Economics Questions

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Peter Šurda — Sun, 14 Apr 2013 15:30:08 GMT

Nielsio:

A speculator is not just buying without information and then hoping it goes up; that would be a losing strategy.

Correct. In my model, the speculator bases his activity on the assumption that the market price will be volatile. He'll set up walls around the current price, and people who are trying to buy/sell Bitcoin for transactional purposes will hit the walls. Everyone is able to benefit from such a structure. The costs associated with this are minimal.

You might argue that it is not apodictically certain in advance that such a thing will work, but the funny thing is, it already works, and has been working for several years. So the objection would be moot. Just like in a sociaty without language, it is not apodictically certain in advance that something like language could work, but we know empirically that it already works, so the objection is moot. We do not need to make a praxeological argument, because it's an empirical issue.

Nielsio:
Your model of 'speculators will buy any time someone wants to sell their bitcoins' has to be based on something else. Speculation is not something that keeps itself going. They need to have a reason to believe that in the future they will be able to sell it. This is the key about bitcoin: it does not represent any producer or consumer good to consumers, nor does it represent any contract. What speculators in Bitcoin are doing today is they are basing their purchasing decisions on their estimation of the trend of belief in Bitcoin. If belief goes up, the price goes up. If belief goes down, the price goes down. If belief disappears, the price goes down to 0.

While we cannot be apodictically certain this won't happen, there is already a lot of inertia in the system, which makes it increasingly unlikely. Are all speculators going to forego a risky, but potentially profitable opportunity? Are all businesses that build their services on top of Bitcoin forego making profit? Are the end users going to forego a decrease in transaction costs? And above all, what else are they going to do with their scarce resources, and what other payment mechanisms and speculative vehicles are they going to use?

It's kind of like wondering if the internet could vanish because of loss of interest. That might have made some sense when it wasn't so widespread, but there have been no viable competitors, so it grew, and its displacement by something entirely different is less and less likely.

Nielsio:
'Bitcoin as a transaction cost lowering vehicle' (and as an anonimizing vehicle for that matter) relies on the believers in Bitcoin, not the speculators.

It does not rely on believing becase it already works.

Nielsio:
I was attempting to explain to you that problems with other currencies don't make Bitcoin a better currency when I am precisely arguing that Bitcoin has nothing going for it, fundamentally. Similarly, it being easier to transport Bitcoins over the border does not solve the problem of Bitcoin being useful whatsoever as a money. I can transport a photo of a car over the border without having to pay taxes on it as I would have on importing a car; this however misses what we are arguing about.

To a certain extent, this is correct, but my point was that this is just one of the factors influencing the choice of a medium of exchange. On its own, it probably wouldn't be enough, but my thesis lists all kidns of other types of transaction costs where Bitcoin has an advantage. If there are enough of them, it can sustainably work. Are there enough of them already? Well, that's an empirical issue, but I'm increasingly becoming convinced that there already are.

Nielsio:
Then you should criticize my work on Menger and Rothbard that discusses the fundamentals about how indirect exchange is viewed, and point out my mistakes.

Wait, I thought I did. I explained that the act of exchange is a type of act that is influenced by transaction costs, and this has an effect on the choice of media of exchange. There are other types of acts where the most relevant factor are transaction costs, such as communication. You do not wonder if internet can be "consumed" (indeed, it cannot, it's an immaterial set of rules). You previously (a year back) argued that you can transport other things through the internet than itself (if I recall the wording correctly). But that's only true metaphorically. What we call colloquially "the internet" isn't just the abstract set of rules, it's the rules plus a bunch of electronics acting according to an abstract set of rules. It's the possibility of acting in unison that creates utility. And some rules are better than others (for example because they are more generic and allow open implementations), so these will be preferred. Similarly, Bitcoin, from the point of view of human action, is bunch of electronics acting according to an abstract set of rules. This is what we perceive as a good. Not the abstract sets of rules, which are immaterial and cannot be an object of human action. From Hoppean/Kinsellian view of property rights, when you are communicating, you are using your computer, not the abstract "internet". And people are not going to abandon using computers actiong based on a set of rules merely on account of these rules being abstract.

