19 Sep 2017

Potpourri

Contra Krugman, Potpourri 20 Comments

==> In the latest Contra Krugman, Tom and I bring Scott Horton on the show to talk about foreign policy post-9/11.

==> Scott Sumner shows how no matter what, everything is just what the Efficient Markets Hypothesis predicts. This time, it’s about Bitcoin.

==> Ryan Murphy pointed out to me that in the past he’s come out in favor of ABCT versus Friedman’s plucking model, in the context of the housing boom and bust.

20 Responses to “Potpourri”

  1. guest says:

    Scott seems to think something’s a bubble if enough people lose money in an investment, but that’s not what makes a bubble.

    Bubbles have everything to do with consumers’ attempts to fulfill their preferences.

    If an increase in production is not justified by consumer preference for the final consumer good in that particular structure of production, then its a bubble.

    If an increase in production *is* justified at some point in time by consumer preference, but consumer preferences change, then that increased production only becomes a bubble when preferences change.

    The reason that bitcoins (small “b”) are a bubble is the same reason that all fiat money is in a bubble: there’s no link to use-value. Which means that they are worse that something that is overvalued – they’re valued for no good reason at all, other than that the next sucker will take them. Which is how Ponzi schemes work.

    The FRN Ponzi scheme has only lasted as long as it has because the US has been successful at exporting its inflation a la the Euro among European Union member states (until recently).

    My view is that the foundation of Austrian Economics, the Action Axiom, can not logically lead to the conclusion that a non-commodity can be money, or that a commodity can retain its money-ness if it ceases to have a use-value (which Rothbard believes it could do, but, I would argue, that Mises did not, making a distinction between “money certificates” and “money proper”, the former being 100% backed bank notes and the latter being money that have use-value).

    What Bitcoiners believe, and what Keynesians also believe, is that simple agreement that something is money is what makes something money. And you don’t need a Regression Theorem to agree to something – it’s money because you believe it’s money. That seems to be the basis for Keynesian belief in both fiat currencies and bitcoins.

    If you need a Regression Theorem because you can’t start off with completely useless stones as a money, as Tom Woods (via Bob Murphy, if I remember Tom’s hat tip, correctly [Smashing Myths and Restoring Sound Money]), then you also cannot logically end with a money existing merely because of agreement.

    Because they’re the same thing. If you believe that something can be sustained, at any point in time, as a money simply by agreement, then you are logically obligated to believe that agreement, itself, is sufficient to get it started – even agreement to use completely useless stones.

    Pro-Bitcoin Austrians are unwittingly making the Keynesians’ case for them. And as Gary North once wrote, the battlefield is monetary policy.

    That’s why I so often have something to say about bitcoins.

    [Aside: Bitcoin, the technology (big “B”) may be useful, but only because there are things in the world that can efficiently be accounted for. Consistent with Menger’s Theory of Imputation, what I’m arguing, here, is that Bitcoin technology is not useful *until* there is something that needs to be tracked. So, Bitcoin tech can not *make* bitcoins (small “b”) valuable – value is imputed, logically, from lower order stages of production to higher ones, not the other way around.

    [Also, Bitcoiners have recently argued that bitcoins (small “b”) lower transaction costs, and that’s what gives them value. But what they really mean is that the Bitcoin tech lowers the transaction costs of trading bitcoins for goods – which says absolutely nothing about the value of bitcoins (small “b”). Lowering the transaction costs of fraudulent transactions does not add value to bitcoins (small “b”).]

    • Harold says:

      ” the Action Axiom, can not logically lead to the conclusion that a non-commodity can be money, ”

      I don’t see this. It strikes me that anything that conforms to the requirements for physical money – limited supply, small, durable, irreproducible etc. is very unlikely to have no use at all. Therefore from practical considerations anything previously used as money will probably have had a value. So all examples we can find do not really help either argument.

      It strikes me that money can logically arise through agreement, so if the action axiom says logically it can’t, then the axiom is wrong. So I see why advocates are concerned about this.

      • guest says:

        “It strikes me that money can logically arise through agreement, so if the action axiom says logically it can’t, then the axiom is wrong.”

        Which is why I keep presenting the Pro-Bitcoiners with the admittedly absurd challenge to make handfuls of dirt become money through simple agreement.

        It can’t be done because there are, in fact, real life desires – albeit subjective desires – that require some materials to be used in order to attain fulfillment, rather than others.

        The moment the amount of dirt required to make purchases crowds out the desired space where fulfillment is intended to take place, the reality of subjective desires shatters the Argument from Agreement.

        “So I see why advocates are concerned about this.”

