aarogantly arguing against it. Technically it's not Mises's argument. The fact that so many of you only think the bulk of this theorum belongs to Mises is further proof that most of you have done only enough research to debat me in this thread. You can start reading about it here. I already explained it adequately enough once. I explained why bitcoin or a currency like it would not be an adequate replacement for the dollar even if the dollar collapsed. I don't need to explain it to you again simply because you have a condescending tone.
I cannot speak for MoonShadow but I have read Mises's regression theorem in Human Action. Having read it, I believe that there is a hole in his argument which I have brought up a couple times in this thread (though I don't mind bringing it up again if you would like). It becomes an appeal to authority not when you reference an expert in the field but when someone poses an argument against a statement made by such an expert and instead of arguing on behalf of the expert based on your knowledge of the subject you refer back to the expert who is unavailable for debate or you suggest reading even more material which you are certain will backup your point for you.
I can appreciate you not having time to argue any particular point and referencing additional reading material for the curious is not a problem in it's own right. However, I get the impression that you feel your point is valid in the face of the arguments presented against it but you are unwilling to argue the matter yourself. If you would prefer not to debate this topic I would recommend gracefully stepping out with something along the lines of, "I don't have time to continue this debate and you may or may not be correct in your assertion. If you are interested in delving deeper into the subject I would recommend reading <book> and <webpage> to see if they can provide a good counter to your position on this topic."
If you do wish to continue debating this topic I think we either need to agree on a definition of money or agree to use a different term such as currency, medium of exchange, etc. You have indicated that your argument against BitCoin is based heavily on the definition of money and I still don't have a strong grasp of what classifies as money to you. You have indicated that an unbacked fiat currency classifies as money so is the only recquirement that it be a medium of exchange that derived at some point in history from a commodity? If so then I can agree that BitCoins are not money. However, I don't believe that that means they are not a medium of exchange nor do I believe that they can't become the most used medium of exchange just because they are not money (by the definition above).
Your post had some other points against BitCoins that I believe have merit as to why BitCoin is unlikely to come into popular use but I am hesitant to delve into those points without an agreed upon terminology.
This may be how money is defined for some, but it is a loose definition. Money is more than a medium of exchange.
Not at all, it's a very precise definition and it's stated as it is for a reason.
Money is a commodity with intrinsic charcteristics that lend it well towards the use as a medium of exchange. Namely... Durability (does not decay, nor is it consumed in any normal process) Fungibility (any amount is comparable to any other) divisability (cutting it into smaller measurements does not harm it) portability (can I put a decent amount of value in my pocket?) Recognition (Joe Average has seen it before, knows what it is, and can generally tell that it's not fake) However, a currency is a unit of measurement, said another way, it's a number and an abstract measurement of value,
Durability (does not decay, nor is it consumed in any normal process)
Fungibility (any amount is comparable to any other)
divisability (cutting it into smaller measurements does not harm it)
portability (can I put a decent amount of value in my pocket?)
Recognition (Joe Average has seen it before, knows what it is, and can generally tell that it's not fake)
However, a currency is a unit of measurement, said another way, it's a number and an abstract measurement of value,
Nope. Rothbard says in What has Government Done to Our Money?:
As Rothbard says, the use of money as a unit of account (which use plays a central role in Mises's arguments regarding the impossibility of Socialism due to the calculation problem) is simply a corrolary of its being the medium of exchange, that is, one half of every transaction. But money is not a measure of anything else beyond itself. "Three meters" expresses a length magnitude but "three dollars" does not express a magnitude of any physical quantity other than dollars neither does "three gold ounces" express a magnitude beyond the number of ounces of gold. Ounce of gold are not a measure of anything else. Dollars are not a measure of anything else.
but it is not value unto itself. Oftentimes, as is the case with every fiat currency on the planet, a currency is a debt instrument, that identifies that the issuing institution owes the bearer something.
