Economics Questions

Re: Bitcoins prove Mengerian account of money creation?

Anenome — Sun, 07 Oct 2012 01:48:02 GMT

Malachi:
Youre making the same folly. Monetary status is a subjective determination. For me, bitcoins and poker chips arent money because I dont transact with them. For some classes of people, poker chips, bitcoins, and cigarettes and the like are money, and thus within that context are properly referred to as "money." monetary status is not a categorical distinction that could be expressed with econometrics as in "when a given transactor employs greater than x metric transaction cost for a transaction in any given other medium" or somesuch. Monetary status is a subjective determination, and cant be otherwise because any attempt to define a population is inherently arbitrary, unless you define a population in terms of its use of the given currency, where its 100%.

This is the only answer that makes sense on that score of when something becomes money.

Re: Bitcoins prove Mengerian account of money creation?

MoonShadow — Sat, 06 Oct 2012 20:39:44 GMT

I find these ongoing debates amusing. For not other reason than the silly idea that people continue to argue whether or not bitcoin is a medium of exchange or not. I've used it for so many transactions, and bought so many things (both real and virtual) that I consider the ongoing debate rediculous. Even I, once upon a time, considered Bitcoin to be young and at risk. I no longer believe this. It's beyond the point that it could be deliberately crushed, and far beyond the point that a natural failure could even enter the realm of possibilities. Bitcoin will outlive me, so long as the Internet will. I cannot be as certain about the US FRN, and most certianly don't think the Euro will survive the decade in any recognizable form other than name.

Re: Bitcoins prove Mengerian account of money creation?

Malachi — Sat, 06 Oct 2012 19:48:26 GMT

Youre making the same folly. Monetary status is a subjective determination. For me, bitcoins and poker chips arent money because I dont transact with them. For some classes of people, poker chips, bitcoins, and cigarettes and the like are money, and thus within that context are properly referred to as "money." monetary status is not a categorical distinction that could be expressed with econometrics as in "when a given transactor employs greater than x metric transaction cost for a transaction in any given other medium" or somesuch. Monetary status is a subjective determination, and cant be otherwise because any attempt to define a population is inherently arbitrary, unless you define a population in terms of its use of the given currency, where its 100%.

Re: Bitcoins prove Mengerian account of money creation?

Peter Šurda — Sat, 06 Oct 2012 19:28:28 GMT

AJ:

Peter Šurda:
money is only the most liquid medium of exchange. Bitcoin does not fulfill this criterion (yet).

It does in some corners of the Deep Web.

Well, during my research I did a survey, and less than 1% of respondents (Bitcoin users) would fall into the category which could be said of that for them, Bitcoin is the most use medium of exchange. I think that's too small. But it's difficult to exactly ascertain whether something is merely a medium of exchange or money. I think one of the factors that will indicate that it's crossed the threshold is when people start using Bitcoin as a unit of account. In my opinion, that's still far ahead.

Re: Bitcoins prove Mengerian account of money creation?

Malachi — Sat, 06 Oct 2012 18:55:35 GMT

Bitcoin only apparently violates Mises's regression theory. Its commodity value is not non-existent but rather vanishingly small, a bit of energy. It's still being sought out and used for its exchange value.

you are correct, in situ bitcoin has very small industrial value. But even if bitcoin network crashed, one could use the network for pseudonymous encrypted communications. All you need is software, really.

Re: Bitcoins prove Mengerian account of money creation?

AJ — Sat, 06 Oct 2012 18:46:30 GMT

Peter Šurda:
money is only the most liquid medium of exchange. Bitcoin does not fulfill this criterion (yet).

It does in some corners of the Deep Web.

Re: Bitcoins prove Mengerian account of money creation?

Peter Šurda — Thu, 04 Oct 2012 17:26:13 GMT

Anenome,

money is only the most liquid medium of exchange. Bitcoin does not fulfill this criterion (yet). But that's not a big issue. There are media of exchange that are not money, i.e. are less liquid. See Theory of Money and Credit, Chapter 17 Section 17: http://mises.org/humanaction/chap17sec17.asp.

Re: Bitcoins prove Mengerian account of money creation?

Anenome — Thu, 04 Oct 2012 17:07:25 GMT

If you concede that bitcoin is a medium of exchange, then to me you've conceded that it is money. End of discussion.

Anything being purchase for its exchange value is money.

With bitcoin, that's basically the only kind of value it has.

Mises's theory seeks to explain how something becomes money, and focuses on first its commodity value. Those relying on it claim bitcoin can't be money because it has no pre-existing commodity value before its use as money.

But to claim this they must ignore its current use as money. That's where the flaw seeps in.

Mises's regression theory does not exist to invalidate what's currently being used as money. That would be like using the law of gravity to claim that jetliners can't fly, even as you're sitting inside one on a trip to New York. Oh they must surely crash because the law of gravity is inviolate.

No.

Bitcoin only apparently violates Mises's regression theory. Its commodity value is not non-existent but rather vanishingly small, a bit of energy. It's still being sought out and used for its exchange value.

Thus, it is money, no matter how it arose as money, it's money now.

Re: Bitcoins prove Mengerian account of money creation?

