Topic: If you have 100 bitcoins in your computer wallet and 100 in your MtGox account, - page 5. (Read 15434 times)

At first I thought that lonelyminer was just being a "religious fanatic", just spouting dogma over and over but now I am starting to think (to complete the metaphor) he has the patience of a saint.  He has finally won me over with this comment:


This hit home with me as an electrical engineer who is constantly explaining things like electricity, physics, math, cryptograph (including Bitcoins) to my very inquisitive 5 year old.

It got me to thinking that hey, maybe I am not as well informed on this subject as I could be.  After all I am an electrical engineer, not an economist.

I think what he is saying is that when you measure the money supply in order to measure, calculate and predict other things like inflation etc. you want to measure the "live" money and you really do not care about the "dead" money.  The dead money is sitting there doing nothing for the economy at the moment.  Isn’t the BTC economy actually a perfect case in point?  If you look at all the BTC a lot (most?) of it is dead lifeless money sitting in accounts.

In fact here is what got me over to the "dark side":  consider all the BTC that are sitting on public addresses where the owner has lost the private key.  Should this money be counted in the money supply?  I think the answer is obviously no.  This money is truly dead and will always be.  It will never contribute again.  Now think of the money sitting in accounts that has been there since it was created and has never moved.  We all know that all this money may someday contribute to the economy but it currently is not.

Again, I admit I don’t really know what I am talking about here but it seems to me that in the BTC economy removing money sitting in deposit accounts like Mt. Gox from the accounting of the money supply may not go far enough in this attempt to measure “live” versus “dead” money.  In the BTC economy we would have to estimate and remove all the actual BTC that have been destroyed through lost public keys, or destroyed on purpose by sending them to addresses like http://firstbits.com/1bitcoin (what a shame, I wish they had sent them to me instead!)  Also when calculating the money supply it seems to me you would also have to take into account and remove all the “early adopter money” that is not dead but is more like zombie money, it just sits there and sits there as long term savings/hoarding.

So my suggestion for the wiki is that we start out with a paragraph something like the original explanation that we all know and love and then add a second section that further refines the explanation taking these further distinctions of definition into account.

By the way, if anyone wants to discuss this in person, I'll be at the Prague Bitcoin conference next week.

Only when it is exchanged, such as by cheque, EFT, POS terminal. See the other quotes I provided.

You provide no references which support your claims, and do not confront my references, which contradict your claims.

Ask a professional economist to confirm your claims. Otherwise, you're just making up stuff which has no backing.

You love grabbing quotes that nobody disagrees with and then apply meaning unsupported by the facts.

Money in a US bank account is a medium of exchange.
Money in a BTC bank account is a medium of exchange.

Period.

Your belief that one must use non-"cash" methods of exchange for a demand deposit to be suddenly a magical medium of exchange has never been backed up by all your hundreds of unrelated "cites".  Nobody dispute the cites.  I am disputing the inferences you are making out of thin air and then pointing to an unsupported cite.  Taking a quote and then using it support a position that has nothing to do w/ the quote isn't considered a cite.  Then claiming people disagree with the quote is intellectually dishonest and lame.  Have fun talking w/ yourself.

For large portion of this countries history most commerce was conducted by currency.  Your belief that demand deposits weren't part of the money supply because people used cash for the actual trade is not only dubious but not backed up by one of the barrage of spam cites you keep "referencing"".

You are on ignore because you are pathetic, obviously trolling, and honestly what you think or believe really has no relevance in my life.

"Worth" has nothing to do with it.  The dollars used to buy the gold still exist, and are eventually deposited back in a bank.  Those dollars eventually make their way back to the central bank to wipe out the debt.

The problem is that central banks don't just print money during bank runs, they print it on a whim.  They aren't constantly pushing the banks to return the "last resort" cash that they borrowed.  So that printed money stays in circulations and, exactly as you say for gold being purchased, reduces the worth of all dollars.


Others have covered a response to this as well as I could.  I think our only difference here is that you are calling the "monetary base" the "money supply" and the "money supply" the "effective money supply".  Fine -- use whatever words you want.