Using a transport of physical objects as a means of communication is done to a lesser and lesser extent, due to transaction costs. Similarly, transporting physical objects as a medium of exchange is done to a lesser and lesser extent. That does not imply that the standards must be derived from physical properties of objects. Indeed, with communication, it's the opposite: we define protocols by abstract rules, and then these can be deployed on different media using different physical methods.

Nielsio:
You bring up the regression theory in your paper. This is an invention of Mises, and Rothbard followed Mises on this idea. According to them, the value of a money good is its consumer and producer value + monetary demand from the previous exchange period giving it a higher price. According to my interpretation of Menger, his money theory is that the value of a money good is its speculated consumer and producer value and nothing else (with perhaps discounted costs).

If your theory was correct, immaterial goods couldn't exist. We wouldn't have books or the internet. You wouldn't be able to use a computer to post on this forum, because your computer would be a clumsy paperweight unable to communicate, unable to produce any output or collect any input.

Nielsio:
Your paper is arguing under the premise that the regression theory is true. My article goes a level deeper in that I attempt to discredit the regression theory.

I think that the point Menger was making was the emergence of liquidity. Liquidity is influenced by many factors, and is both a sufficient and necessary condition for something to be a medium of exchange. Now, that on its own is yet not a big deal.

However, once you go beyond Menger, you must realise that that factors other than consumption of the good itself can influence your actions, because merely wanting to consume the good does not frictionlessly allow you to consume it, even if the issue of double coincidence of wants is solved. Even if your ultimate goal must always be consumption, that does not mean that all goods must be consumed or even consumable. Some goods increase utility even though they are never consumed, only in the metaphorical sense. And that is, in my opinion, the core invalid implicit assumption in your position.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Malachi — Sat, 13 Apr 2013 19:22:38 GMT

This is the key about bitcoin: it does not represent any producer or consumer good to consumers, nor does it represent any contract.

in fact, it represents an intangible good which is called a service.

I was attempting to explain to you that problems with other currencies don't make Bitcoin a better currency when I am precisely arguing that Bitcoin has nothing going for it, fundamentally. Similarly, it being easier to transport Bitcoins over the border does not solve the problem of Bitcoin being useful whatsoever as a money. I can transport a photo of a car over the border without having to pay taxes on it as I would have on importing a car; this however misses what we are arguing about.

and that argument is sound as long as you continue to ignore the actual good we call "bitcoin." then it falls apart. its as if, instead of a picture of a car, it was a naked picture of marilyn monroe, in analog. your nspoken claim is that no human wants or would ever want an old-school nude photograph of a model who is now dead (in essence the good cannot be reproduced). well we all know differently. youre exchanging information digitally and pseudonymously right now, you cannot claim that there is no utility to a good that facilitates that exchange, because its a performative contradiction.

According to my interpretation of Menger, his money theory is that the value of a money good is its speculated consumer and producer value and nothing else (with perhaps discounted costs).

so ignorance of the actual consumer and producer good inherent in bitcoin would be a significant flaw in your argument.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Nielsio — Sat, 13 Apr 2013 19:04:16 GMT

Surda:

"I was merely attempting to provide one possibility to show that a steady system is possible. So I'll do a story instead as I don't think you understood the "model" I presented.

A guy G sells fiat on a Bitcoin exchange in order to buy bitcoins. The counterparty is a speculator S. The G buys goods/services from a merchant M. Merchant sells bitcoins on an exchange and gets fiat, his counterparty being a speculator S. G is able to purchase goods at a lower price. M is able to increas his profit margin due to lower fees and other costs associated with the payment processing. Speculator may or may not earn, but he thinks he can earn as long as someone is trading, because this creates fluctuations.

This is a minimalist closed loop, and the only thing it requires is that Bitcoin decreases transaction costs sufficiently for all parties to profit.

Of course, the whole reality is more complex, but that only creates more opportunities for profit."

Speculation is based on other factors that actually drive the price. If I suspect floods are coming that will ruin corn crops, I may buy some corn now because I expect the price to go up. Others with me may do the same and thus our actions will drive up the price of corn before the floods have arrived. A speculator is not just buying without information and then hoping it goes up; that would be a losing strategy.

