An article I wrote for my news magazine:
There has been a lot of outcry from the libertarian gold bug community over the Bitcoin monetary system, with some commentators even going so far as to produce feature length videos decrying the monetary system. David Kramer writes on Lew Rockwell.com,
What was Bitcoin’s prior material use/value? Zero. It is just bits in a computer. And what’s with the “fixed” amount of Bitcoins? Who/what determined the “proper” amount of 21 million for Bitcoins to top out at? A computer program? (Next we’ll find out what the proper minimum wage should be.) Only the free market can voluntarily determine how much of a real medium of exchange is needed in the marketplace over time. While the idea of attempting to get rid of the Bankster monopoly on creating money out of thin air is commendable, Bitcoin is also money created out of thin air. Bitcoin is just substituting one bogus medium of exchange for another.
UPDATE: I’ve been getting a lot of reader response trying to “explain” to me the economic virtues of Bitcoin. Some responders have even mistakenly used Austrian economics to rationalize their views. I would suggest that before you write to me about the Austrian economics view of a medium of exchange, you should read the two books by one of the two giants of Austrian economics, Murray Rothbard, on what a medium of exchange is.
Doug Casey also chimed in with the following commentary:
L: Do they have value in themselves?
Doug: There’s the rub; I don’t see that they do. Bitcoins are just an electronic abstraction. They can’t be used for anything else, nor are they made of something that can be used for anything else. They are like one of those knots in a string that disappear if you pull hard enough on the ends of the string. They are not backed by anything at all. Like government fiat currencies, they are a con game, functioning only as long as people have confidence in them, regardless of whether that confidence is well placed or not.
The arguments made by Casey, Kramer, and Nielsio are typical of the gold bug community, and I present them to you so that you may judge for yourself which set of logical arguments is superior. Judging by the ratings of the Nielsio videos, I think the public agrees with my position that not only are Bitcoins a legitimate money, but they are in fact superior to gold as a medium of exchange.
There is a lot of disdain for Bitcoins by the Austrian gold bugs for a few reasons. The primary reason is that, well, they are all holding gold! It stands to reason that they don’t like potential threats to their investment holdings. Another primary reason, which all of the above authors allude to, is that Bitcoins challenge the Misesian Regression Theorem of Money, which states:
…because of Menger’s explanation of the origin of money. We can trace the purchasing power of money back through time, until we reach the point at which people first emerged from a state of barter. And at that point, the purchasing power of the money commodity can be explained in just the same way that the exchange value of any commodity is explained. People valued gold for its own sake before it became a money, and thus a satisfactory theory of the current market value of gold must trace back its development until the point when gold was not a medium of exchange.
I’m going to come right out and say it – Mises was wrong.
*the crowd wails* Boo! Hiss! Heretic!
I’ll explain why I think the whole basis for this approach to the origin of money is wrong in a moment, but first I will present you with an argument that attempts to demonstrate why Bitcoins do not violate Mises’ Regression Theorem. Therefore, even if you don’t agree with my theory, you can clearly see that powerful arguments exist within the Misesian framework which demonstrates why the gold bugs are wrong in their interpretation of the Regression Theorem. In this absolutely brilliant analysis on the Bitcoin forums, XC writes:
The Money Regression and Emergence of Money from the Barter Economy The entire purpose of the regression theorem was to help explain an apparent paradox of money: how does money have value as a medium of exchange if it is valued because it serves as a medium of exchange? Menger and Mises helped break this apparent circularity by explaining the essential time component missing from the phrasing of the paradox.
As Rothbard explains in Man, Economy, and State (p 270),
“…a money price at the end of day X is determined by the marginal utilities of money and the good as they existed at the beginning of day X. But the marginal utility of money is based, as we have seen above, on a previously existing array of money prices. Money is demanded and considered useful because of its already existing money prices. Therefore, the price of a good on day X is determined by the marginal utility of the good on day X and the marginal utility of money on day X, which last in turn depends on the prices of goods on day X – 1. The economic analysis of money prices is therefore not circular. If prices today depend on the marginal utility of money today, the latter is dependent on money prices yesterday.” [all emphasis added]
Rothbard then goes on to explain that in order for money to emerge from a barter economy, it must have a preexisting commodity value. This commodity value arises from barter demand for the potential money in direct consumption (i.e. ornamentation). This value seeds future estimations of the value of the money as a medium of exchange. The natural market emergence of money is thus fully explained.
