Political Theory

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Smiling Dave — Fri, 05 Apr 2013 23:44:21 GMT

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.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

dbrisinda — Fri, 05 Apr 2013 22:08:23 GMT

Michael:

Firstly, thanks for starting this thread. It was extremely easy to find via google search with the key words “Bitcoin Mises Regression Theorem”. Secondly, I know I'm a bit late to the party. But here I am, nonetheless.

After reading this article and thread, I wonder if bitcoin can be made to satisfy Mises’ Regression Theorem by taking a different tack? See below.

“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.”

I agree with your final conclusions, that pre-existing use is not necessary for a good to become a money. That 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. This is the case for Bitcoin.

However, gold is different. Gold was used ornamentally long before it was used as money. The Egyptians began smelting gold around 3600 BC which allowed for much greater use as jewelry. For example, the "Gold of Troy" treasure hoard, excavated in Turkey and dating to the era 2450-2600 BC, shows a range of gold-work from delicate jewelry to larger gold objects. This was a time when gold was highly valued, but had not yet become money itself. Rather, it was owned by the powerful and well-connected, or made into objects of worship, or used to decorate sacred locations.

Gold’s highly malleable, ductile, and aesthetic properties made it attractive for ornamental purposes. And the fact that it was scarce simply increased its desirability. It’s more likely the case that as people traded and bartered, they realized that it was more convenient to employ a non-perishable trade intermediary such as gold, because it was already valued ornamentally - in conjunction with it possessing the qualities of being scarce, fungible, divisible, and easily identifiable, etc. And it wasn’t until about 3000 years after the first smelting of gold by the Egyptians (3600 BC) did we see gold coins being used in commerce.

Now onto attempting to reconcile Bitcoin with Mises’ Regression Theorem.

In a definite way, bitcoins are backed by something: work. It takes work to acquire or mine them. One must invest in special hardware, electricity, software, personal effort, time, etc. And all of these components come together to acquire bitcoins.

Similarly, purchasing shovels, picks, panning gear, travelling to a specific location, and engaging in physical labour are work that allow for the discovery of chunks of yellow metal embedded in rock.

Gold as commodity became such through the exertion of work and effort due to its scarcity, in conjunction with its desirable physical characteristics. Gold served the function of first jewelry and later money. What were gold’s uses in primitive society apart from this? It would appear nil. The ancient Egyptians observed that gold’s value was a function of its pleasing physical characteristics and its scarcity.

http://www.visualcapitalist.com/portfolio/gold-history-of-gold-part-i

So too, bitcoin has become a virtual commodity through the exertion of work and effort in conjunction with some of its desirable virtual characteristics (as money), including being in limited supply, decentralized, anonymous, secure, fungible, divisible, etc.

Therefore, bitcoin can be seen as a commodity, albeit a virtual one. But one that still takes work and effort to produce. Simply put, identifying bitcoins as virtual commodities by virtue of the work required to produce them and the desirable characteristics they possess (as money), allows them to satisfy Mises’ Regression Theorem - extended to the virtual sphere.

One might say that Mises’ Regression Theorem was formulated in a world of physical commodities, where sophisticated computers, cryptography, software, GPUs and ASICs were inconceivable. But that it can be extended in the modern era to include virtual non-physical commodities.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

z1235 — Thu, 31 Jan 2013 01:48:07 GMT

I just had an idea about reconciling Bitcoin with the Regression Theorem. Imagine invisible envelopes (of various sizes) were invented which allowed you to discreetly ship gold or USD between any two points in the world. You'd "pack" $100 in a "$100 size envelope" or 10oz of gold in a "10oz envelope", enter the destination and off it goes. I would imagine such envelopes would be subjectively valued some non-zero $ amount in the market -- say, 1% of the gold or USD value they are able to ship. So a "$1000 envelope" would be worth $10. If I shipped you an empty "$1000 envelope", wouldn't have I actually made a $10 transaction with you -- using the envelope itself as money? Also, due to their obvious non-monetary utility, wouldn't these envelopes also satisfy the Regression Theorem? Since I could use Bitcoin to send you gold or USD today (I trade USD => Bitcoin on my end, send you Bitcoin, and you trade Bitcoin => USD on your end), we could view Bitcoin as an envelope as described above. After a while, why not just exchange empty envelopes whose value has been derived from their previous utility as transaction vessels for (old) money?

This hypothetical example wasn't meant to exactly replicate the Bitcoin situation as it stands today and the envelope I described does not have to be worth 1% of the content it is able to transport, or even an amount proportional to the amount it is able to transport. I just picked that number as an example. The envelope will be valued at whatever people would be ready to pay for it, and that would be determined by how useful it is to them (demand) and how many envelopes are available for sale (supply).

The above shows how a method/system/pattern for transacting money (or anything else already widely valued by others) could become widely valued itself -- hence become money as well. It would satisfy the Regression Theorem due to it's previous utility as a private/secure conveyance for money.

Today anyone (even someone who doesn't believe a Bitcoin is worth more than $0) could use Bitcoin to privately "send" fiat currency to anyone in the world without exposing themselves to fluctuations in the $/Bitcoin price for too long. Party A exchanges $'s for Bitcoins at the current market price then immediately sends Bitcoins to Party B across the world upon which Party B immediately exchanges those Bitcoins into $ at almost exactly the same market price. Businesses could pop up (BitPay?) offering this transaction in a package deal, even guaranteeing a fixed $/Bitcoin exchange rate at both ends for a fee. The more people do transactions like these, the faster the transactions would become (lowering the risk/exposure to the $/Bitcoin market price) and the more efficient the $/Bitcoin market would become, leading to a more stable $/Bitcoin price, which in turn lowers the risk/exposure for the people unsure about the value of Bitcoin in $ terms.

As long as transactions like the above are demanded (even by people who would never hold Bitcoins for more than a second as they believe Bitcoins to be worthless) there would exist a non-zero $/Bitcoin price, praxeologically so.

Thoughts?

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Adam Knott — Wed, 30 Jan 2013 22:52:29 GMT

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.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Matticus Rex — Wed, 30 Jan 2013 21:37:28 GMT

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.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Dusty — Mon, 27 Aug 2012 15:10:32 GMT

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?

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Seraiah — Fri, 15 Jun 2012 03:08:20 GMT

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...

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Smiling Dave — Fri, 15 Jun 2012 00:18:36 GMT

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?

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Seraiah — Thu, 14 Jun 2012 20:49:28 GMT

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.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Smiling Dave — Mon, 11 Jul 2011 21:14:14 GMT

Not sure where you saw govts having to be involved. "Single commercial area" means everyone trades with everyone else, like now.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Hard Rain — Mon, 11 Jul 2011 20:41:19 GMT

"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?

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

ladyattis — Mon, 11 Jul 2011 20:31:57 GMT

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.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

ladyattis — Mon, 11 Jul 2011 20:30:00 GMT

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'.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

Michael Suede — Mon, 11 Jul 2011 20:19:23 GMT

ladyattis:
OP, wake me up when I can buy my porn with bitcoins. Otherwise, stop beating a dead horse of a terribad technology, k?

This is what passes for constructive criticism on these boards? By a moderator no less? Terrible. What a waste of my time this has been.

Re: The Economics Of Bitcoin – Challenging Mises’ Regression Theorem

ladyattis — Mon, 11 Jul 2011 20:00:46 GMT

OP, wake me up when I can buy my porn with bitcoins. Otherwise, stop beating a dead horse of a terribad technology, k?