Your model of 'speculators will buy any time someone wants to sell their bitcoins' has to be based on something else. Speculation is not something that keeps itself going. They need to have a reason to believe that in the future they will be able to sell it. This is the key about bitcoin: it does not represent any producer or consumer good to consumers, nor does it represent any contract. What speculators in Bitcoin are doing today is they are basing their purchasing decisions on their estimation of the trend of belief in Bitcoin. If belief goes up, the price goes up. If belief goes down, the price goes down. If belief disappears, the price goes down to 0.

'Bitcoin as a transaction cost lowering vehicle' (and as an anonimizing vehicle for that matter) relies on the believers in Bitcoin, not the speculators.

"..You can transport Bitcoins over the border undetected, you can't do this with fiat. Your bank account can be expropriated (or deleveraged, whichever you prefer), but cash has high transction costs, so this creates a gap."

I was attempting to explain to you that problems with other currencies don't make Bitcoin a better currency when I am precisely arguing that Bitcoin has nothing going for it, fundamentally. Similarly, it being easier to transport Bitcoins over the border does not solve the problem of Bitcoin being useful whatsoever as a money. I can transport a photo of a car over the border without having to pay taxes on it as I would have on importing a car; this however misses what we are arguing about.

"I think that you don't understand how indirect exchange works."

Then you should criticize my work on Menger and Rothbard that discusses the fundamentals about how indirect exchange is viewed, and point out my mistakes.

"I must admit I don't undestand what you're talking about."

You bring up the regression theory in your paper. This is an invention of Mises, and Rothbard followed Mises on this idea. According to them, the value of a money good is its consumer and producer value + monetary demand from the previous exchange period giving it a higher price. According to my interpretation of Menger, his money theory is that the value of a money good is its speculated consumer and producer value and nothing else (with perhaps discounted costs).

Your paper is arguing under the premise that the regression theory is true. My article goes a level deeper in that I attempt to discredit the regression theory.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Nielsio — Thu, 11 Apr 2013 18:38:01 GMT

Peter,

I'll answer you tomorrow. Busy today.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Malachi — Wed, 10 Apr 2013 23:34:28 GMT

So people are accepting a bitcoin in exchange for their 260 USD even though there is an almost free competitor available in the form of PGP or OTR encryption?

other forms of crypto are not equivalent to the bitcoin network. people pay more than ten times as much for one automobile as they do for another. at this point you can compare and contrast features to discover why one good is more valuable to some people than another good.

Do you have evidence that even a single person is using Bitcoin in 'secure durable pseudonymous cryptographic communications'?

do you understand what cryptography is? do you know what pseudonymous means? do you know what it means for a communication system to be secure? do you now see how absurd it is to ask me for evidence of someone doing something that is intended to be private?

"..one could easily assert that acceptance of bitcoin is based primarily upon usage. this is because bitcoin has industrial value."

can you give me evidence of anyone purchasing a bitcoin because they do not intend to use it to send a datum or data to someone else? or are we done here?

Re: Bitcoin and the theory of money in the tradition of Carl Menger

gotlucky — Wed, 10 Apr 2013 19:52:37 GMT

@Autolykos

I must be out of the loop, as I thought indirect exchange was meant to contrast with direct exchange. I was unaware that it had more than two steps.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Peter Šurda — Wed, 10 Apr 2013 19:45:25 GMT

Nielsio:

But what are they basing their speculation on? Again, you're assuming a steady demand to exist for this to be able to occur. So what actually drives the price of Bitcoin?

I was merely attempting to provide one possibility to show that a steady system is possible. So I'll do a story instead as I don't think you understood the "model" I presented.

This is a minimalist closed loop, and the only thing it requires is that Bitcoin decreases transaction costs sufficiently for all parties to profit.

Of course, the whole reality is more complex, but that only creates more opportunities for profit.

Nielsio:
If I have a photograph of a car, it will not be able to get me from A to B. If the government trains stop working, that does not suddenly make my photograph of a car more useful for transportation. Similarly, pointing to the financial crisis, capital controls, etc, are not things that actually give Bitcoin value.

Hmm. I'm not really sure how to respond to this, if you're really that shortsighted. You can transport Bitcoins over the border undetected, you can't do this with fiat. Your bank account can be expropriated (or deleveraged, whichever you prefer), but cash has high transction costs, so this creates a gap.

