This page has been archived and commenting is disabled.
What Does Bitcoin Mean For Austrian Money Theory?
Submitted by Logan Albright via Mises Canada,
Libertarians tend to agree with each other on most things. We all favor less government regulation, lower taxes, less involvement in international conflicts, and more personal freedom. There are a few areas, however, in which the movement remains sharply divided. One of these areas involves the nature of money.
The two schools of thought are essentially the “gold standard” crowd versus the “competing currencies” crowd. Nobel laureate F. A. Hayek argued strenuously in favor of competing currencies, pointing out that it made no sense to praise the benefits of competition in every good and service, while denying those same benefits for currency itself.
Ludwig von Mises, and his most celebrated student Murray Rothbard, on the other hand, argued that commodity money, specifically gold, was the only kind that could ever enjoy the stability needed to prevent inflation and credit busts.
Mises formulated this argument as “the regression theorem” of money in his first book, The Theory of Money and Credit, in 1912. The theorem, in brief, runs as follows:
People will only accept a medium of exchange if they observe that it has value, and can actually be exchanged for things. The only way to observe that is by looking at whether it was so used in a preceding time period. Thus, this chain of observations can be followed back until the first instance in which a particular type of money was used as a medium of exchange, and in order for those first adopters to accept it, it must have had value independent of its use as a medium of exchange, or in other words, be a commodity. Paper money, especially that with no commodity backing, is only adopted when governments force it upon people.
Mises’ theory is elegant, and for a long time it has been accepted wisdom among many Austrian economists. The only trouble is that Bitcoin is in the process of proving it wrong.
Although commodities have historically been successful, history does not prove inevitability, but merely what people have chosen in the past. Mises himself makes this point in his methodological treatise, Theory & History, in a scathing critique of statistical methods within economics.
The science of human action for which Mises coined the term praxeology, as Rothbard later pointed out, does not deal with why people choose one thing or another (psychology) or with what they should choose (ethics), but merely deals with the ramifications of the fact that they do choose and act towards goals. Economics, therefore, as a subset of praxeology, cannot predict what type of money will be chosen in the future or why. As Jörg Guido Hülsmann wrote in The Ethics of Money Production, “one cannot tell on a priori grounds what the natural money of a society is. The only way to find this out is to let people freely associate and choose the best means of exchange out of the available alternatives.”
The fact that Bitcoin, a fully digital currency with no commodity backing, is now being adopted by increasing numbers of people as an alternative currency would seem to cast doubt on the inevitability of commodity money.
When a theory, however logical, finds itself at odds with observed reality, there are only two possible courses of action for a rational thinker. The first is to discard the theory in favor of one that accurately describes the world as we observe it. The second is to find reason to doubt the reality of our observations. One explanation could be that while the regression theorem looks only at past value, it neglects to take into account the expectations of future value, which is what have driven Bitcoin. Another possibility is that only when commodities are actively prohibited as currencies by government, can a digital fiat money arise and gain popularity. AT this point, it’s too early to tell.
Bitcoin may yet fail, in which case Mises’ theorem will remain as a powerful argument in favor of the gold standard. If it ends up succeeding, however, an alternate explanation will have to be found.
»
- 18255 reads
- Printer-friendly version
- Send to friend
- advertisements -
It's more sinister than that. Many crashes are orchestrated to do one thing: Destroy billions that the FED had injected into the economy. That way 'inflation' will never be able to build as it normally would. Did one single banker go to trial for the last crash? Hahahaa. This is so bizarre it's almost comical. Of course, those in the loop will never lose their fortunes. It's the rest of the world that suffers and the media continues with their 'fake' investigative journalism. Pathetic. Just guessing here, but Bitcoin might just serve that exact same purpose...make it big enough so that a big chuck of money is tied up with it and then....poof....make it all crash like a house of cards. That way there is even little collateral damage the puppet masters in the shadows would think while they high five each other.
Money is nothing more than the study of scarcity. It is ironic indeed that we are living in the greatest energy boom in US history yet can generate zero economic recovery from. Ironic yes indeed...but far from unsurprising.
Haters gonna hate...but more importantly takers gonna take.
So here we are... Ye olde USA....living the dream...and yet everyone and everything is going broke. NOT A SURPRISE.