The Monetary Economy However, once an economy has been monetized and a memory of price ratios for goods and services has been established, a money may lose its direct commodity value and still be used as a money (medium of indirect exchange). Rothbard explains (p 275):
“On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X gold loses its direct uses, there will still be previously existing money prices that had been established on day X – 1, and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of money on day X + 1. From X on, gold could be demanded for its exchange value alone, and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that the direct uses continue after the money has been established.”
This explains the history of fiat currencies. They originally started off as simple names for weights of commodity money (silver) that developed out of the pre-monetary barter economy. Despite later losing their ties to direct commodity value through state interference, paper currency retained status as money because of memory of previous money prices. This factor is so strong that the relationship between gold and the USD, for example, is somewhat inverted. Gold no longer circulates as a common medium of exchange. Prices are set in USD, not in gold. Most individuals wishing to trade in gold do so based on their knowledge of USD/gold price ratios. (“Hey, let me buy that $100 couch from you in gold?” ”Ok, USD/gold is $1000/oz. Give me 1/10oz of gold.”) Legal tender laws, state taxation, and the entire financial regulatory environment maintain this inertia of USD prices and make it challenging to return to gold money directly, despite the destructive inflationary nature of fiat currencies.
The Emergence of the Bitcoin Economy The very first businesses in the Bitcoin economy were exchangers (NewLibertyStandard, BitcoinMarket, BitcoinExchange,….). This is not an accident, but flows from the analysis above. In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices. Market exchangers fill this gap and give Bitcoin users access to this knowledge. Bitcoins may therefore currently serve as a money intermediary for paypal dollars\pecunix\euros. But why is there demand for Bitcoin over USD?? This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc…. inherent to the Bitcoin system.
The essential point is that once exchange can occur between a money (USD) and Bitcoins, providers of goods have a means by which to value Bitcoins as a potential medium of exchange. The money regression is satisfied, because taken back far enough we reach traditional commodity money: BITCOINS -> USD -> MONETIZED GOLD & SILVER [start monetary economy] -> [end barter economy] COMMODITY GOLD & SILVER.
Of course, if a major meltdown occurred and knowledge of all price ratios was wiped out, Bitcoin probably would NOT directly emerge as a money (assuming Bitcoins have limited value outside of exchange). Fiat currencies with zero direct barter value certainly would not. Commodities such as gold and silver that have widely recognized direct value in barter would likely emerge first. The economy would then be monetized with price ratios in gold and silver. Bitcoins then, being valued for intrinsic properties amenable to exchange, might then become prevalent in trade. Initially, creators of value would continue to make their price value ratios in terms of the true money (gold oz/BTC ratio), but with time Bitcoin prices (BTC) can emerge (see vekja.net as example). We are in this initial phase now.
Therefore, so long as exchange of BTC and USD/Euros/etc… occurs, knowledge of existing price ratios can be utilized in the Bitcoin economy. In time as Bitcoins become increasingly marketable, these fiat<->BTC price ratios will seed direct BTC price ratios. The Bitcoin Economy thus emerges. The Misean regression theorem is satisfied.
Now, to challenge the assertions of Mises, Rothbard, and XC, I will start by presenting a question:
If there were no money or money prices in existence today, could Bitcoins arise as a currency without a pre-existing dollar price framework?
According to XC’s interpretation, this should not be possible. Nor should it be possible under Rothbard or Mises’ interpretation. However, I don’t see a conflict with Menger’s theorem about money arising from the saleability of a good. If you carefully consider Menger’s proposal, you’ll find that a good does not have to have a pre-existing usein order to arise as a money. The good simply has to be saleable. Consider that a good could have absolutely no use except to act as a money.
Menger attempts to demonstrate that money arises from the market selecting the most saleable good as the preferred medium to facilitate indirect exchange.