Atheros and DeathAndTaxes,

Here is yet another reference, by Anna J. Schwartz, who, together with Milton Friedman, pioneered the concept of money supply: http://www.econlib.org/library/Enc/MoneySupply.html
(emphasis added)

Furthermore, Atheros' own quote of Wikpedia, http://en.wikipedia.org/wiki/Money_supply:
(emphasis added)

Yet you're both adamant that this is not how it works, because it is possible to simplify this into one sentence that can be interpreted is if it contradicts this. You stick with your interpretation even though it negates almost everything build upon it and annihilates the concepts of inflation, money velocity, and, the actual reason for our debate, fractional reserve banking.

Address my points and stop making up stuff. Quote any economists that denies that the purpose of the money supply is to measure media of exchange, or that the reason why demand deposits are included in it is that they are generally accepted as a medium of exchange.

I remember tutoring a friends' son in chemistry in preparation for his exams a few years ago. His textbook said: there are three states of matter: solid, liquid and gaseous. I know of course that there are many other states of matter, such as plasma, superfluids, Bose-Einstein condensate, just to name a few. A short look at wikpedia confirms this. The textbook dumbs it down to a level it is adequate for a high-school student. That does not mean the textbook refutes the existence of other states of matter.

Similarly, the definitions of money supply that include demand deposits dumb it down for a casual reader, and do not refute more in depth analyses that explain the reason why demand deposits are included in the supply in the fist place. I provided several quotes, by Austrian as well as mainstream sources, that explain what money supply is, and why are demand deposits usually included. My opponents have countered with dumbed-down versions targeted at casual reader that skip over the question.

Find a professional economist, and ask him for to address my points. Do not invent your own economic theories.

Atheros, I provided multiple quotes that claim:

• The purpose of the money supply is to measure the nominal value of whatever is used as a medium of exchange.
• The reason why demand deposits are included in the money supply is because they are used as a generally accepted medium of exchange

You provided zero references that counter this, you merely cling to some inadequate explanations which do not address either of these points. You practically invented your own economic theory. Again, I challenge you to pick any university economist that disagrees with the above claims.

You miss that the purpose of the money supply calculation is to measure whatever is available for payment. Merely because a debt instrument has zero maturity, it does not allow it to be used as a payment and it does not influence the amount of money available for payment. If you abandon this requirement, further economic methodologies that refer to the money supply (for example, inflation, money velocity) lose their meaning.

Jesus Christ, if you can't agree to such a simple premise, I give up.

Everybody Else,
I want to revert the wiki back to the way it was (perhaps with additional information pointing out that the monetary base is limited to 21 million bitcoins) but this gentlemen is going to change it to his goofiness. What do we do? Let him have half of the space to present his viewpoint?

I think what this thread tells me is that it's almost pointless to think in terms of "money supply" …in a digitally connected world where almost anything can be turned into a securitized asset and traded in deep and liquid markets, many things can serve the role of money.  Especially from my perspective where I see the very real possibility of payment in any number of currencies (bitcoin, bank deposits, stocks, MBSes, CDOs, etc) and the immediate conversion of those funds into any kind of asset allocation a merchant desires.  The merchant might want to hold 10% in bitcoins and 50% in mtgox EUR deposits, and 40% in AAPL stock…someone could pay in gold backed tokens and then we convert those gold tokens into these other assets in real time.  To understand how extended the economy is with respect to obligations (in order to project whether we're in store for an expansion or contraction), you would want to understand all of these assets and their volatility, depth and liquidity.  You would want to model what percentage of assets people hold on average that are contractual in nature relative to those that have no counter-party risk (land, gold, bitcoin, etc).

So why do my three independent sources claim something else? They don't even belong to the same economic school.

I'm sorry but for this this is too far detached to the question. I also have fundamental objections, for example there is no "worth", there's only the market price.

No no, You are the only one assuming this.

Nor do any say it is necessary. In fact, if it were necessary, they would have said it.


You are right that I provided zero conditions. Because all demand deposits are part of the money supply.

