Topic: Regression theorem & Bitcoin revisited - page 4. (Read 5449 times)

It is infinite for money, that is, it has go go backwards to a point in time there was no money, only barter. You said it again in the quote just here. fiat -> gold backed money -> gold -> gold first time it was used in indirect exchange --> ...then you missed the necessary precondition for the regression theorem: gold exchanged in barter for its intrinsic value*). It is the only way (according to the regression theorem) there could be a previous gold value for the first indirect exchange.

*) There were probably other commodities before gold, but that is not the point here.

And where did I accomplish this mighty task?
Writing that I did it is not proving I did it.

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

There is confusion of what intrinsic value is. It is value that is not exchange value. Subjective if you like, the value is decided by the value scales of the actors on the market. It is used with commodities that come to be used as money. The moneyness of the commodity makes for additional value, compared to only the use value of the commodity outside of its moneyness. If apples are not money, they can be eaten, and may be have the same value as oranges. If apples are money, it will have additional value as medium of exchange. It is really not difficult, but the word intrinsic has a meaning outside the realm of money, therefore confusion.

Exactly.  Bitcoin is more than any other money ever was.  What other money can move from here to the other side of the world faster than I can make dinner?

I agree with this.  I can't see how the term intrinsic value even makes any sense in this conversation.

We have words.

Compared to paper fiat:

Possible to transfer over the net.
Can be backed up.
You need a computer

What kind of properties does bitcoin have that makes it not money?

You just refuted the regression theorem here. I don't disagree.

That's not a good reason to classify bitcoin as money. Bitcoin has additional features that money lacks. We don't have a word for it yet but what ever Bitcoin is, money is a subset of that.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."
There is no intrinsic value about money. There is no intrinsic value about any and all goods and services in Austrian Economics.
It is "expected purchasing power" depending on the "past purchasing power".

The reason the exchange happened is immaterial after it happened. It doesn't matter What matter is the exchange happened.
The pizza maker could have accepted the transaction for a lot of reasons or just wrote "Yes" in the wrong chat.

The effect is the day after the seller of bitcoin will remember he sold 10K bitcoins for 2 pizzas (10 US$ retail price, 5 US$ cost) (so he valued the 10K bitcoins he sold less than two pizzas) and the pizza seller would remember he bough 10k bitcoins for two pizzas, so he valued them more than the two pizzas he sold. And others would remember the same.
In the mean time, two pizzas would be consumed and 10K bitcoins would be added on the balance sheet of the pizza maker and subtracted from the balance sheet of the coin seller.

Now people know pizzas was bough for bitcoins in the past and they know a price point.
If enough of these exchanges happened in a  short time then market take care of the rest.

Because bitcoin behave as a currency better than other types of currency (because it was designed to do so) as it start to be used (for whatever reason even just random accident) it become a preferred currency to hold than the other currencies. So people tend to exchange their paper currencies for bitcoin and spend their paper currencies more than bitcoin. This raise the price of bitcoin in the other paper currencies and reinforce the feedback.

Intrinsic value is value outside of the moneyness value. Gold has it. Subjective? It doesn't matter, as it is up to the actors to define it and express it as actions on the market.

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

Or you don't define Bitcoin as money, so the regression theory doesn't apply.

Bitcoin : money :: Internet : newspaper

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

People here didn't understand the Regression Theorem abstractly. The point is to generalize it more, not less.
Try to use praxeology, not other tools, to understand economics.
The praxeological analysis never concern itself with the reasons of actions, only with the effects of actions.
BTW praxeology is the tool used by Austrian economists to analyze the market behavior.

There is a simple explanation of why bitcoins have value and Mises's Regression Theorem is right.

http://wiki.mises.org/wiki/Regression_theorem

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday. We then push the problem back one step. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. And so on."

The "two pizza for 10K bitcoins" is the first recorded exchange of something with a hard value for bitcoin.

The reason the guy gave two pizzas for 10k bitcoins is unimportant. What matter is the act of buying "two pizzas for 10k bitcoins". 

The day after, people (the pizza guys and the bitcoin guy and everyone that knew of the transaction) have a price point to remember.
It doesn't matter if it a good point, a bad point, a neutral point or a random point.
The day after people would remember a price point and they would decide if they want pay less or more to obtain bitcoins.

The same was true for any other good or service exchange for bitcoin. The reason people do the exchange is immaterial. But for every exchange there is a price point to be remembered.
When they started to be enough, these price points started to converge on a smaller band (like the theory would expect) because people try to maximize their expected profits.

Well put.

"So let's all thank Nixon for closing the gold window and making Bitcoin possible"

Thank you, Nixon.  I never thought I would ever say that.

I like your two lines of thought.

To put it in experimental terms, the widespread existence and acceptance of fiat money today is a different initial condition versus the starting point for metallic money.  And his theorem only applies under the single initial condition where humans have not yet experienced unbacked units of account.

Non-money primitive humans and post-money fiat humans could be thought of as two conceptually different species in terms of their capacity for abstract thought, with previous humans only being able to attach value to physical objects versus current humans who have been conditioned over decades (for better or worse) to accept intangible fiat tokens as valid representations of value.

So let's all thank Nixon for closing the gold window and making Bitcoin possible

I don't see the need to satisfy the regression theorem. With fiat being around as an example for fifty years, people have no problem seeing that a currency without intrinsic value could work. The problem is only to disperse some bitcoins and trigger one exchange. Maybe it was the historic pizza exchange. Mises developed his therories over time, it did not come to him from the gods. Had he lived now, we might have another version.

If you really need it to have intrinsic value, you can anyway not use the cost of production. It has to be a utility value. Bragging power comes to mind. Satisfaction of inventing the thing. Satisfaction of having optimized the mining program. Satisfaction of dreaming about bitcoins as a world currency while sitting in a dark room at night, looking at the hash per second tachometer. Showing a wallet display to your little sister, feeling smarter. Something like that. If anything at all, the utility value of each bitcoin must have been miniscule in the very beginning.