Actually, I dispute this - a dollar is a dollar and it is valuable because it is what it is and it does not signify any debt from anybody to the bearer. It's simply exchangeable for other goods and services. The "debt" which is supposed to be how dollars come into existence is not true debt, it's sovereign debt and can, therefore, be defaulted on without much consequence. The whole purpose of the "debt" is simply to obfuscate the truth that money is printed out of thin air... it is a pretense that "it will all be paid back sometime in the future" which is a lot of malarkey.
A gold coin, with it's fine weight printed upon the face of itself, is both a money and a currency. Which is why a gold coin issued by a government is both a legal tender of the value on it's face, while also having a monetary value independently of the face value, which is normally higher than the face value these days. The unit of measurement is what is devalued in inflation, not the monetary value of the gold itself.
Please read Mises on Money. You will not understand money until you have read it.
I asked you a couple pages back to cite the passage where Mises commits the "disjunctive fallacy" and/or assumes the truth of his own argument. I can't show you where you are misunderstanding Mises if you don't cite the passage you think is fallacious.
"Three meters" expresses a length magnitude but "three dollars" does not express a magnitude of any physical quantity other than dollars neither does "three gold ounces" express a magnitude beyond the number of ounces of gold. Ounce of gold are not a measure of anything else. Dollars are not a measure of anything else.
I want to elaborate a little more on what I said here, because I think this is a common and important misunderstanding of money.
If I say, "This rope is three meters long", I am making a statement about the properties of the rope itself. If, however, I say, "This rope is three dollars" that is not a statement about the properties of the rope itself. It is, in fact, a statement about myself - I am willing to give up this rope for no less than three dollars. The "three" in "three dollars" is not the number of some abstract unit which inheres in the rope itself.
Slightly different is "ropes cost three dollars". This is the most confusing because it is neither a statement about myself (I may not even own a rope) nor is it a statement about the properties of ropes, generally. Rather, it is a statement about the market price of ropes. This is why you have to dip your toes into Austrian price theory to understand the distinction between a price and a unit of measurement. Ropes might be three dollars today but two dollars or four dollars tomorrow because valuations constantly fluctuate. Valuation is a result of real subjective preference decisions (contrary to homo economicus who makes all possible subjective preference decisions - past, present and future - simultaneously). However, if you measure a rope with a measuring tape and find it to be three meters in length, it will not spontaneously shrink or grow to two meters or four meters tomorrow. Hence, the market price is not a property which inheres in the object itself, even though it is not purely subjective (as the price you place on something you own might be).
Clayton: This may be how money is defined for some, but it is a loose definition. Money is more than a medium of exchange. Not at all, it's a very precise definition and it's stated as it is for a reason. Money is a commodity with intrinsic charcteristics that lend it well towards the use as a medium of exchange. Namely... Durability (does not decay, nor is it consumed in any normal process) Fungibility (any amount is comparable to any other) divisability (cutting it into smaller measurements does not harm it) portability (can I put a decent amount of value in my pocket?) Recognition (Joe Average has seen it before, knows what it is, and can generally tell that it's not fake) However, a currency is a unit of measurement, said another way, it's a number and an abstract measurement of value, Nope. Rothbard says in What has Government Done to Our Money?: Many textbooks say that money has several functions: a medium of exchange, unit of account, or "measure of values," a "store of value," etc. But it should be clear that all of these functions are simply corollaries of the one great function: the medium of exchange. Because gold is a general medium, it is most marketable, it can be stored to serve as a medium in the future as well as the present, and all prices are expressed in its terms. [2] Because gold is a commodity medium for all exchanges, it can serve as a unit of account for present, and expected future, prices. It is important to realize that money cannot be an abstract unit of account or claim, except insofar as it serves as a medium of exchange. [2] Money does not "measure" prices or values; it is the common denominator for their expression. In short, prices are expressed in money; they are not measured by it. As Rothbard says, the use of money as a unit of account (which use plays a central role in Mises's arguments regarding the impossibility of Socialism due to the calculation problem) is simply a corrolary of its being the medium of exchange, that is, one half of every transaction. But money is not a measure of anything else beyond itself. "Three meters" expresses a length magnitude but "three dollars" does not express a magnitude of any physical quantity other than dollars neither does "three gold ounces" express a magnitude beyond the number of ounces of gold. Ounce of gold are not a measure of anything else. Dollars are not a measure of anything else.
