Topic: Mises regression theorem is inconsistent - page 2. (Read 9401 times)

Regression Theorem requires a previous economic use.  Owning or using something just for fun or hobby (no intention at all to pay for it or to sell it) is not within economics.


Again, unit of account or trading are monetary purposes.  If you use physical gold coins you just need a mask to achieve anonimity, Gold coins are not trazable, the only disadvantage oposed to bitcoins is that anonimity is not built-in.   But any bearer-money is more anonymous than nominative money.  That´s why drug-dealers use suitcases full of dollar bills. This is not new, anonimity has been something valuable for currencies very long ago.


The issuer may call for an auction, so the market will set the value of the currency.  It´ll always be the market who sets the value of currencies  regardless of the issuer, and that happens everyday when agents exchange currency for goods or services at new prices.

Status markers have always been commodities. This was the primary use for gold until somebody invented speaker jacks :-)

I agree, that´s why when I talk about credit or fiat I always use the word currency, because I don´t consider them as money (appliying Carlos Bondone Monetary Theory), but we have to acknowledge they are currency (medium of exchange).

- Currency: Generally accepted medium of exchange.  

- Money: Present good which is accepted as medium of exchange.

Fiat and credit currencies definitely are not present goods, because they are credit (future goods).  But like it or not, they are used as a medium of exchange, so they qualify as credit currencies.

Regarding mental value of bitcoins, I don´t agree that much.  Software is not tangible, the same as bitcoins, but that does not mean that software is just a mental concept.  Software is something real that renders a service.  BitCoins are real and also render a monetary service, and that´s enough to qualify as money (no need of regression theorem).

In order for something to become money in a free market it also needs the properties of good money. Fiat could never become money because it lacks the neccessary properties. It easily counterfitable (look at the government), and it's not durable for two things. In theory though, if it did had the right properties it probably would evolve into money without government support. Fiat even has some physical commodity value (the use of the paper), unlike bitcoin which only have some mental commodity value.

I think you're not regressing far enough.  Bitcoin is a utilization of existing computing power.  Digital bits are the tradable commodity that has been bootstrapped to become a medium of exchange.

@rahl & @mother of another

It is very weak because with arguments like that everything would comply with the regression theorem.  Mises developed the regression theorem b1ecause of his rejection to fiat and credit currencies oposed to what he believed to be "sound money".    But in the real world we use credit as currency like it or not, and we use it because of its monetary utility, not becuase of the law, taxes or any value set by decree.

In fact most credit or fiat currencies are very weak as store of value, and appart from that, the market will set the value of the currency, regardless of what value the issuer tries to set at the begining or during the life of the currency.

You are undervaluing fun by a long, long way.

The regression theorem in its essence just says that if you can bootstrap a tradeable commodity it will become money.

Geek fun is as good way as any to bootstrap, or pizzas, or alpaca socks ..... value is pretty agnostic on origins once the ball is set in motion.

I don't think owning it for fun is a weak argument in this case. There seem to be plenty of people here which are interested enough in the crypto and p2p technologies to participate in the project as a hobby to satisfy there technological interest.

I think the first actual trades of goods in bitcoin did not happen because bitcoin was easy to exchange, or because it was a safe preserver or value. It was very poor in booth of these regards in the beginning. Actually it wasn't even durable, cause a lot of coin was being created in relation to the money base and for those not tech savy enough to understand how the protocol work it is a new and not well tested technology so they probably where not very concerned about durability either.

Where it would have had value is however as an accounting tool. People could trade goods in one place and USD in another and it would be impossible to identify who traded what goods yet the system still keep track of the rewards for sales and transfer them to the USD marketplace. That is not what a currency is for and not a requirement anyone have made on a sound money...

All of this put together means we have regression. It is just not as straightforward as jewelry -> gold -> credit
 

I am not sure what you mean by not necessary to justify its condition. Try issuing completely unspecified credit notes and an see how many will accept them. It is very much necessary to tie the initial issuing of credit notes to some established price and create regression...

Bitcoin had original value as nerd points. The bigger the number you see in your balance, the better you feel about yourself.

Hello Rahl,

a) You can view the first uses as you wish, but to me all uses you are describing are monetary.  Except owning it for fun, which is a very weak argument.

b) All those characteristics are an improvement in relation with other currencies. I agree. But being better currency does not mean is not currency.

c) Credit currency does not invalidate regression theorem.  It just demonstrates that is not necessary to justify its condition of currency.  If you are interested you can read more on this here: http://www.carlosbondone.com/pdf/Theory_of_Economic_Relativity.pdf pages 112 to 114.

The main difference between credit currencies and money (understood as present good) is that the first one is created while the second one is produced.  Credit can be created on unlimited quantities with minimal effort, as long as there is somebody willing to borrow.   

Still the first transactions can be viewed as bartering in a new commodity. That someone wanted to have because of it's unique value that you can enforce your property right in it very easily and without anyone knowing who you are or just because someone was thought it was nerdy fun. Either way it would fullfill the regression theorem.