If you're referring to the "virtuality", you don't get the network effect. Bitcoin already is a medium of exchange, so these things already work. It's like wondering why languages exist. They are abstract concepts too, but if you were the first person who invented a language and tried to talk to someone unfamiliar with the concept of language, you'll fail. But languages already have crossed the critical mass for the network effect, so you actually already can communicate with others.

Nielsio:
Yep, that is what I am arguing. People believe Bitcoin is a good money alternative, but they do not understand how indirect exchange actually works. So what you get is something extremely volatile, the price of which is driven by Bitcoin enthusiasts, which precisely is not useful for indirect exchange.

I think that you don't understand how indirect exchange works. In one of your early videos, you show a sequence which ends with a medium of exchange being consumed. But that's not a necessity. That's only a necessity until the network effect (liquidity) passes the critical mass. After critical mass, a medium of exchange can circulate without being consumed.

We may argue that if all the ideologists left Bitcoin, the leftovers would be below critical mass. That is a valid argument. But that's an empirical argument and we can't know for sure whether the criticial mass (absent ideology) has been crossed or not. If it has, then it's no problem. If it hasn't, it still can as long as ideology will keep fuelling demand for Bitcoin until entrepreneurs build the ecosystem to the extent that it passes the critical mass.

Nielsio:

I had skimmed through it before, but I just read through it properly (until page 49).

You're basing your writing on Mises and Rothbard, who's value theory (regression theory) I do not accept.

I must admit I don't undestand what you're talking about.

Nielsio:

You use the phrase 'network effect', but appear to leave it unexplained.

I thought this was obvious, but allow me to elaborate. I hope I will formulate it correctly, but reserve the option of fixing errors later. Network effect occurs when the utility of a good is increased if the number of its users increases. Since it is impossible in the physical sense of consumption, there is always an underlying immaterial good (for the purposes of this argument, I'll count media of exchange as immaterial goods). Liquidity (salability/marketability if you prefer Megner/Mises) is a type of network effect. The concept of critical mass is more difficult, but the way I use it is that for all users, the utility derived from the good under network effect must exceed the costs. If someone needs to fuel it (maybe they expect future utility, but can't derive the utility yet), then the critical mass hasn't been reached yet.

Applied to a medium of exchange, the network effect occurs when liquidity emerges. Critical mass is crossed when demand for other types of utility than that for a medium of exchange is not necessary for the medium of exchange to work.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Adam Knott — Wed, 10 Apr 2013 19:31:53 GMT

I believe this short article will help to further an understanding of Bitcoin. I've rewritten and reworked this from a previous post:

Bitcoin, Commerce, and Contracts

There has been a lot of discussion and debate about Bitcoin recently, but relatively little discussion about the merits of Bitcoin as a payment system. A better understanding of Bitcoin requires that we understand something about the original problem that Bitcoin was designed to solve.

Below this article I’ve pasted the first two introductory paragraphs written by Satoshi Nakamoto explaining the original intent of the Bitcoin payment system. I've bolded the phrases that refer to “trust” and “nonreversibility.” In his two opening paragraphs, Nakamoto refers to the idea of the “trusted third party” six times and to idea of “nonreversibility” four times. As is clear, Nakamoto’s intent was to design a payment system that eliminates the middleman in an exchange between two people, and that therefore prevents the possibility of the middleman reversing the transaction. Bitcoin was designed to solve some specific problems that arise in Internet commerce.

For those who may not be actively involved in running a business that depends on third-party payment processing, the problem that Nakamoto proposes to solve with Bitcoin is an important problem not only from the point of view of commerce, but also from the point of view of libertarian contract theory.

Third-party payment systems such as Visa, Mastercard, American Express, and PayPal, act as a middleman when a customer makes a purchase from a merchant. When a dispute arises, the payment processors may resolve the dispute using its own judgment, criteria, and procedures, in disregard of the contract that may have been agreed to by the customer and merchant. For example, the customer and merchant may agree that the current transaction is a “final sale” and that no returns will be allowed. The transaction occurs and the customer receives the good or service in question. Upon receiving the good or service, the customer then changes his mind and demands a refund. The merchant refuses to process a refund, so the customer appeals to Visa or PayPal asking for a reversal of the payment. In effect, the customer asks the third-party payment processor—who ultimately controls the debits and credits—to force the merchant to issue a refund. The payment processor (Nakamoto’s “trusted third party”) may in this case reverse the transaction and grant the customer a refund regardless of the contract that had been agreed upon by the merchant and customer.

