Is Bitcoin A Tower Of Monetary Babel?

Authored by Antonius Aquinas,

The promoters of crypto currencies have gushingly touted them as the mechanism by which the present central banking cabal and the system of nation states which derive much of their power from will be brought down and replaced by digital money. 

Despite their meteoric rise as speculative “assets,” there are fundamental economic reasons why they will never act as a general medium of exchange despite the wild enthusiasm for them by the crypto-currency cultists.

Money – a general medium of exchange – is the most marketable (exchangeable) commodity in an economy.  As a good, money is not sought after for its direct use – to satisfy individual wants – but to satisfy wants indirectly through exchange for other goods.  Over time, one good becomes money since it possesses qualities superior to all other goods as a money.  When gold became demanded not for its “use value,” but for its “exchange value,” it became a general medium of exchange – money.

As a consumer good, gold possessed a value or a “price” prior to it becoming a money, as the eminent monetary theorist Murray Rothbard explains:

...embedded in the demand for money is knowledge of the money-prices of the immediate past; in contrast to directly-used consumers’ or producers’ goods, money must have pre-existing prices on which to ground a demand.

 

But the only way this can happen is by beginning with a useful commodity under barter, and then adding demand for a medium to the previous demand for direct use (e.g., for ornaments in the case of gold.)*

Thus, Bitcoin’s “price” is not in terms of its original commodity price, but its price is in terms of dollars, Euros, yuan, etc.  In the dollar’s case, it was at one time linked to gold, but has since been severed from it while Bitcoin has had no such relationship.

Once money is established, then prices are expressed in terms of it and thus economic calculation can rationally take place and the division of labor and specialization can be expanded.  Rothbard continues:

The establishment of money conveys another great benefit.  Since all exchanges are made in money, all the exchange-ratios are expressed in money, and so people can now compare the market worth of each good to that of every other good.**

Once gold became money, the price of goods became expressed in gold not in other elements – nickel, zinc, lead, etc.  With the proliferation of crypto currencies, there will be a myriad of different price ratios for each good.  There will be a Bitcoin price for a car, an Ethereum price for a car, a Dogecoin price of a car, and so on.  This is the antithesis of the purpose of money – one unit of account that reflect prices for all commodities as Rothbard shows:

Because gold is a general medium it is most marketable, it can be stored to serve as a medium in the future as well as the present, and all prices are expressed in its terms.

 

Because gold is a commodity medium for all exchanges, it can serve as a unit of account for present, and expected future, prices.  It is important to realize that money cannot be an abstract unit of account or claim, except insofar as it serves as a medium of exchange.***  [my emphasis]

Crypto currencies, therefore, directly violate one of the main principles of monetary theory.  The vast array of digital money, all with unique price ratios (to say the least of their volatility), would make economic calculation and rational planning next to impossible.  In this sense, the current world of fiat dollars would be preferable to a Tower of Monetary Babel that digital currencies would create.

Central banks and governments do not fear crypto currency challengers to their monetary hegemony.  They, of course, jealously monitor the crypto market worried that any gains accrued may not be subject to tax.  Central banksters do fear gold for it remains, despite being demonetized, the last check on profligate central bank monetary expansion.  And, because countries who wisely understand gold’s importance and seek to get out from under the yoke of King Dollar (most notably China and Russia), continue to voraciously accumulate the yellow metal.

The return of true prosperity will only come about when gold is once again at the center of the monetary order and fiat currencies such as the dollar, Euro, and now Bitcoin are forgettable memories of a misguided and corrupt age.

Comments

nope-1004 Looney Wed, 10/18/2017 - 12:57 Permalink

At least with a tulip you can plant it and get something positive out of it.  Looking at my USB stick.... not so much.Speculation is not intrinsic value.  It's going to be a hard lesson, but hey, that's what gamblers usually bring upon themselves.I would truly welcome a new dollar alternative, or a new dollar.  I don't think crypto's are it. 