…astute traders will begin to engage in indirect exchange. For example, the owner of a telescope who desires fish does not need to wait until he finds a fisherman who wants to look at the stars. Instead, the owner of the telescope can sell it to any person who wants to stargaze, so long as the goods offered for it would be more likely to tempt fishermen than the telescope.
Over time, Menger argued, the most saleable goods were desired by more and more traders because of this advantage. But as more people accepted these goods in exchange, the more saleable they became. Eventually, certain goods outstripped all others in this respect, and became universally accepted in exchange by the sellers of all other goods. At this point, money had emerged on the market.
A direct quotation of Menger on this subject:
Under such circumstances it became the leading idea in the minds of the more intelligent bargainers,and then, as the situation came to be more generally understood, in the mind of every one, that the stock of goods destined to be exchanged for other goods must in the first instance be laid out in precious metals, or must be converted into them, or had already supplied his wants in that direction. But in and by this function, the precious metals are already constituted generally current media of exchange. In other words, they hereby function as commodities for which every one seeks to exchange his market-goods, not, as a rule, in order to consumption but entirely because of their special saleableness, in the intention of exchanging them subsequently for other goods directly profitable to him. No accident, nor the consequence of state compulsion, nor voluntary convention of traders effected this. It was the just apprehending of their individual self-interest which brought it to pass, that all the more economically advanced nations accepted the precious metals as money as soon as a sufficient supply of them had been collected and introduced into commerce. The advance from less to more costly money-stuffs depends upon analogous causes.
This development was materially helped forward by the ratio of exchange between the precious metals and other commodities undergoing smaller fluctuations, more or less, than that existing between most other goods, — a stability which is due to the peculiar circumstances attending the production, consumption, and exchange of the precious metals, and is thus connected with the so-called intrinsic grounds determining their exchange value. It constitutes yet another reason why each man, in the first instance (i.e. till he invests in goods directly useful to him), should lay in his available exchange-stock in precious metals, or convert metals, and the consequent facility with which they can serve as res fungibiles in relations of obligation, have led to forms of contract by which traffic has been rendered more easy; this too has materially promoted the saleableness of the precious metals, and thereby their adoption as money. Finally the precious metals, in consequence of the peculiarity of their colour, their ring, and partly also their specific gravity, are with some practice not difficult to recognise, and through their taking a durable stamp can be easily controlled as to quality and weight; this too has materially contributed to raise their saleableness and to forward the adoption and diffusion of them as money.
Menger doesn’t delve to deeply into why the metals should be so saleable, but he does touch on it by making various points about their fungibility, divisibility, scarcity, and recognizability. And here in lies the heart of my argument.
As Menger points out, people can perceive the benefits that arise from having a money product to facilitate trade and to act as a store of wealth. In Murphy’s article he makes the argument that “there’s the unlikelihood that someone could have invented the idea of money without ever experiencing it” - and I say this the same as saying “there’s the unlikelihood that someone could have invented phones without ever experiencing phone service”.
The market has a need for a trade intermediary and a store of wealth. This need can easily be preceived by anyone who has ever tried to barter a product. Of course the people will recognize that a form of money is important from the time the very first trading community of humans arose.
Saying that people couldn’t figure out money was necessary without ever experiencing it is ridiculous in my book. Archaeology suggests that people were using trade intermediaries as far back into human history as we can possibly see. Money arose across continents between people who had no interactions with each other independently across all of human civilization.
So, once we have a perceived need in a free market for a trade facilitator and a store of wealth, what should we expect the market to do? We can expect it to try and find a solution to this problem! Mises attempts to argue that the market solved this problem because people valued gold for its own sake before it became a money, and it was this value they had for gold in ornamental use that allowed it to become a money.
This is patently wrong. Consider that as soon as the market perceives a need for money, it wouldn’t matter if gold had a pre-existing value in ornamental use or not, because it would suddenly have value as a trade intermediary as soon as the need for a trade intermediary entered the public consciousness.
The very act of humanity perceiving a need for a trade intermediary would imbue gold with value as a trade intermediary because of the specific money properties that gold has. Even if gold was brutally ugly to look at and made for poor jewelry, the money properties of gold would give it market value as a trade facilitator.