Essentially, the “trust-based” or “third-party-based” payment processing systems (Visa, PayPal, etc.) are not bound to enforce contracts between trading parties. Since the third-party payment processor cannot be trusted to enforce a contract between trading partners, the parties to a trade must incur additional—and often high—costs, in an attempt to ensure that the trade is executed according to the terms of the contract. The parties must either meet face-to-face and conduct a physical exchange, or they may transact electronically and then seek to enforce the contract through the court system when one of the parties reneges on the contract . “Trust-based” payments effected by a middleman who is not bound to enforce the contract between trading partners are inherently risky and uncertain. The middleman may at any time and for any reason reverse the payment regardless of the contract between trading partners. This is the important commercial problem Nakamoto’s Bitcoin system addresses.

The Bitcoin payment system also drastically lowers the cost of payment processing (the amount merchants pay to Visa or PayPal). For example, a small merchant can expect to pay between 2.5% to 3.5% of sales in payment processing fees. If a small merchant has monthly sales of $50,000, a typical payment processing fee could be $1,400 per month or $16,800 per year. By contrast, Bitcoin transaction fees are negligible.

What if we were to conduct a survey of all merchants who depend on third-party payment processors and ask them whether they would be interested in a payment system with virtually no processing fees and no possibility of charge-backs (payment reversals)? Many of the academics and social theorizers who are debating the merits of Bitcoin likely have little experience with the costs, problems, and limitations associated with payment processing in Internet commerce. They don’t understand the very real and important commercial applications of Bitcoin and how Bitcoin radically reduces transaction costs thus furthering free trade.

Regardless whether the specific project Bitcoin ultimately succeeds or fails, we can be assured that demand for the services Bitcoin was designed to provide will remain. If Bitcoin fails, then other payment processing technologies along the same lines will be attempted, since the Bitcoin experiment has demonstrated the potential to radically reduced transaction costs for all merchants involved in Internet commerce. Market demand for a payment processing system that reduces transaction costs and enables irreversible payments constitutes market demand for the various components of such a system. Thus, it is easy to understand why individual Bitcoins, as components of a valued payment system, may themselves be individually valued.

In discussing and theorizing about individual Bitcoins, we should keep in mind the Bitcoin payment system of which they are a part, and the important advance in Internet commerce that Bitcoin represents.

Bitcoin: A Peer-to-Peer Electronic Cash System - Satoshi Nakamoto - http://bitcoin.org/bitcoin.pdf

1. Introduction
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as
trusted third parties to process electronic payments. While the system works well enough for
most transactions, it still suffers from the inherent weaknesses of the trust based model.
Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the
minimum practical transaction size and cutting off the possibility for small casual transactions,
and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.

What is needed is an electronic payment system based on cryptographic proof instead of trust,
allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Nielsio — Wed, 10 Apr 2013 18:22:08 GMT

Peter Šurda:

..As long as forex speculators think they can earn on fluctuations, there will be a full loop of demand and supply.

But what are they basing their speculation on? Again, you're assuming a steady demand to exist for this to be able to occur. So what actually drives the price of Bitcoin?

There are plenty of other motivations through exogenous factors (financial crisis, capital controls, ...), or ideology, which add to demand.

If I have a photograph of a car, it will not be able to get me from A to B. If the government trains stop working, that does not suddenly make my photograph of a car more useful for transportation. Similarly, pointing to the financial crisis, capital controls, etc, are not things that actually give Bitcoin value.

or ideology

Yep, that is what I am arguing. People believe Bitcoin is a good money alternative, but they do not understand how indirect exchange actually works. So what you get is something extremely volatile, the price of which is driven by Bitcoin enthusiasts, which precisely is not useful for indirect exchange.

BTW have you read my thesis yet? I explain a lot of things there, including references and so on.

I had skimmed through it before, but I just read through it properly (until page 49).