In reply to by Looney

techpriest Creepy_Azz_Crackaah Wed, 10/18/2017 - 14:44 Permalink

Hasn't logged in yet.

I think BTC has value as a wiring service, but outside of that, I'm not convinced that this is anything different than a group of alt-money enthusiasts printing their own money. But hey, maybe the exponential curve will go all the way to $100k before it tops out and crashes.

As I've said elsewhere, I'm setting up payment service for my company site to take electronic payments, so sometime Nov-Dec I'll be live and taking BTC/ETH payments. We'll see what happens. Worst case I turn it off.

In reply to by Creepy_Azz_Crackaah

AGuy techpriest Wed, 10/18/2017 - 16:55 Permalink

"Nov-Dec I'll be live and taking BTC/ETH payments. We'll see what happens. Worst case I turn it off."

Hope you don't mind that BTC transactions can take days complete. Imagine trying to by a cup of coffee but waiting 8 or more hours for you transaction to complete:

https://blockchain.info/charts/avg-confirmation-time

This is the deal killer for BTC to be used in replace of cash or existing electronic systems (Debt, Credit Card, etc). Currently 99% of all BTC transaction are whole coins via speculation or avoiding gov't currency controls.

In reply to by techpriest

Bunga Bunga Pinto Currency Wed, 10/18/2017 - 13:00 Permalink

Gold has no intrinsic value too. No natural law defines value, it is just human perception. The only rational metric which defines value is the cost to produce it, while the features of the produced good are defined by a consensus. If someone invented a method to exctract gold with the demanded features from the ocean for $50 an ounce the price of gold would plummet.The consensus for metal based store of value is the atomic order and the purity. The consensus for virtual based store of value are the cryptographic rules. The consensus requires substantial effort to produce these goods. Gold and Bitcoins are both proof of work essentially.  

In reply to by Pinto Currency

AGuy Bunga Bunga Wed, 10/18/2017 - 17:06 Permalink

"Gold has no intrinsic value too. No natural law defines value, it is just human perception. The only rational metric which defines value is the cost to produce it"

I agree to an extent, but Gold has been used for money for at least 5000 years. It has a long term history of being used as money for exchanging goods and services. There is no reason why this would change. The only thing that would make Gold loose its use as money, is if it becomes as common as dirt, or another rare commodity takes its place.

That said Gold does have some non-monerary value since it very corrosion resistent and can be alloyed with other metals. For instance Gold is frequently used for electrical connectors for its corrosion resistance. Its also uses for dental fillings.

Also some commodities that have really good intrinic value, you probably don't want to use for money. For instance Oil is extremely valable but you won't want to make coins out of it, or store it in safe-deposit boxes. Platium is another example, since its incredible useful in industrial applications since its inert & also performs as a catalyst. You don't want people to horde it in safe-deposit (or equiv) when it can be used for industrial processes. Since Gold is rare & does not have the same economic value as oil & Platinum it makes a good commodity for money.

In reply to by Bunga Bunga

OverTheHedge tmosley Wed, 10/18/2017 - 14:01 Permalink

One of two things is going to happen. Either you will be proven right, in which case all your naysayers will be both wrong AND impoverished, or you will be proven wrong. I have no idea which way it is going to go. If I had believed fonestar years ago, I would be a multimillionaire by now. My problem is that, the higher it goes, the further it has to fall, and I just don't see where the value is. My failing, not bitcoin's but still, I am waiting for an equilibrium.I wish you the best of luck.

In reply to by tmosley

techpriest OverTheHedge Wed, 10/18/2017 - 14:15 Permalink

I don't think everyone will be impoverished. If you have real assets and real methods of earning an income, in a true crypto revolution you simply revalue your assets.

For example, if I have a $50/month product or a 0.001 BTC/month product, what do I care about the unit of exchange? The main thing is that whatever comes in can be used to pay for the goods and services I need, at a good profit. If the profit gets more valuable because it just happens to be on an upswing, then great, extra profit.