Bitcoin does not compete with gold. Bitcoin is human, flawed, corruptable, and hackable. If you think it isn't, well enjoy your agony. Everything man made is. Bitcoin is a fad. Gold is the default option because it satisfies all requirements of money, and everything else always dies. There is nothing special about gold. Everything else is just a pile of easily corrupted shit. Make sure you have the real thing before these new fix processes are in place. I highly suspect they are designed to ease the insatiable phyiscal metal requirements being fed into the paper ponzi more than they are any sort of reform.
I see two major (lethal) flaws in bitcoin:
1) The number of bitcoins is scarce, but the number of competing cryptocurrencies is not. Now, competetion is great for reducing costs, but it is not great for storing value. I see the fed "printing" more dollars as very similar to some kids in a basement creating a new cryptocurrency. Yes, a cryptocurrency a couple kids in the basement develops won't have the same trust as BTC (or miners), at least not right away, but the point is alternatives like litecoin eats into the value of BTC (as do peercoin, namecoin, dogecoin, etc, etc).
2) Bitcoin has no non-monetary use. If Gold weren't used as money, it would still be valued for use in things like jewelry and electronics. If Gold weren't used as money, yes, the price would go down, but it would not go down to zero. Bitcoin doesn't have the same type of floor.
(Bonus 3) I think the government is going to regulate the crap out of BTC. They won't be able to destroy BTC doing this, but they can force it underground and make it so that no major retailer in the US will accept BTC, that vendors and brokers have to capture gain/loss of each transaction, and that you have to provide identity information for transactions, that you won't be able to use bank accounts to buy BTC without going through onerous steps, etc.
Yes I'm a gold bug. Bring on the flames.
1) correct, but, as you say, bitcoin has a network effect, economy of scale, hundreds of $millions invested in its development, etc. bitcoin has a first mover advantage. it's like ebay in the online auction space - they were the first mover. other auction sites have tried to compete, but no one else can get that critical mass, and they just die off.
2) correct, but, not especially relevant, imo. the whole point of bitcoin is to be a decentralized currency.
3) correct, it's a risk,and the most serious of the 3 points you bring up, but, companies and individuals that are investing in bitcoin infrastructure are also investing in pro-bitcoin lobbying. time will tell how it goes.
"Yes I'm a gold bug. Bring on the flames."
why? bitcoin and gold are complementary, not opposed. they are both oppositely aligned to fiat currency and the present debt-based financial system.
Thanks for the reasoned response stacking12321. You bring up some great points. I am sympathetic to BTC. I would respond to your excellent post as follows:
1) First mover is an advantage, but it can be a disadvantage too. Your competitors see what you've done, don't have to risk money seeing if there is a market, and don't have as much trouble explaining the concepts. Yahoo, Myspace, altavista, etc., had first mover advantages, betamax and laserdisc had first mover advantages. MTGOX had first mover advantages (I know MTGOX does not equal bitcoin, I'm using it as an example of a company who got in early to the BTC game only to fail).
I believe that even with the infastructure in place, miners could switch over to another type of coin without much trouble (Is this true with ASIC hardware? If not my arguement is weaker.) Another problem is that as more miners come on, and mining hardware becomes more powerful the profit per cost of hardware invested goes down, and the profit per computing power goes down. You used to be able to make some decent BTC (I hear) using a regular PC, now ASIC with exponentially more processing power (like the 10 GH/S units) aren't profitable. This would incentivize miners to mine other cryptocurrencies instead (which you see in mining pools that mine BTC and litecoins or other altnerative coins).
Another problem with first mover advantage is that the advantage is for the people who pile in early. If you invested in microsoft early enough, you made a lot of money. If you invest in microsoft now, you still might make some money, but there are other opportunities that will make you a lot more money. I'm not saying that the people who take the risk and pile in early shouldn't be rewarded if what they've invested in becomes even more valued and useful, what I'm saying is that as something becomes successful, the focus shifts away from it, and people beging trying to develop the next great thing and get in on the ground floor.
2) Commodity backed (or commodity itself) currency does not mean centrally controlled. My point is that without some non-monetary use, a medium of exchange will always be subject to collapse, inflation, etc. I will trust the people that understand the BTC algorithmn that only 21 million BTC will ever exist, but there is no upper bound of how many competing currencies could exist. Again, competition for business is GOOD, but competition for purchasing power (IE monetary inflation IE printing dollars) is bad for savers.
