I am a cheeky little imp and lecture the Nobel laureate on first derivatives. Excerpt:
So to sum up: Before posting the actual data, Krugman made his hypothetical opponent argue in terms of actual wages, with Krugman then responding in terms of actual wages. But when he posted the data–which show that wages have been rising steadily all along, with year/year growth only dipping below 1.5% on two occasions–he was forced to switch the argument to one about wage growth accelerating.
My talk at the Texas Bitcoin conference revolved around the Austrian approach to money, and why some Austrians (quite understandably) were uncomfortable with Bitcoin. (Apparently you have to pay $50 if you want access to all of the videos, which is worth doing if you want to learn a lot about Bitcoin. But the content of my particular talk can be cobbled together from other things I’ve written previously.) I concluded that even though there is a superficial tension, Mises’ regression theorem really has no bearing today on whether Bitcoin has the ability to become money.
In this post I’m going to dive into the details, but if you want a more thorough grounding, (A) read either my short article on Austrians and money, or the longer Chapter 8 in my Study Guide to Mises’ Theory of Money and Credit, and then (B) read my EconLib article on the economics of Bitcoin. Assuming now that everyone has this background, let’s hopefully dispose of this particular objection once and for all. (There may be other problems with Bitcoin.)
It was necessary for Mises to come up with his regression theorem–which traced the purchasing power of money back to the time at which it was valued as a mere commodity in direct barter–in order to ensure that his application of subjective value theory didn’t set up an infinite regress. Since Mises was ultimately explaining today’s purchasing power of money by reference to observations of its purchasing power yesterday, it seemed that he was merely pushing back the problem one step, but not really explaining the value of money in a logically complete way. Yet Mises pointed out that it was not an infinite regress; once we reached the historical point at which the money good was used in direct exchange, then standard price theory took over and the regress stopped.
So, what relevance does this have to Bitcoin? The short answer: none whatsoever. There is no question that people today have a way of estimating the purchasing power of Bitcoin; they can look up the spot price online. If we object that the current price is largely dependent on yesterday’s price, then we start back with the regress. And where do we stop? In early 2009 when the first Bitcoin transactions were negotiated, including a pizza that sold for 10,000 BTC.
If Austrian economists want to say, “But those people had no basis for saying whether that pizza should have been 100 BTC or 1 million BTC!!” OK fair enough. But they did decide, somehow; those initial transactions provided a frame of reference that guided subsequent transactions involving bitcoins. If you want to argue that this odd origin means that subjective value theory can’t be applied to Bitcoin, OK, then so much the worse for subjective value theory.
People right now are exchanging bitcoins against “real” goods and services, and the sellers intend to use at least some of the acquired bitcoins to obtain other “real” goods and services down the road. There is no question that Bitcoin is currently a medium of exchange, though I would not christen it a money yet.
Some people concede that Bitcoin could exist temporarily, but that it would by its very nature be in a bubble with a fundamental value of zero. OK, but by the same token then, the US dollar has been in the same situation for 43 years, and the only reason this is in peril is that the authorities have been printing more dollars with reckless abandon (something that can’t happen under Bitcoin). So when people say, “Bitcoin will never last as money,” are they conceding that yes it might be the world’s reserve currency for a half century?
In conclusion, Ludwig von Mises’ regression theorem has nothing to say about the empirical question of whether Bitcoin will move beyond a medium of exchange and become a true money. If you think that subjective value theory somehow “proves” that a digital currency can never get off the ground because nobody would have any experience with which to evaluate it, then you are simply wrong; it happened in 2009.
Here’s a quintessentially Christian command (Mt 7: 1-3):
7 “Judge not, that you be not judged. 2 For with what judgment you judge, you will be judged; and with the measure you use, it will be measured back to you. 3 And why do you look at the speck in your brother’s eye, but do not consider the plank in your own eye?
It is perhaps a cliche that, say, an extreme homophobe (apologies to Gene Callahan for using that odd term) is a closet homosexual. Whether that is true, I know in my own life I have definitely found that the people who annoy me the most are the ones doing what I, deep down, detest in myself. (This is very close to, but not the same thing as, being jealous of somebody who is infringing on your turf.)
To give a quick example, for the longest time I could not STAND Neil deGrasse Tyson. “Oh look at me, I’m just the whole package aren’t I? I’m all academic with degrees and such, but I can break it down for the layperson and be really cool too. Yeah yeah yeah gimme a break buddy, just stick to your geeky academic stuff.” I hope I don’t need to spell out why such a reaction is rather…ironic.
In contrast, I was never outraged by (say) bank robbers, since that’s not something that my conscience deep down is worried that I might be doing.