Consider this example using silicon microchips. If I was to go back in time to ancient Egypt and carried with me a pocket full of extremely expensive microchips, do you think I could trade them for some wheat? Of course the answer would be no, because absolutely no one could perceive any possible use for those chips. They would be worthless baubles to the Egyptians. It is only after the perceived use for them becomes apparent that they would suddenly have value.
When people first perceived that a form of money was a valuable thing to have, the next thought that would have gone through their heads is – what makes a good money?
Should the money be cocoa beans? wheat? gold? – what properties should a good have that make it a quality money? People used all of those things as a “money” at some point in history. Consider that the process of selecting and determining the best money does not require that an item have a pre-existing use! Because the need for a money exists, any item that can meet that need will be valued for its own sake as a money product. It doesn’t matter if gold is ugly or entirely useless for any other purpose because those other purposes have nothing to do with fulfilling the need for a money.
The properties that make for a quality money are easily recognizable by markets. The qualities that make for a good money are fungibility, scarcity, divisibility, and recognizability. Because gold is one of the most fungible, divisible, scarce, and recognizable metals that exists within our physical universe, it came to be selected as the best money.
So now we must get back to how prices arise based on the market selected money product.
Consider my original question; if there were no money or money prices in existence today, could Bitcoins arise as a currency without a pre-existing dollar price framework? I would argue that prices in Bitcoins could be readily established by the markets simply by introducing Bitcoins to this state of barter.
Given our technology today, people could easily establish a few facts that are entirely independent of prices:
1. The number of Bitcoins in existence
2. The amount of work necessary to produce a Bitcoin
3. The rate Bitcoins come into existence
4. The number of Bitcoins that will ever come into existence
5. The money properties of Bitcoin (ie. its fungibility, divisibility, scarcity, and recognizability)
From which people can automatically make generalized assumptions about the value each specific coin would have.
Merchants would see the value of Bitcoins as a money and agree to accept them in exchange for goods and services because of the inherent properties they have. The merchants would be speculating on the value of the coins at first until prices were established, but eventually if enough people recognize the inherent value of the coins, prices will be established for all products and services in terms of those coins.
Consider if I walk into a cafe and I inform the owner as to the existence of Bitcoins and their properties. So he agrees to sell me a cup of coffee for a Bitcoin, as soon as he makes that agreement, we now have pricing in terms of coffee established. Why would the owner agree to such a trade? Because he sees the inherent value of the coins as trade intermediaries. He can evaluate the fungibility, scarcity, divisibility, and recognizability of the coins instantly and establish a value of each coin for himself without having to reference any pre-existing prices for any other products. To the cafe owner, he sees the value of the Bitcoin as being more than the cup of coffee, so he is willing to trade the coffee for the coin. It might be that he wants two coins or ten coins for a cup of coffee, but the number of coins the owner agrees to doesn’t matter in terms of negotiating a price. All that matters is that the cafe owner sees potential value in the coins as a money.
In the same way a painting may have tremendous value to an art aficionado, while having almost no value to anyone else, the aficionado makes the determination about how much value the painting has based on his own internal value scale. He sees value in the painting for its own inherent properties. He doesn’t have to reference the prices of any pre-existing paintings to make a valuation of a particular painting for himself.
If enough people agree to accept Bitcoins for various goods and services simply because they see the inherent value of the coins as trade intermediaries, a pricing system in terms of the coins will rapidly establish itself.
To some, like the Bitcoin detractors I noted at the top of the page, the coins would have no value at all. While to many others, the coins would have a tremendous value. It doesn’t matter if some people reject them as having value in order for a pricing system to establish itself. It only matters that some people see the value in them in order for a pricing system to establish itself.
From this point the market will weed out which goods act as the best trade intermediaries. Those goods which are the most fungible, divisible, appropriately scarce, and recognizable, will become the most broadly accepted forms of money. Like all market competition, there may exist pricing across a market in several goods at once. I don’t see any reason why people would not or could not price their items in terms of gold and Bitcoins simultaneously.