        I realize you’re on the other side of all this, but I’m going to consider that a step toward Austrian Economics. *Pats self on back*

        There *is* a concern to be had, and the Pro-Bitcoiners don’t see it.

        Of course, they will say that Rothbard argued that the Action Axiom *does* lead to such a conclusion, but I say that at the moment he makes that argument, he takes an unnecessary brain fart. Big woops on his part.

        • Harold says:

          “Which is why I keep presenting the Pro-Bitcoiners with the admittedly absurd challenge to make handfuls of dirt become money through simple agreement.”

          Dirt is not used as money. There are at least two possible reasons for this.
          1) It has no value and as explained in the regression theory it can never become money.
          2) It fulfils none of the requirements needed to be money – scarcity, durability, exclusivity etc.

          I know which one my dirt is on. There is no need to invoke the regression theory to explain why dirt is not used for money.

          Have I missed a point somewhere?

          • guest says:

            First, those requirements (scarcity, etc.) are not sought after, as if you’re all of a sudden deciding that you want to use something as a money, and you go through the list of scarce items and pick some.

            Rather, those are the qualities that end up remaining after people have looked through the their list of items having use-value, and picked the ones that they can trade while incurring the lowest opportunity costs to them, personally.

            That’s how money emerges out of barter.

            No agreement among would-be money-users required – consistent with Methodological Individualism, I would point out.

            Second, yes, you miss the point that the Pro-Bitcoiners’ and Keynesians’ argument *must* logically amount to that agreement, itself, is *all* that is required to make something money.

            Dirt has no use-value (or, extremely little, given its abundance – marginal utility, and all), which is why I use it as an example: Bitcoins (small “b”) have no use-value either.

            If agreement as to what the money should be is all that is required to make something money – which is why Keynesians don’t mind using force to get you to that point where money starts magically adding its own value – then you don’t need your money to have use-value, scarcity, durability, etc.

            If they agree hard enough – the consistent Bitcoiner and Keynesian theories must logically argue – then handfuls of dirt *can* be made money.

            Since they can’t make dirt work as money, then neither does bitcoins (small “b”) work as money. People are trading the ultimate in “I Owe You Nothing”s for goods.

            Bitcoins are a fraud, and that people trade them is *not* the indicator that something is money – it could be, and I argue that it is, a Ponzi scheme just like all fiat currencies.

            They’re a mania as Peter Schiff argues, and to make profits off of them requires “the next sucker” to accept them.

            • Harold says:

              “Pro-Bitcoiners’ and Keynesians’ argument *must* logically amount to that agreement, itself, is *all* that is required to make something money.”

              This is obviously a wrong argument – the other properties something needs to be money are well documented. Agreement alone will not make leaves a viable money, as demonstrated in “hitchhikers guide”.

              So your argument may show those people are wrong, but it does not establish that you are right. People with a much more sensible argument that agreement and certain other qualities are required have not been refuted by your dirt example.

              “…after people have looked through the their list of items having use-value, and picked the ones that they can trade while incurring the lowest opportunity costs to them, personally.”

              Logically, the one that would have lowest opportunity cost would be an item with no use value at all.

              • guest says:

                “This is obviously a wrong argument – the other properties something needs to be money are well documented.”

                Again, these properties are not sought so as to begin using something as money. Those are properties that remain.

                Items with use-value that are in abundance are also less valued because the next unit of that item will fulfill a less urgent desire then the last one they acquired (Law of Diminishing Marginal Utility).

                So, things that are going to be valuable in trade are *necessarily* going to be things that are scarce (at least scarce for that individual buyer).

                It’s not something you have to plan or agree to. The qualities of money logically remain as a result of individuals seeking profit in terms of preferences fulfilled.

                “Logically, the one that would have lowest opportunity cost would be an item with no use value at all.”

                Everyone would like to trade something of no value for what they want (and there’s nothing wrong, per se, with the attempt to do so), but since people will not knowingly accept something of no use-value as a trade unless they can find another sucker to accept it, they are not knowingly used as money.

                The dirt example proves this.

                Bitcoins are traded only because it is believed that others will accept it. This is circular reasoning, and Rothbard recognized this just moments before he wrote his brain fart argument that money could lose its use-value and still be money.

                (Aside: I submit that the real reason paper continues to be traded after losing its gold backing is because there are other goods in the economy, besides money, that have their own ranking on people’s preference scales, and that these goods’ values, relative to other goods, are merely approximating the value of the gold everyone assumes the paper is still worth.

                Those values change as people’s preferences change, and so the paper price of the now non-circulating gold is fictitious, and increasingly destroys people’s ability to determine what one good is worth in terms of another.