Anyway, I think it’s a very useful exercise for you to pull up the two or three people who really annoy you, and represent everything you detest about the modern world…then consider if they are a percentage point away from how you operate.
P.S. If you are tempted to bring up Krugman in the comments, go ahead. But just so you know, I’m parsecs ahead of you.
P.P.S. Yes I used “parsecs” to show off my mad science skillz.
==> Unfortunately it looks like they are charging for the videos from the Texas Bitcoin conference. But if you are really interested in deciding once and for all whether it’s a fad or the libertarian’s dream come true, I strongly encourage you to invest the $50 to gain access to the videos. (If you care, no, I’m not getting a commission from these videos in any way.) Of course I always recommend my own lecture, but also if you read this blog, you will surely benefit from the talks by Andreas Antonopoulos, Jeff Tucker, Michael Goldstein, and Stefan Molyneux.
==> David Gordon reports on a new development concerning Krugman’s famous babysitters’ co-op example.
==> Robert Blumen discusses Say’s Law and its relevance today.
==> Murray Sabrin wants to be the libertarian’s Man in Washington.
==> Another example of someone getting screwed over because he tried to help the police.
==> Gene Callahan has a good discussion of marginalism. (It gets good about halfway in; you’ll see where he’s going with the example.)
==> Noah Smith thinks macro has handled itself pretty well post-crisis. Dean Baker says in the comments, “If you can’t predict a monster crisis that swamps everything useful that has been done with macro policy over the last 3 decades, then you have a serious uphill battle here.” That’s gotta hurt. (Or rather, it should hurt. Noah as usual is unfazed in the comments; he is immune to my zingers too, Dr. Baker.)
==> Tyler Cowen discusses Daniel Drezner–the guy I called out last month for saying our recent austerity was the greatest in US history–on sanctions. I was getting ready to disagree with Drezner, but in the first quote Tyler provided, Drezner said that the sanctions on Russia wouldn’t achieve any kind of military concession. “Oh OK, I misjudged the guy,” I thought. Then Tyler quoted him some more, where Drezner explained that even though it wouldn’t accomplish anything in Ukraine, the US should go ahead and impose sanctions on Russia anyway. Suh-weet. Go ahead and click the link if you’re into that whole “I want to know the context” thing.
The video explains it all.
I’ve been in Texas for the Bitcoin conference. The site was not at the hotel (which normally happens when I travel for business) and so I’ve only been at my computer for a very limited time this week. I’ll resume normal posting this weekend.
In the meantime, check out the reading list at the Satoshi Nakamoto Institute. Michael Goldstein–a very solid an-cap coming from the Rothbardian tradition–gave a talk at the conference showing that an-caps should really look into the history behind Nakamoto’s famous white paper. It didn’t emerge from the brow of Zeus.
My quick takeaway from the conference is that Bitcoin isn’t just about money; it is a technological innovation (“the blockchain”) that has all sorts of ramifications, just one of which is a new medium of exchange (that may, or may not, one day be a money by anyone’s definition). If you are a hard money person who thinks BTC as intangible digital money is nonsense, okay fine, let’s put that issue to the side. Look at the possibilities of decentralized contract enforcement without the need for large, reputable third parties.
Tyler Cowen praises Daniel Drezner’s book The System Worked: The the World Stopped Another Great Depression. An excerpt Tyler gives from the book:
A closer look at the global response to the financial crisis reveals a more optimistic assessment. Despite initial shocks that were more severe than the 1929 financial crisis, global economic governance responded in a nimble and robust fashion. Whether one looks at economic outcomes, policy outputs, or institutional operations, these governance structures either reinforced or improved upon the pre-crisis status quo. The global economy bounced back from the 2008 financial crisis with relative alacrity.
Without having his book in front of me, I can only wonder what Drezner means by arguing that today’s “economic outcomes” are ”either reinforced or improved upon the pre-crisis status quo.” Does he just mean, back in 2007 we were on the verge of a global catastrophe, but now we’re six years into it?
I suppose Drezner’s argument sorta makes sense if you think these “shocks” that hit the financial system are completely exogeneous, like earthquakes. But one of the arguments for the massive interventions in the economy in the 1930s and beyond was (we were told) that this new “system” would mean we wouldn’t suffer through something like the Great Depression again. Yes, it would be an even more demonstrable failure of such a system if we had an outcome that was clearly worse than the Great Depression, but the actual reality is still pretty bad. To have a set of “shocks” that cripple the global financial sector and leaves people still hurting six years later is an odd way to demonstrate that the system “worked.”
I absolutely love the message of this song. If you don’t like my stuff, go follow Stefan Molyneux.