So to sum up my arguments:
Pre-existing use is not necessary for a good to become a money. It is not necessary because the markets are able to recognize the value of a good in terms of its use as a money based on the good’s properties of fungibility, divisibility, scarcity, and recognizability. Once the market recognizes the value of a potential money product for its own sake, people will be willing to trade goods and services for it.
Prices in terms of the new money product can be established without having to reference pre-existing use values, in the same way prices for fine works of art can be established without anyone having to reference pre-existing values for other works of art. The value calculations are internal to each individual who is willing to accept the currency based on the properties of the currency being offered for trade.
Related articles:
The Economics Of Bitcoin – Doug Casey Gets It Wrong
How To Use Bitcoin – The Most Important Creation In The History Of Man
Libertarian Goldbugs Hating On Bitcoin – Free Market Money
The Economics Of Bitcoin – Why Mainstream Economists Lie About Deflation
The Economics Of Bitcoin – How Bitcoins Act As Money
Against The Gold Standard
The Ridiculousness Of Demanding Government Return To A Gold Standard
The Economics Of Bitcoin – Resource Allocation And Interest Rate Distortion
How many threads does this topic really need?
"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."
I was unaware that Mises regression theorem was being challenged in other threads.
0. I would understand your argument more if you clarified what exactly the NewLibertyStandard, BitcoinMarket, BitcoinExchange,…. did with bitcoins. Otherwise I suspect purposeful vagueness. But i'll be generous and assume thoise guys would present you with actual cash, on demand, in exchange for a bitcoin. This will pepare us for the Walmart coupon story to follow.
1. Let me summarize why you think bitcoin satisfies the regression theorem, so we are all on the same page.
Walmarts issues coupons which say "Will give the bearer on demand one bottle of wine, priced at $10". And sure enough, Walmart did indeed give the wine if you presented them with the coupon.
Those coupons became so popular in some small town that you could buy and sell anything in exchange for those coupons. The coupons had a clearly defined value of $10. It got to the point where you didn't even see dollars anymore, so popular where the coupons.
One year later, Walmart suddenly announced that they will no longer honor the coupons after 30 days. Thirty days pass. Undaunted, people used them as money anyway. After all, we knew they were exchangeable at $10, so people kept on using them as if they were ten dollar bills, even though they could now get you nothing if you tried to redeem them.
Absurd as this story may sound, that people will accept useless coupons because they once were worth something, no less a scholar than Murray Rothbard writes that this is exactly how fiat currency gets going.
Similarly with bitcoins. They were once used by a few people in some way that the article does not make clear. Of course nowadays nobody will give you cash for bitcoins on demand, only voluntarily. And yet, that is not a problem at all.
Obviously, such an argument is totally ridiculous, and it is a huge misunderstanding of Rothbard. He was talking about money the govt forces you to take, and insists that you pay your taxes with.
2. You misunderstand Menger. He is saying that first a commodity has to have an intrinsic desirability having nothing to do with being a money. After that, it can become a money. None of your quotes say otherwise.
3. As to the question people will have about what makes a good money, the very first requirement, one that you totally neglect, is that a lot of people will want it, not to pass it on to the next guy, but for themselves to hang on to. If they are ever stuck with it and unable to trade it, that's fine with them. And they know that even if they personally don't want to hang onto it, there will be plenty of people who will. Because if a person is paid for his hard work with something whose only use is to pass it on to the next sucker, he will often say "What if I don't find a sucker?"
No matter how fungible etc etc those expired Walmart coupons are, no one will ever use them as money.
4. Your argument is that if an otherwise useless object is very easy and convenient to pass on to the next guy, that itself will make it worth something. "Do I want to paid for my hard work in this stuff for which I have no use, and nor does anyone else? Of course I do, because it is so easy and convenient to pass onto the next sucker who also has no use for it, if he will but accept it. Dang, that's valuable to me."
I think that is a fair summary of your position, if with a little sarcasm added on. And I think also it is untenable on the face of it.
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It's easy to refute an argument if you first misrepresent it. William Keizer
BitCoin is a wet dream come true for proponents of decrentalized currency.
Ambition is a dream with a V8 engine - Elvis Presley
By your arguments you are suggesting that people are unable to see the value of fungible, divisible, scarce, and recognizable product to act as a money unless it has some kind of pre-existing use.