I don't believe that I've said differently. Money, once standardized by either fiat or as a defacto, becomes a unit of currency that is self referrencing. Yet there are currencies that exist, function as a medium of exchange, and have a definable market value whose unit no longer (or never did) refers to a definable quantity of any money. These currencies are abstract units of measurements. Certainly they can all be referenced back to gold. I don't dispute that. Bitcoin can be referenced back to gold as well. But any such relative valuation is true only for the moment.
but it is not value unto itself. Oftentimes, as is the case with every fiat currency on the planet, a currency is a debt instrument, that identifies that the issuing institution owes the bearer something. Actually, I dispute this - a dollar is a dollar and it is valuable because it is what it is and it does not signify any debt from anybody to the bearer. It's simply exchangeable for other goods and services. The "debt" which is supposed to be how dollars come into existence is not true debt, it's sovereign debt and can, therefore, be defaulted on without much consequence. The whole purpose of the "debt" is simply to obfuscate the truth that money is printed out of thin air... it is a pretense that "it will all be paid back sometime in the future" which is a lot of malarkey.
When I say that fiat currencies are a debt instrument, I am referencing the counter-party risk inherent in paper currencies (fiat or hard) which in our modern world falls back to the central banks and the governments that created them. Not that I would ever expect, nor to imply, that such a debt can ever be expected to be honored. All paper currencies have counter-party risks, because even under a gold standard the bearer has to trust that the gold actually exists.
A gold coin, with it's fine weight printed upon the face of itself, is both a money and a currency. Which is why a gold coin issued by a government is both a legal tender of the value on it's face, while also having a monetary value independently of the face value, which is normally higher than the face value these days. The unit of measurement is what is devalued in inflation, not the monetary value of the gold itself. Please read Mises on Money. You will not understand money until you have read it
Please read Mises on Money. You will not understand money until you have read it
I have, honestly; and many others besides. I think that I understand it fine. If you can point out my errors, feel free to do so.
Clayton: "Three meters" expresses a length magnitude but "three dollars" does not express a magnitude of any physical quantity other than dollars neither does "three gold ounces" express a magnitude beyond the number of ounces of gold. Ounce of gold are not a measure of anything else. Dollars are not a measure of anything else. I want to elaborate a little more on what I said here, because I think this is a common and important misunderstanding of money. If I say, "This rope is three meters long", I am making a statement about the properties of the rope itself. If, however, I say, "This rope is three dollars" that is not a statement about the properties of the rope itself. It is, in fact, a statement about myself - I am willing to give up this rope for no less than three dollars. The "three" in "three dollars" is not the number of some abstract unit which inheres in the rope itself. Slightly different is "ropes cost three dollars". This is the most confusing because it is neither a statement about myself (I may not even own a rope) nor is it a statement about the properties of ropes, generally. Rather, it is a statement about the market price of ropes. This is why you have to dip your toes into Austrian price theory to understand the distinction between a price and a unit of measurement. Ropes might be three dollars today but two dollars or four dollars tomorrow because valuations constantly fluctuate. Valuation is a result of real subjective preference decisions (contrary to homo economicus who makes all possible subjective preference decisions - past, present and future - simultaneously). However, if you measure a rope with a measuring tape and find it to be three meters in length, it will not spontaneously shrink or grow to two meters or four meters tomorrow. Hence, the market price is not a property which inheres in the object itself, even though it is not purely subjective (as the price you place on something you own might be). Clayton -
Again, I have not said anything contrary to this viewpoint. I don't even believe that I brought up prices at all, but I'm not sure.