Peter Šurda — Thu, 04 Oct 2012 16:13:42 GMT

nirgrahamUK, you're halfway through. The problem is twofold, a potential medium of exchange needs a starting price and liquidity. Starting price alone is not enough. See this wonderful lecture by Walter Block: http://www.youtube.com/watch?v=m2690Fy0sM8. Let me quote from it:

But the point is, you see, ten Rothbards, if I really had ten Rothbards, I could probably sell it for a lot of money. But it would not really be money, it would be more like, art or something like that, a unique kind of thing.

The starting price of Bitcoin, at least the oldest public record of a price that I could find, from October 9th 2009, is 1 USD = 1309.03 BTC, and the total value of all Bitcoins existing at that time was 932.68 USD. It's a reasonable price for an experiment. Its high enough to be "not nothing" and low enough to avoid noticeable costs. For a Rothbard, that would be prohibitive for liquidity to arise. For Bitcoin, this is not a problem. Bitcoin has super low transaction costs, and can be transferred anywhere at almost no cost. As time progresed, it gained liquidity and with it many of the features associated with media of exchange. For example its price is independent of location.

Re: Bitcoins prove Mengerian account of money creation?

nirgrahamUK — Thu, 04 Oct 2012 15:21:11 GMT

Maybe this whole debate is just a confusion over a subtelty.

Mises regression theorem explains an apparent paradox of how to untangle that we want to explain a media of exchange (of which money is the most widely and readily accepted kind) 's purchasing power by reference to the demand for the media and that we would explain the demand for the media by referring to its purchasing power.

If someone posed such a paradox, the bitcoiners would go the Mises route to explaining how that it has purchasing power because they would talk about the past purchasing power and demand, right back to day one when it had a non-monetary demand (Industrial demand)

A non-monetary demand, should be understood subjectively. It could be, a new gizmo that others will think is amazing and so the fools will pay me lots of money I want to buy it not to facilitate exchange but to sell of this gizmo to make money which I can then use to facilitate my exchanges !

There are some of us on this board that would buy a 'Rothbard note', not for its exchange value but for its I have a Rothbard note value.
If enough people value Rothbard notes industrially in this way, then it could provoke thoughts that it should be acquired so as to facilite exchange with
owners who value it, or who see that others value it enough to enable them to accept it as payment.

-------------

The side issue of whether Bitcoin is Money, is altogether different. Thats a question of whether its the most widely and readily accepted media of exchange within a particular domain. If you pick a fairly standard domain... its not money by a long shot.

Re: Bitcoins prove Mengerian account of money creation?

Peter Šurda — Thu, 04 Oct 2012 10:51:24 GMT

The main problem with Smiling Dave's arguments is the methodological absurdity which becomes apparent when you attempt to explicitly formulate his implied, unwritten and unsaid, conclusion. Smiling Dave's full argument is this: Bitcoin does not conform to the regression theorem, therefore it does not exist.

Re: Bitcoins prove Mengerian account of money creation?

Anenome — Thu, 04 Oct 2012 07:01:33 GMT

Malachi:
Dave, what is your response to the observation that bitcoin conforms to the regression theorem, and the inarguable fact that Mises himself defined "immaterial goods" as "services"? It appears that you keep link-spamming and ducking arguments because you have no rebuttal.

(as SmiliingDave:) Well clearly I've proven this false a thousand times already on my blog. Everyone disagreeing with me is lying or formulating the theorem wrong or something crazy like that. I'm really just going to ignore your good points and keep saying the same thing over and over while not considering, much less addressing, your rationale at all.

Blog.

Re: Bitcoins prove Mengerian account of money creation?

Malachi — Wed, 03 Oct 2012 21:52:53 GMT

Dave, what is your response to the observation that bitcoin conforms to the regression theorem, and the inarguable fact that Mises himself defined "immaterial goods" as "services"? It appears that you keep link-spamming and ducking arguments because you have no rebuttal.

Re: Bitcoins prove Mengerian account of money creation?

Peter Šurda — Wed, 03 Oct 2012 12:28:10 GMT

Smiling Dave,

I read your blog post several times since you published, yet it does not contain a formulation of the theorem. If not for anything else, then because it fails to explain fiat money. You think that vague stories are a substitute for scientific rigour.

You have yet to show what is wrong with my argument, or formulate the regression theorem in a coherent manner.

You erroneously attribute "general acceptance" to media of exchange, whereas it should only be attributed to money.

Your insistance that the non-monetary demand for money is the reason why it's money is at odds not only with the Austrian school, but with almost any currently active conomic school.

You have basically invented your own economic school.

If you still want to object, I recommend you pick any Austrian economist (a real economist, not just a random blogger) and ask them to decide which formulation of the regression theorem is more accurate: mine presented above, or your non-existent/fairy tale.

Re: Bitcoins prove Mengerian account of money creation?

Smiling Dave — Wed, 03 Oct 2012 12:16:07 GMT

since you have neither formulated the regression theorem yourself

http://smilingdavesblog.wordpress.com/2011/06/22/bitcoin-takes-a-beating/

nor shown what is wrong with my argument

But I have.

Your statement of the theorem is wildly inaccurate, see link. So much for the type one argument you spread as a smokescreen.

You confuse liquidity with general acceptance as a medium of exchange. So much for the type two argument you spread as a smokescreen.

You have not shown what line of the proof of the regression theorem is invalid for "money as service". Which is what we were talking about before you tried to confuse the issue with unrelated stuff.

Pete, I know you insist on having the last word. Go ahead and have it.

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Re: Bitcoins prove Mengerian account of money creation?

Re: Bitcoins prove Mengerian account of money creation?