I think this is false.
My argument is that simple.
I don't see any reason why people should not see value in a good that meets the requirements of a money.
Clearly people see value in Bitcoins today because I can trade them for dollars on an open market. Since Bitcoins have no other use other than to act as a money, your beliefs are wrong.
Glad we have gotten to the heart of the matter.
You are merely asserting this, but admit that neither Menger, nor any other economist, ever agreed with you. Some explicitly disagreed.
Which is fine. Your case does not die just because some dusty old books say you are wrong. If the real world proves you right, that is what counts, nothing else.
But let us examne the real world. Is bitcoin actually able to buy anything and everything in some community? No. So it is not yet functioning as actual money, as some claim erronoeusly.
But no matter, you say. It suffices that bitcoins can be traded for dollars on an open market. This proves that, although it is not a money yet, it may some day turn into a money, based on its pre-existing value right now to some people. Not only that, once it has this initial value, it has a better chance of becoming a money than any other thing on the planet, because it has all the other desirable qualities of a money, fungibility etc, in a manner far superior to anything else.
You may be right. I think it depends on one thing. Is bitcoin being bought now only by speculators and fools, like the people who were in the thick of Tulipmania and Beany Bags? If such is the case, then we can be pretty confident that bitcoins will go the way of tulips and beany bags. Beany bags lasted ten years.
Can I prove who these people trading in bitcoins are, that they are the beany bag crowd? No I cannot. So time may show me wrong. But I think logic and Mises theorem, which is also based on logic, support me. We shall see.
Good luck to us both.
To Student: No, bitcoins are the beany bags for proponents of decentralized currency.
Of course I don't think Menger or Mises agreed with me, that's the entire headline of the post.
I'm saying they are explicitly wrong in their assumptions.
Should the money be cocoa beans? wheat? gold? – what properties should a good have that make it a quality money? People used all of those things as a “money” at some point in history. Consider that the process of selecting and determining the best money does not require that an item have a pre-existing use! Because the need for a money exists, any item that can meet that need will be valued for its own sake as a money product. It doesn’t matter if gold is ugly or entirely useless for any other purpose because those other purposes have nothing to do with fulfilling the need for a money. The properties that make for a quality money are easily recognizable by markets. The qualities that make for a good money are fungibility, scarcity, divisibility, and recognizability. Because gold is one of the most fungible, divisible, scarce, and recognizable metals that exists within our physical universe, it came be selected as the best money.
The properties that make for a quality money are easily recognizable by markets. The qualities that make for a good money are fungibility, scarcity, divisibility, and recognizability. Because gold is one of the most fungible, divisible, scarce, and recognizable metals that exists within our physical universe, it came be selected as the best money.
You're refuting yourself. On the one hand, you say that many things which do not have the supposedly defining attributes of money such as fungibility or durability (coco beans, wheat) have been used as money yet, on the other hand, having these attributes is necessary and sufficient for something to become money.
The central point of Menger's and Mises's account of money is that goods are chosen by indirect traders on the basis of their expected ease of trading away the mediate good. Menger says the telescope owner will try to trade his telescope for a good which is more likely to tempt fishermen than a telescope is. But the ever-present fact of uncertainty determines that an individual does not always know who he will be trading with and for what. Hence, the individual will desire to trade away his own goods for the most marketable good, that is, the good which is the most likely to be accepted by the largest number of people. As the process of indirect exchange progresses, certaing goods emerge (for whatever reasons) as the front-runners and, ultimately (as a result of economic calculation), one and only one good will emerge as the universal medium of exchange in terms of which every other good is priced.
So, it's marketability that is the first and most important criterion in accounting for how a good is selected by the market as a monetary good. The other attributes of money are less important by comparison and serve to explain how one money tends to displace another (why gold and silver, for example, came to displace dried pelts or tobacco).
Clayton -
I'm not refuting myself. I'm simply pointing out that those products which are less divisible, fungible, scarce, and recognizible, will lose the competition to become a widely accepted money in favor of those produce which better meet those requirements.
The question is - can people see value in a potential money product for its own sake as a money product without it having to have some pre-existing use.
