Topic: Bitcoin does NOT violate Mises' Regression Theorem (Read 41124 times)

Store of value, then medium of exchange, then unit of account.

Then I didn´t understand your argument about #1.  Sorry about that.

I'm not making a seperation.  I consider them parts of a whole system.  That was my point.

Of course I read it, otherwise I wouldn´t have answered.  And I found it very interesting.  In fact I agree most of you say, maybe my error is the tone I wrote my post which didn´t sound as I agree (sorry about my english).

I agree with you completely on #2 (chicken and egg).   On #1 I don´t see the separation you make between bitcoin and its underlying infrastructure, because I think that all were designed as independents parts of a whole "product" since the beginning.

Did you actually read my post?  Or did you just read part of it and assume you understood it?

Hello,

It is not necessary justifying Bitcoins value looking at its underlaying infrastructure´s value.   No matter the costs of the infrastructure if nobody uses bitcoins, because in that case the infrastructure is worthless unless you use it for something different (web servers or whatever...).    Bitcoins are currency, and they were invented specifically for that, and they are valuable becuase they render monetary utility.  Once a good renders utility, it is valuable, no matter wich kind of utility.

Also, I think there is no such a "chicken and egg" problem.   The value of currency or money is discovered by the market, just as it is discovered for any other good.   It happens whenever something new is invented or discovered.

There doesn't need to be a loophole around #1, because Bitcoin does have a use value.  That use value is derived from the software that forms the client as well as the network.  Software represents organized work toward a goal, namely to create a logic machine that performs a desired function.  In the case of Bitcoin, that function is to transfer value (not wealth, which is different) over vast distances at unmatched speed and for a very low cost.  The kicker for bitcoin (the currency itself) is that bitcoins are required for this function, for no existing form of currency can cooperate with the Bitcoin client to this end.  Adding confusion is the fact that, due to the nature of a decentralized currency, there can be no form of backing or peg.  So the relative value of bitcoins verses existing currencies must float.  Thus the chicken and egg problem then becomes, how does one get an initial relative value for bitcoins?  It happens to be that said initial value was established when an early adopter, wishing to advance the currency, chose to offer some of his vast holdings in return for a pizza.  He offered 10K BTC, and someone else decided that it was worth that to him.  All of point #2 flows from this singular event, but the use value that those two traders saw in bitcoin wasn't in the pizza, but in the functions that the currency and the client together could perform.  I.E. to move value across limitless distance.  It is this function that no other prior currency on Earth, fiat or otherwise, could perform in an economicly competitive manner.

It seems to me that we're putting Rothbard's ideas to the test, then! The internet is a game changer. Everyone knows what money is, and everyone knows that spending money over the internet is expensive and dangerous. Bitcoin's "commodity" value lies in that it is inexpensive to transfer over the internet and, if you're reasonably safe about it, safe to transfer without worrying about someone robbing you blind.

So bitcoin originated as nerd points or status markers, not completely unlike shiny bobbles were status markers thousands of years ago.

A few excerpts jumped out at me on pages 272 to 275 of Rothbard's Man, Economy, and State.


Here is a paraphrased summary of the excerpts above:
point #1) It is absolutely necessary that a money originate as a commodity with direct uses.
point #2) If an established money were to stop being used as a commodity, it would not necessarily lose its character as a money.

I believe point #1 is a big obstacle to bitcoins because I don't see any direct commodity uses for bitcoins, and I don't consider the many monetary and exchange properties of bitcoins to be direct commodity uses. This is why I like thinking of ways to back bitcoins with something that has a direct use as a commodity.

Point #2 seems to leave open the possibility of something like bitcoins getting around point #1, establishing itself as money, and then maintaining its character as money with no need to ever have a use as a commodity. However, I believe the underlying commodity use of a money is an essential ingredient that interacts with its monetary and exchange properties to make it more desirable to use it as a money than as a commodity.

this post is smothered in awesomesauce. bump.

Good thread, thanks for the bump!

Hello,

Menger did not detect any circularity at all.    That circular question is falacious because it would apply to any economic good, for example:   How does bread have value as food if it is valued because it serves as food?

Regression theorem was a missused Menger´s origin of money to develop his regression theorem, and he developed the regression theorem because he could not tolerate how fiat money was defeating commodity based money.   

But the truth is that monetary utility is valuable enough by itself.  There is no need to any previous link.  Bitcoins are money because they have good monetary properties and because they are present goods (i.e. they are not anyone else´s liability).

I´ve written a short post about this:   http://eleconomistaprudente.wordpress.com/2011/06/06/bitcoins-and-mises%C2%B4s-regression-theorem/

This is actually starting to converge with this thread about the hypothetical "BitBox."  https://bitcointalksearch.org/topic/market-effect-of-a-catastrophic-design-flaw-911

If you redact "over a communications channel" you end up with depleted uranium, and the US military has been "transporting" that stuff all over the middle east for two decades now.  Talk about your long distance communications, the Barret 50 caliber can really "reach out and touch someone"!   

As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties:
- boring grey in colour
- not a good conductor of electricity
- not particularly strong, but not ductile or easily malleable either
- not useful for any practical or ornamental purpose

and one special, magical property:
- can be transported over a communications channel

If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it.

Maybe it could get an initial value circularly as you've suggested, by people foreseeing its potential usefulness for exchange.  (I would definitely want some)  Maybe collectors, any random reason could spark it.

I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value.  But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

(I'm using the word scarce here to only mean limited potential supply)

This might just be semantics. But I'd say that the "pre-existing value" was the expectation of some people that it would be a good money.

The simpler answer is that Rothbard is wrong here.   Not a statement about Rothbard in general, but on this particular point he's off.  There need be no preexisting "direct" value for money, where the value of money itself is artificially deemed as of some second-class "indirect" sort.   The value of a commodity _as money_, because it more securely scarce (and portable, hard to steal, etc.) than an alternative commodity, is quite sufficient to make it valuable as money and thus to get it going as money.    Enabling exchange, i.e. lowering transaction costs, is a form of economically useful consumption just as much as satisfying hunger, decoration, or some other "direct" use is a form of economic consumption.    In the same way, a stock exchange doesn't have to satisfy your hunger or make a good decoration or have any other "direct consumption" value, it just has to be good at exchanging stocks.

This is well explained here (interestingly enough by the guy who originally came up with the bit gold idea):
http://szabo.best.vwh.net/shell.html