In reply to by OverTheHedge

BlindMonkey OverTheHedge Wed, 10/18/2017 - 14:57 Permalink

We are so much better pursuing linen( and now poly ) with pretty colors and funny people printed on them.   Thanks but no thanks. I will put my relative faith in something that has no seiniorage benefit to a CB and is decentralized.  It is only a question of "when" the US is devalued as has already happened to a number currencies in circulation.  Nothing is perfect.  Crypto is merely "better".

In reply to by OverTheHedge

HRClinton IH8OBAMA Wed, 10/18/2017 - 15:29 Permalink

You DO realize that the "Tower of Babel" story is just that: A story. Made up by Pharisee Rabbis, while in captivity in Babylon.Funny how (((they))) always claim to have been in captivity or slavery, while one of (((them))) always manages to get the King's ear for advice.That's how the cycle always starts:  Get the Attention and Interest of the Ruler. Get his interest/ear.  Keep his interest/ear. Inlfuence his decisions, to have your People infiltrate positions of more Influence.  Which turns into Money & Wealth, which turn into Power.  Rinse & repeat.

In reply to by IH8OBAMA

Raffie snblitz Wed, 10/18/2017 - 12:52 Permalink

so by your train of thought that means PM will go to zero because of what you all consider bad crypto money will do this.Cryptos and blockchain tech are the next logical step in the global economy.As amusing as I find the comments in every ZH crypto article, in reality both sides are pure speculation at this point. Bitcoin came into existence iirc early 2009 and every Tom,Dick and Harry think it should be fully integrated and smooth sailing by now which is highly unrealistic, but to say its a fake or a fade while global adoption is ramping up is insane.Well, let's get back together on this in 5 years and see where we are is truly all we can do right now.

In reply to by snblitz

King of Ruperts Land Raffie Wed, 10/18/2017 - 13:21 Permalink

PM will go out of circulation not to zero value. Like what happened to the older silver coins. Soon they were worth more in silver content than face value. People kept them and spent the new ones. Now they are kept for their silver value or have been melted already.

Hugo Salinas' Mexican silver libertad coin concept might actually be a way to counter Gresham's law and bring hard money back into circulation (although he says it wont do that)

Speaking of in the future. Lets check back in 3 years. That is when the Bitcoin price trend line on a log(price) chart hits $1,000,000

In reply to by Raffie

Justin Case vened Wed, 10/18/2017 - 16:35 Permalink

The fiat can purchase goods or services provided there is an agreement between the  two parties doing the transaction. If I am selling something and I advertise that I will not accept fiat paper for the completion of the transaction and I want 2 oz of gold, then you will have to pay me in the gold I requested or there will be no transaction. Paper fiat money was invented as a proxy to gold as carring gold or silver was cumbersome. Bank still carry gold as an asset to offset their liabilities. Paper money or gold certificate are equivalent to showing a starving man a picture of food. Banks carry the real gold. Russia and China have stepped up their purchases this year.At this point in time, everything in the world is "denominated" in currencies that have no use, except to complete the trade! Trillions upon trillions of digitized currency are currently being held for the "completion of commerce", extending out into other lifetimes! Of course we are speaking of any form of currency denominated debt, be it government or private.Currencies come and go. In venezuala they don't like to transact in fiat paper b/c the inflation is so high the money is losing purchasing power by the hour. There will come a time where the fiat will be blowing around in the streets. They don't even count it any moar, they weigh it, b/c there are too many notes to count. 

In reply to by vened

Justin Case Raffie Wed, 10/18/2017 - 17:26 Permalink

If cryptos are fake then why can we buy gold/silver with them, which is claimed to be real money?You can use what ever form of what you call money as long as the two parties of the transaction agree to the medium of exchane to complete the transaction. Go to HSBC and buy silver or gold or for that matter, exchange BTC for USDs and see what they say. There has to be an agreement on the medium by both parties to complete any transaction. Go buy gas with Swiss Francs. They won't accept it, but that doesn't mean it's not money.

In reply to by Raffie