                It’s basically as Joseph Salerno said with regard to the Soviet Union (Calculation and Socialism): They tried to mimic the prices that resulted in free-er countries, but because their scarcity situation was different, those prices were increasingly skewed to the point the Soviet Union collapsed.

                The use of paper as if it was money, and the attempt to use bitcoins (small “b”) as money can be explained from the Austrian paradigm without calling it money, and recognizing both as frauds.

                Austrians need not consider these things money, and we do economics a disservice to do so.

                To argue that these non-use-value things (bitcoins aren’t even “things”) is to make the Keynesian argument for them, as @Lord Keynes agreed some time ago.

              • Harold says:

                “but since people will not knowingly accept something of no use-value as a trade unless they can find another sucker to accept it, they are not knowingly used as money.
                The dirt example proves this.”

                The dirt example does not prove this. The dirt example only proves that substances that are not suitable to be used as money will not be used as money. I thought we had dealt with that.

                I think we are using a different definition of money. You seem to be saying that money is something that has a use value and serves as a medium of exchange, a unit of accounting, and a store of value.

                I am using the definition that money is something that serves as a medium of exchange, a unit of accounting, and a store of value.

                It is not surprising that under your definition money must have a use value.

                I may be getting this wrong, but are you saying that if it does not have a use value it cannot be money?

              • Craw says:

                Harold,
                Rothbardians are always claiming that X must be and Y must not be, and there can be no doubt. Ask them for evidence of X or present them with evidence of Y and they just say it louder.

              • Harold says:

                Is guest saying that Rothbard is not Rothbardian in this case?

              • guest says:

                “The dirt example only proves that substances that are not suitable to be used as money will not be used as money.”

                At least we both agree that some things are unsuitable as money. Note that this is different than your previous argument that only agreement is required in order for something to be money.

                At any rate, not suitable to whom? Individuals have to decide this for themselves.

                Also, the supply of money *does not matter*, since it is individual subjective preferences that give everything their value.

                If dirt were valuable enough in city-sized quantities, and its use as a medium of exchange didn’t impose greater opportunity costs than other forms of indirect exchange, dirt *could* be money.

                It’s because it currently has next to zero use-value (given that it’s so abundant) that it cannot be used as money.

                Anticipating an objection, uniformity is another quality of money that simply remains when individuals decide what’s worth trading. In order to determine profits and losses, they have to know the measurements of the units involved.

                That doesn’t have to be agreed upon by a society, ahead of time – It’s already in every individual’s interest to make indirect exchanges in terms of measurable uniform units.

                “Is guest saying that Rothbard is not Rothbardian in this case?”

                This is one of the few instances in which I would say he is not being Rothbardian, yes (or, at least not being consistent with the Action Axiom).

                The others that I’m aware of are his position on Copyrights and on his particular nuanced position on torture (We’re both pro-torture, but for different reasons).

                (These last two are Libertarian issues, not Austrian ones.)

                “Ask them for evidence of X or present them with evidence of Y and they just say it louder.”

                I don’t care how plausible is, or how much evidence you think you’re producing, for the Dark Sucker Theory of light bulbs.

                It is false.

                The point being that I’m claiming that your “agreement theory” of money isn’t proven simply because agreement is a part of how money works.

              • Harold says:

                “The point being that I’m claiming that your “agreement theory” of money isn’t proven simply because agreement is a part of how money works.”

                I do not claim it is proved, but it is plausible.

                If this is plausible, then the regression to something of value cannot be a logical necessity.

              • guest says:

                “I do not claim it is proved, but it is plausible.”

                You’re equivocating.

                We both believe that commodities can be money.

                The whole point of arguing over bitcoins is to address whether or not things having no use-value can be money.

                Your position that they can has not been proven to be plausible.

    • guest says:

      Also, here’s a couple of relevant quotes from Mises in Human Action.

      In the first quote, he’s arguing that the form of money cannot simply be agreed into existence (like pro-bitcoiners think it can). And in the second, he’s explaining why money printing doesn’t help anyone without hurting someone else – it’s just redistribution – but the way he explains it has implications for the bitcoins (small “b”) issue:

      Human Action
      Part Four: Catallactics or Economics of the Market Society
      XVII. INDIRECT EXCHANGE
      3. Demand for Money and Supply of Money
      The Epistemological Import of Carl Mengers Theory of the Origin of Money

      “There were authors who tried to explain the origin of money by decree or covenant. The authority, the state, or a compact between citizens has purposively and consciously established indirect exchange and money. The main deficiency of this doctrine is not to be seen in the assumption that people of an age unfamiliar with indirect exchange and money could design a plan of a new economic order, entirely different from the real conditions of their own age, and could comprehend the importance of such a plan. Neither is it to be seen in the fact that history does not afford a clue for the support of such statements. There are more substantial reasons for rejecting it.