Plus BTC could be centrally controlled, in a way. No one knows who Satoshi Nakamoto is. I believe that a large number of BTC are unaccounted for. If Satoshi held onto those coins, he could dump a huge number of BTC onto the market and crash it, if he or she or they decided to do so. I know that sounds conspiratorial.
3) Lobbying is very powerful, and more important than elections and voters, but I just don't see the government sitting by while the dollar collapses and people pile into an alternative currencies without paying taxes. As the dollar collapses the government will do whatever it can to force the people back into the dollar and bar the exits. Many of the same problems apply to gold, unfortunately.
Additionally, BTC is not as straightforward as gold, and politicians are stupid. Plus, there are some people who erronesouly only associate BTC with silk road and drugs, politicians are not going to want to be associated with silk road. (Why they don't make the association between drugs and crime with cash dollars I don't know.) I do know the vast majority of politicians don't have the intellectual capacity to understand what BTC is.
I am a BTC sympathizer. I am also concerned there are fundamental underlying flaws, which I've tried to illustrate above.
XRP Ripples.
Before you downvote...Everyone here knows the Fed runs the show. Banks own the politicians. The political puppets pass the laws. It ain't cool, but it "is". Don't hate the players, hate the game. Then get to learning.
What crypto is their money on? Who have they talked to?(see "Congress hosts Bitcoin meeting" circa Nov'13 on the interwebs).
BTW, JMHO and SEE...
https://ripple.com/blog/you-can-now-make-instant-deposits-to-ripple-from-these-us-banks/
"Another possibility is that only when commodities are actively prohibited as currencies by government, can a digital fiat money arise and gain popularity. AT this point, it’s too early to tell."
No, it is Not 'too early to tell'.
And what would/could stop (this current) government from basically prohibiting ~anything~ it wants, via SWAT team if necessary anyway...? And yet, Bitcoin is 'allowed' to flourish and grow...? Cashless society, greased and fastracked by government blessing to make sure everyone pays their fair share in taxes? This government has proven time & again that it can basically do what it wants, when it wants, where it wants, with finesse - or reckless abandon, both. If Bitcoin suits the 'continuity of government', you can bet it will be 'co-opted'.
It is unbelievable to me the number of goobers on this thread who think a purely digital currency is somehow any different to what we have. Right now, it is a pimple on an elephants ass. If it were ever to become a real player in the currency world, how do you think it would not be controlled by the gov that controls the power grid that controls the www? Talk about freezing your account and its assets! How do you believe that somehow the powers that be are going to let you hold your little pile of bitcoin on your hard drive while their fiat goes down in flames is so ridiculous.
All you are doing is giving them a head start on "republic credits". You guys that worship at the feet of technology are in for a huge wake up call at some point. Name me one aspect of technology that touches the masses that the gov doesn't fully control at the push of a button. Most of you on this thread sound like you r between 17 and 24 and still have a lot of maturity to get to go with your big ideas, hopes, and dreams. The best bitcoin will ever be is another manipulated derivative of some supposed value in something. One vote by the bankers and it is outlawed forever. You can say the same for gold, but it will be a helluva a lot easier to get your digital bitcoins than it will my gold. Just a pipe dream that has the Fed laughing. Hell, the fed probably started it and made it your idea so all you techy libertarians would take it, run with it, and do their job for them. And while you are wasting all that time and energy on your digital monopoly money, they are prepping you for the next phase of their fiat kingdom.
JP Morgan holds the patents on Bitcoin. Nothing more needs to be said. My sense is that the article is a propaganda pieces for suckers.
hey, troll, you'll have to do better than that.
ZH covered that story, JPM's patents were thoroughly rejected:
http://www.zerohedge.com/news/2013-12-15/jpmorgans-bitcoin-alternative-p...
stop spreading lies.
Gold has nothing to do with Bitcoin.
Bitcoin is a fiat currency just like the paper monies already in circulation.
Gold was only kidnapped by the masters of money several thousand years ago. Simple for the fact that gold has a value no matter which face is on the coin, be it a Chinese emperor or a Roman Cesar. Gold is Gold.
Nowadays, the price of gold is suppressed because the Western central banks do manipulate the price by hoarding and by giving false statement about the quantities in their possession and by false statements about the quantities they wwant to throw on the mareket etc. Its all, all lies, just paper work to control the price of gold.