I think Bitcoins demonstrate that if a product is divisible, fungible, scarce, and recognizible, people will value it for its own sake as a potential money.
Pre-existing use is not necessary for a product to be valued as a money. People are able to see the value of Bitcoins as a potential money due to the inherent properties Bitcoins have and their desire to have a trade intermediary and a store of wealth. Bitcoins fulfill a market need.
Your case does not die just because some dusty old books say you are wrong. If the real world proves you right, that is what counts, nothing else.
I think it has already.
I can demonstrate that a free market money exists which has absolutely no other use other than to act as a money.
The market has deemed this good to have value in-and-of-itself.
The market has determined prices for this good without the good having to be valued in some other capacity, other than to be a money.
There will come a time in the future when textbooks reference the "Suede Monetary Utility Theorem" .
Probably after I'm dead, since that seems to be the way of things.
Before you start pimping your money theory it might be a good idea to actually read The Theory of Money and Credit and begin with a refutation of that particular book.
OP, wake me up when I can buy my porn with bitcoins. Otherwise, stop beating a dead horse of a terribad technology, k?
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
ladyattis: OP, wake me up when I can buy my porn with bitcoins. Otherwise, stop beating a dead horse of a terribad technology, k?
Just because I'm a moderator doesn't mean I have to be a scholar. The point of my post is that there is nothing I can buy with bitcoins. I can't pay my Eve online subscription in bitcoins. I can't buy porn with bitcoins. I can't buy a burger with bitcoins. I can't buy anything from Amazon with bitcoins. And so on. It has ZERO use value to me. Just sayin'.
Also, you didn't refute the regression theorem correctly. To refute it, you must show in all possible worlds, non-goods can be (or would be) used in place of gold or other precious metals. If you can't show for all possible worlds (this is modal logic, btw) that this is possible and that it is non-arbitrary in that possibility, then you have no case; period and end of story.
"This stage of development in the use of media of exchange, the exclusive employment of a single economic good, is not yet completely attained." "It would not be possible for the final verdict to be pronounced until all the chief parts of the inhabited earth formed a single commercial area, for not until then would it be impossible for other nations with different monetary systems to join in and modify the international organization." "The theory of money must take into consideration all that is implied in the functioning of several kinds of money side by side. Only where its conclusions are unlikely to be affected one way or the other, may it proceed from the assumption that a single good is employed as common medium of exchange. Elsewhere, it must take account of the simultaneous use of several media of exchange. To neglect this would be to shirk one of its most difficult tasks." http://mises.org/books/Theory_Money_Credit/Part1_Ch1.aspx -- So what I gather from this is that it seems the great debate in the time of this book was bimetallism, and it seems as if Mises was of the view that governments would have to be involved in forming a unified transnational monetary order. Of course, he could not have known about the advances in technology and communication that would, not only make government involvement in monetary order redundant, but would also facilitate an environment where competing currencies could be transferred, traded and balanced instantaneously around the world.
Am I off the reservation here?
Michael Suede: What a waste of my time this has been.
Bitcoins are distrusted very simply out of an irrational fear brought about by many years of fighting against a fiat paper backed currency. Many people here have tremendous difficulty disassociating the two and so rationalize in any way possible why bitcoins should not be adopted. Don't be too disheartened, not everyone is like this.