You're basing your writing on Mises and Rothbard, who's value theory (regression theory) I do not accept. You use the phrase 'network effect', but appear to leave it unexplained.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Autolykos — Wed, 10 Apr 2013 16:26:33 GMT

:
Nielsio provided one, I will provide others that are more relevant for our daily uses: using a credit card, using a debit card abroad, international wire transfers, western union, .... They all go through multiple steps of exchanging one form of money into another, sometimes between two money substitutes of the same currency, sometimes involving a forex trade. We typically perceive it in a smooth fashion, but it's a complicated mechanism of ugly hacks build on top of each other.

Even those situations can be broken down into sequences of multiple single-step exchanges.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Student — Wed, 10 Apr 2013 14:18:34 GMT

Bitcoin, more like Bitch-coin. Am I right?

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Nielsio — Wed, 10 Apr 2013 14:08:39 GMT

Malachi:

Bitcoin has industrial direct use value? What is it?

secure durable pseudonymous cryptographic communications.

You said:

"..one could easily assert that acceptance of bitcoin is based primarily upon usage. this is because bitcoin has industrial value."

So people are accepting a bitcoin in exchange for their 260 USD even though there is an almost free competitor available in the form of PGP or OTR encryption? Do you have evidence that even a single person is using Bitcoin in 'secure durable pseudonymous cryptographic communications'?

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Peter Šurda — Wed, 10 Apr 2013 08:11:59 GMT

Nielsio:

Your theory that bitcoin provides the value of low transaction costs of other currencies (like USD) relies on there being steady demand for bitcoin in the first place. Where does this steady demand come from? There is no steady demand, as there is nothing steady in the future (such as direct use) to tie its price to. Low transaction cost cannot be the theory of value of Bitcoin.

There is no such thing as "theory of value", there is only catallactics. Demand for low transaction costs comes from both parties to the trade. A merchant can split his savings by offering a buyer a discount. Forex speculators establish bid and ask orders, providing a mechanism for the parties to the actual trade to use Bitcoin. As long as forex speculators think they can earn on fluctuations, there will be a full loop of demand and supply. But this is just one possible way a sustained economy can work. There are plenty of other motivations through exogenous factors (financial crisis, capital controls, ...), or ideology, which add to demand. And due to the network effect, as long as the comparative advantage in transaction costs persists, we can expect the ecosystem to grow. Similarly to the internet: as long as it decreases transaction costs, people will move to it instead of the alternatives (such as the post office, the fax machine, the library, and so on).

Nielsio:

You also say: "well, if you do the transaction really quickly, then you don't risk it changing its price very much". So Bitcoin only works well for indirect exchange if after you get it you have to immediately buy something else with it? That seems like the worst possible indirect exchange good.

You can hedge price fluctuations, in particular in an advanced monetary economy as we have now. Hedging is not free, but that still leaves a margin for a decrease in transction costs. Specialised services providers do this for a fee, or you can roll your own, the barriers to entry are very low.

Nielsio:

FYI: For my purposes indirect exchange and money are interchangeable. No good ever reaches the state of universally accepted, and the mechanism remains the same for the two. Money thus is simply a widely used good in indirect exchange.

But before something is money, it must be a medium of exchange. There is no way around it, and Mises affirms that money must be explained through catallactics. There is a transition phase when a medium of exchange is not money yet. That is where Bitcoin is now. Furthermore, there is nothing saying that if something remains a medium of exchange forever yet does not become money, that that is somehow bad.

BTW have you read my thesis yet? I explain a lot of things there, including references and so on.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Peter Šurda — Wed, 10 Apr 2013 07:32:36 GMT

Autolykos:

Could you give an example of a multi-step indirect exchange?

Nielsio provided one, I will provide others that are more relevant for our daily uses: using a credit card, using a debit card abroad, international wire transfers, western union, .... They all go through multiple steps of exchanging one form of money into another, sometimes between two money substitutes of the same currency, sometimes involving a forex trade. We typically perceive it in a smooth fashion, but it's a complicated mechanism of ugly hacks build on top of each other.

Re: Bitcoin and the theory of money in the tradition of Carl Menger

Blargg — Wed, 10 Apr 2013 02:49:37 GMT

Oh wow, I hadn't realized this board supported a "hide signatures" option. It's in the Edit->Site Options page by one's name in the top-right of the page, BTW.