But the way BitCoins are held and exchanged adds alot of value on top of what would just be expect to get from it as a medium of exchange. This is separate utility built into the system. BitCoins exchangability and the way they are owned and exchanged are different things. Even if you put everyone with bitcoin on an island so they can all still meet eachother easily they probably would not use it if they had to carry it on them and trade face to face, so there is some other value there that makes people want to hold and use it.


Yes, and when the liability is issued it's value is specified in something else that has a price. It can be fraudulent or debased after but that doesn't matter for the regression theorem since such action will only affect the future price of the credit currency thru normal laws of supply and demand. I still don't see how credit currency has anything to do with invalidating the regression theorem.

Still the first transactions can be viewed as bartering in a new commodity. That someone wanted to have because of it's unique value that you can enforce your property right in it very easily and without anyone knowing who you are or just because someone was thought it was nerdy fun. Either way it would fullfill the regression theorem.


But the way BitCoins are held and exchanged adds alot of value on top of what would just be expect to get from it as a medium of exchange. This is separate utility built into the system. BitCoins exchangability and the way they are owned and exchanged are different things. Even if you put everyone with bitcoin on an island so they can all still meet eachother easily they probably would not use it if they had to carry it on them and trade face to face, so there is some other value there that makes people want to hold and use it.


Yes, and when the liability is issued it's value is specified in something else that has a price. It can be fraudulent or debased after but that doesn't matter for the regression theorem since such action will only affect the future price of the credit currency. I still don't see how credit currency has anything to do with invalidating the regression theorem.

Yes, the network effect and the P2P is very interesting.  The underlying technology is obviously new, but I don´t think it is something new from a monetary point of view.  Except for anonymity, physical gold and silver worked in a very similar way and they are also decentraliced money.

Of course, only the market can decide if finally the initial project known as BitCoin becomes money, but the initial objective of the project was to provide an anonymous and decentralized medium of exchange and store of value (i.e. money), or at least I have no knowledge about any other non-monetary objectives.   Anonymous and decentralized are very nice characteristics, but they are specific characteristics that were specifically designed for its purpose as a medium of exchange


Payment implies exchange, money is medium of exchange. BitCoin is not VISA (payment service), they are exchanged for goods.  The payment is performed through the delivery of BitCoins in exchange of goods and services.
It doesn´t matter where you place your ask order if it is not filled.  Bid and Ask orders are subjective valuations, price arises from real exchange (executed transactions).



Credit currencies are currencies because of its monetary utilities other than store of value (in fact that´s their weakest utility as currency). The great difference between money and credit currency is that the first is a present good used as currency, and the second is someone else's liability used as currency.

That something is intended to become money does not necessarily mean that it is money.


Not it is not. It is payment service utility.
Yes, but you would not place the first sell offer in the market at 0 but probably at your cost or higher unless you where really stupid.


It does explain why credit currencies have value. They are initially issued in promises of X that already have a market price. So there is plenty of regression there with a very strong link to previously established prices. Bitcoin has a very weak link to previous established prices but provides additional payment service utility which has value in itself.

There is network effect of money to consider here also. The fact that bitcoin protocol is P2P may have imbibed it with an inherent potential to be money from the beginning, regardless of the regression theorem. It is a new and interesting line of reasoning.

BitCoin was developed as a currency from the begining.  Just look at its name bitcoin, and the paper that originated them "bitcoins: a peer to peer cash system".

Transaction privacy is a monetary utility.   Costs are irrelevant for market value, I could spend lots of energy and work to produce something that nobody wants, so no matter the cost its market value will be 0.  Market values drive costs, not the opposite.

When I talk about Industrial use I mean any non monetary use, which includes ornamental uses. Jewerly is a pretty strong industry.   Gold had been used for ornamental purpose well before it was used as currency.  Mises claims that for a good to became money it needs to have a non monetary prior use, this is what his Regression Theorem is all about.

But I claim that Regression Theorem is not necessary, and it does not work not only with BitCoins, it doesn´t explain well why credit currencies have value.  Carlos Bondone´s monetary theory, which is based on Austrian School founder Carl Menger,proposes a stronger monetary theory, which prefectly explains the BitCoin phenomeon and in regard of this theory BitCoins do qualify as money.

great to get these links to old interesting forum posts. I'm a relative noob so haven't seen many of them.
(off topic - but this shows the limitations of forum infrastructure. The collective memory is being diluted. Probably as many new members in the last 2 months as there has been in the previous 2 years.)

Sorry, I first tried to use the old thread, but the system suggested me to start a new one because the old one had been quiet for a while.

Please that is not what I am saying at all. "frame of reference", "can", "initial" ... maybe you missed reading all of those words. It helps a lot to know what shit that has no market price did cost you when you are trying to figure out what to sell it for it is pretty obvious...

And yes some people will have a much higher expectation of future value, some will be happy getting there cost back and some just want get rid of it for anything they can get. Bit cost does have an effect on where the initial bidding can start.