The moment the Central bank would announce that by tomorrow they are going to sell all their gold into the market at once and that in the future they are going to stay away of gold - from that moment on a real physical price discovery can be established. The gold (if they have any left) would be sucked up from the market and disappear and the next day gold would start to rise in price since it is very scare but very much in demand by mankind.
I believe that your assumptions are myths propagated by bankers who want to sell people worthless metal (worthless because it can be used for very little). Why?
There are sources (historians, not bankers) who claim that gold has been mined on this planet for much longer than people assume and that the above groung reserves are about 100X the propagandized amount. It is just hidden and made to look as if there is a short supply, like diamonds, to inflate price.
Some day you might want to compare the silver and gold price charts from the year 2000 to today, side-by-side. You will see that gold is inflated about 40% above silver. MY assumption is that this is due to the price manipulators thinking they can get a premium from goldbugs, who make incorrect assumptions.
Gold and other specie were put into circulation thousands of years ago in order to easily collect taxes and ease the burden of military provisioning. Rulers accumlated gold, minted it and gave it to their soldiers. Next they demanded these coins be paid as tribute (taxes) from the masses. The commoners were forced to negotiate with the soldiers and their gold (in return for food and housing, for example). The coins received from the commoners were then handed back to the soldiers, rinse, wash, repeat.
Bitcoin, an electronic fiat whose perceived value depends on the internet operating.
What could possibly go wrong?
The internet could "go down" along with most of western civilization. For this reason one hoards gold... Not like you are using your hoarded gold for day-to-day expenses. Nope, you are using YellenBux for the majority of your daily living, good citizen.
I have no problem with gold as money. I have no problem with competing currencies that facilitate exchange.
Personally, nowhere I purchase accepts Bitcoin.
Also, bankers must love Bitcoin because it is fully electronic, backed by nothing and they can most likely fractionally reserve it and loan infinite amounts (you may say no, but they did it with gold, which is a physical asset)... just like USDs. I can envision Bitcoin notes that differ from Bitcoin, just as gold certificates differ from physical gold.
If bitcoin is the medium of exchange (money) during periods of disaster such as hurricane, earthquake, war in the boonies where electricity and internet nor cell phone signals are not available; then, I quess we're all phucked because I don't think Jose is going to rent me his buro for digital bitcoin he can't see to get to town to get internet signal.
Yeah, I can think of a good use for Bitcoins,,
http://www.coinabul.com
Lottsa claims being made here... most of them pretty close to being pure unadulterated BS.
Let's put the argument in understandable terms.
I own a farm. I maybe have some cows, some veggies, some chickens and eggs, maybe even some grapes, apples and peaches! You're hungry. You show up at my door and want to buy some food. Great! Producing and selling food is what I do!
How far does the transaction get? It's going fine until you say you're paying in "BitCoin".
I say, "What the snot is that?" You tell me it's "internet money." I say, "show me some." You say, "Well, here!" and you hand over your Ipad with a picture of a bitcoin on it, and maybe even your "outstanding balance" (which shows that you supposedly "have" some to spend.)
I reach out and hit the off button on your Ipad. "Ooops!" I say. "All gone!" and you get no food from me.
So you say, "No - I transfer some bit coin from my account to yours."
I say, Don't have an account, and who ARE these people who think they can just make up money? Tell ya what. You give me some made up money, and I'll give you a basket of made up food! Sound good?"
And there's the problem with both Shitcoin and fiat. they're both made up money and neither of them has any recognizable intrinsic value. In hard times, people tend to reduce things to real-world and ignore the made up fantasy-land stuff of fiat and the internet.
Now, if you have a good pair of boots, a few rounds of a common caliber of bullet, a little gold or silver, or maybe a nice little pull-behind wagon, we might be able to deal. But I won't be taking imaginary money in exchange for real food that I've worked my buns off growing.
Read the book "When Money Dies" by Adam Fergusson and learn how things work in the REAL world - especially when economies go crazy.
You botcoin folks beginning to feel hunger pangs? Ummm... these peaches are sweet!!!
75,000 bitcoin transactions took place yesterday. Obviously none of those were for your goods and services. I sell my programming skills/time for bitcoin and use those bitcoins to buy real goods and services. Works for me. Doesn't play well in Peoria I guess, but I couldn't really give a shit.
It would be much better if all nations would adopt BITCOIN or LITECOIN as their currency. This would prevent them from money printing which is just a hidden form of taxation.