I want to see if we can all agree on the following: The number of bitcoins people think they own, and the amount of value that they are willing to trade, determines how much bitcoins are worth. For example, If people collectively think they own 7.673 million bitcoins, and everyone who knows about Bitcoin is collectively willing to pay 17.26 million dollars for them, then bitcoins are worth $2.25 each, correct? Does anyone disagree? If no one disagrees, I'll assume we all agree so far.

Atheros, for the last time, the definition of money supply has a reason. Those that you quote merely implicitly assume that demand deposits are used as a medium of exchange, because that's how it evolved with fiat and gold. None of them say that this condition is unnecessary.

I provided three quotes that explain the conditions under which demand deposits are a part of the money supply. You provided zero.

I propose that you pick any university economist you like that understands macro and ask him if the reason why demand deposits are in the money supply is that they are treated as a medium of exchange.

However, they issued cheques, and there were cheque clearing houses. See wikipedia:
http://en.wikipedia.org/wiki/New_York_Clearing_House#History

You continue to contradict any reference that I could find, and can't provide any yourself. You also fail to address my actual points, other than you disagree with them.

Citations concerning the definition of Money Supply
Here is one.

"There are several formal definitions, such as M1 and M2, but all include the quantity of currency in circulation plus the amount of demand deposits. The money supply, together with the amount of real economic activity in a country, is an important determinant of its price level and its exchange rate."

Or how about we look at the top of the Wikipedia article on money supply:
"standard measures usually include currency in circulation and demand deposits (depositors' easily accessed assets on the books of financial institutions).[2][3]"

We can even cite the Fed!
http://www.ny.frb.org/aboutthefed/fedpoint/fed49.html

"The Federal Reserve publishes weekly and monthly data on two money supply measures M1 and M2. ... The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds."

The definition of money supply couldn't be more consistent.

But lonelyminer clearly isn't buying it.

I want to see if we can all agree on the following: The number of bitcoins people think they own, and the amount of value that they are willing to trade, determines how much bitcoins are worth. For example, If people collectively think they own 7.673 million bitcoins, and everyone is collectively willing to pay 17.26 million dollars for them, then bitcoins are worth $2.25 each, correct? Does anyone disagree?

Banks in the US have operated on a cash basis for a very long time.  Since 1913 no bank has issued a private currency for demand deposits.  They accept and disburse federal reserve notes.

Electronic high speed settlement is a recent development and not essential for any fractional reserve system.  A cash only bank would most certainly be part of money supply.  Its deposits are available upon demand.  Just as I can charge $100 via debit card against my demand deposit account I can also withdraw $100 from my demand deposit account which contains not money but money-substitute.

A limitation of only withdrawing cash is in no definition of money supply.  None that you have provided.  You continually provide links, references, quotes and then reach beyond those inferring claims which don't exist or are not supported. 

Since 1913 no bank has issued any private reserve note and prior to high speed electronic clearing banks cleared check drafts and wire transfers by settling against credit lines established at the reciprocal banks (and reserve banks).  Cash and other assets could be transferred via slower methods to clear those credit lines.  By your definition (not the definition of any reference you "cited") those banks and their reserves were somehow outside they US money supply.

Of course a need to conduct commerce that way is made unnecessary by the Bitcoin blockchain.  There is no need for me to send you a check worth 10 BTC when I can simply send you a 10 BTC.  Payment methods like checks, ACH, and wire transfers came about because of the limitations of cash.  However their use isn't essential to banking or fractional reserves.

Most commerce at one time was conducted in currency.  Currency that was drawn on demand from demand deposit (money-substitute)  accounts.  Your belief that a cash bank weren't part of the money supply has no merit.

On the contrary, it follows exactly from the meaning. Money supply is the sum of things available for exchange. If there were a "cash only" bank, it could not do anything to the money supply, regardless of the what inflated balances they would show.

I am sorry to challenge your ideas, but they find no reflection in any economic theory I know of. You provide no references and when its shown that you're plainly wrong, you just skip over it.

No, they are not. Strongcoin has no "reserves" upon which they issue claims. They merely allow you to encrypt your private key on the client side. Strongcoin cannot initiate a transaction nor, if you make offsite backups, prevent you from doing so.

Correct.