Seraiah,
0. Instead of psychoanalyzing people, how about if you actually address the arguments they present?
1. Can you summarize the regression theorem?
2. Can you show why it is flawed, and/or why it does not apply to bitcoin?
3. Do you grasp that asserting all those who think bitcoin is a farce are irrational does not actually prove anything?
4. Is this how you were to taught to reason, or is it of your own invention?
5. Are you familiar with the concept of projection?
0.) Ouch, I struck a cord? 1.) A fiat currency evaluated at any point in time is valuable because it was valuable at a preceding time. Cause and effect... blah blah blah... until you reach a commodity that had some function in a society. (Even if the function was entirely aesthetic.) 2.) The regression theorum does not apply to Bitcoin because Bitcoin is not a fiat currency. The regression theorum was postulated to solve the problem of the value of fiat money. The value of bitcoin is subjective, but so is the value of gold. Gold is not a fiat currency because it is scarce and it's value is attained through mutual voluntary transactions throughout society. The exact same thing can be said for Bitcoins. The original value of Gold was purely aesthetics. The original value of Bitcoins is very similar; the "solutions" to very complex hashes. As Michael Suede said, Bitcoins do not have intrinsic value, but they do have intrinsic attributes that are valued in society for a medium of exchange. (Though I disagree symantically that this disproves the Regression Theorum.) 3.) Flawed reasoning certainly leads to bad conclusions. 4.) I was just sharing my observation, I think it was very accurate and not at all baseless. 5.) That does not apply here. What concepts do you think I am not correctly disassociating? Regretting making a Thread on this subject, there were already plenty to choose from...
ladyattis: The point of my post is that there is nothing I can buy with bitcoins. I can't pay my Eve online subscription in bitcoins. I can't buy porn with bitcoins. I can't buy a burger with bitcoins. I can't buy anything from Amazon with bitcoins. And so on.
ladyattis:
The point of my post is that there is nothing I can buy with bitcoins. I can't pay my Eve online subscription in bitcoins. I can't buy porn with bitcoins. I can't buy a burger with bitcoins. I can't buy anything from Amazon with bitcoins. And so on.
It seems like you really haven't researched the subject very well ;-)
Actually you can pay Eve online, you can buy porn, burger and whatever, with bitcoins. You can buy all the amazon catalog and so on.
Just get a Mastercard from okpay and fund it with bitcoins. Bitinstant is another startup that will provide his Mastercard in a couple months with lower fees and more services.
Everything you can buy with a mastercard, you can buy with bitcoins.
Is it enough?
Here's why I think you're on the right track, but not quite there. The Misesian Regression Theorem talks about the origin of money, but any claim it makes as to describing the origin of all money (and I don't think I remember that happening) is patently false, as we see media of exchange all around us that did not originate in this manner. The fundamental truth of the Regression Theorem is not in its applicability to all media of exchange, but in its description of how the concept of money emerged. Once we have this concept, however, it is not necessary to apply the Regression Theorem to all emergent media, because the idea is out there - people know how money works. As an addendum (and I've said this to Dave before), anyone who says Bitcoin cannot be money because it does not satisfy the regression theorem is an idiot. It is money because people use it as money. People use it as money. Get over it.
Michael:
You write:
A. I can demonstrate that a free market money exists which has absolutely no other use other than to act as a money.
B. The market has deemed this good to have value in-and-of-itself.
C. The market has determined prices for this good without the good having to be valued in some other capacity, other than to be a money.
I see several problems with these claims.
Regarding A,I assume I may purchase or obtain some Bitcoin as an investment? Or in order to be one of the first to participate in this new currency system? I suppose I could purchase or obtain some Bitcoin as a collector's item? (if not the item itself, then my ownership records or certificates) I assume I may begin to participate in Bitcoin because I am a libertarian and I believe that in participating in Bitcoin I may be helping to bring about a decentralized monetary system and society? In these cases it seems to me I would have a "use" for Bitcoin that was not money in the strict sense.
Regarding B, this seems to contradict your claim in A. If I value X as a medium of exchange (if for example I purchase or obtain X in order to use it during my next vacation), this is not valuing X "in-and-of-itself." This is valuing X for purpose Y.
Regarding C, I don't see how you can make this claim unless you can provide a rigorous definition of money and then prove that every person who ever attempted to obtain some Bitcoin, thereby influencing its price, was, and only could be, seeking Bitcoin as money.
I write this not as an opponent of Bitcoin, nor as a defender of Mises. I write this because when I consider how Bitcoin could help me to further my personal goals, I think of some of the uses I've listed above. You also refer to some "non-monetary" uses for Bitcoin:
But why is there demand for Bitcoin over USD?? This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc…. inherent to the Bitcoin system.
I don't understand how you reconcile the statement that people use Bitcoin for anonymity, and they use it for no other use than to act as money.
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
In a definite way, bitcoins are backed by something: work. It takes work...
1. Doesn't understand what "backed by" means.
2. Has not heard of Subjective Theory of Value.