      “If it is assumed that the conditions of the parties concerned are improved by every step that leads from direct exchange to indirect exchange … it is difficult to conceive why one should, in dealing with the origin of indirect exchange, resort in addition to authoritarian decree or an explicit compact between citizens. …”

      “… It is certainly more plausible to take for granted that the immediate advantages conferred by indirect exchange were recognized by the acting parties than to assume that the whole image of a society trading by means of money was conceived by a genius and, if we adopt the covenant doctrine, made obvious to the rest of the people by persuasion.

      6. Cash-Induced and Goods-Induced Changes in Purchasing Power

      “Let us now scrutinize the social and economic consequences of changes in the purchasing power of money under the following three assumptions: first, that the money in question can only be used as money—i.e., as a medium of exchange—and can serve no other purpose; second, that there is only exchange of present goods and no exchange of present goods against future goods; third, that we disregard the effects of changes in purchasing power on monetary calculation.

      Under these assumptions all that cash-induced changes in purchasing power bring about are shifts in the disposition of wealth among different individuals. Some get richer, others poorer; some are better supplied, others less; what some people gain is paid for by the loss of others.

      Mises would have rejected bitcoins as money on the basis that it does *not* fulfill the regression theorem.

      (Aside: His thought experiment in the second quote is merely *isolating* the “medium of exchange” use of money from its use-value, so as to examine the “money-induces changes in purchasing power” as against the “goods-induced changes”. He’s *not* conceding that money can be *only* a medium of exchange, having no use-value.)

  2. skylien says:

    Wouldn’t the EMH more or less rule out huge volatile swings in markets?

    Obviously a price can never be spot on, it will be higher or lower than whatever is the actual point where genuine (not speculative) demand and supply meet, but if the EMH were true no huge price swings should be possible.

    But since we know purely speculative demand does exist and is not limited in any way by actual genuine demand (relative or absolute), in fact there is no need for any genuine demand at all for a good or asset, but it can be purely speculative demand making up its demand, I just can’t get my head around how one can deny the existence of bubbles..

    • guest says:

      All demand is genuine, in the Austrian view, in the sense that all deliberate actions are aimed at fulfilling preferences – even all speculative actions are genuine in this sense.

      What we say is that people are being mislead by “false” price signals into taking actions that will tend to not fulfill their preferences. They are being mislead, but their actions are reasonable given what they believe market prices are telling them.

      The logical result of consumer saving and spending actions is the expression, in terms of interest rates, of their time preferences for present or future consumption.

      When consumers save, they are logically foregoing consumption, the materials to make them being available for longer term production processes.

      When money is printed out of thin air, that reveals nothing about consumer preferences, but producers will try to take advantage of the resulting artificially lower interest rates as against already existing – and otherwise consumer-supported – demand for producer goods – thereby bidding up their prices, making the increased production seem more sustained by consumer demand than is actually the case.

      • skylien says:

        In light of the discussion it makes sense to differentiate the different kinds of demands. That is all that I am doing.

        Some people demand the good for the use of itself, and others demand it only in anticipation of other people demanding it for the use of itself, and otheres demand it in anticipation of others demanding only in anticipation…

  3. Bob Roddis says:

    I love Scott Horton. However, facts do not seem to matter to dedicated Democrats or Republicans (kinda like with Keynesians).

    Democrats cannot mentally process their peacenik tree hugging heroes like Obama and Hillary as being war criminals and traitors. Faced with Obama installing Nazis in Ukraine and aiding Al Qaeda in Syria, they just slink away silently.

    Republicans cannot mentally process the hated weenie peacenik tree hugging Obama and Hillary as being anything but weenie peaceniks. And Republicans have an extreme emotional attachment to Bibi and Israel and therefore cannot process “Benghazi” as a CIA/Hillary program to aid Al Qaeda in Syria with Qaddafi’s weapons..

    Our themes consist mostly of telling people that the “cures” for societal problems that they have advocated all of their lives are actually the cause of most of humanity’s problems and that their heroes are really criminals. They aren’t taking that very well.

    • guest says:

      This will definitely help. Try it:

      The Federalist #44
      (by James Madison)

      “The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and lessinformed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding.

  4. Ken P says:

    My problem with EMH as it seems to be interpreted by many people is the idea that everyone is bringing information to the marketplace, but that individuals don’t have information – they are only lucky.

    I’m interested to see the impact of the implementation of options markets on bitcoin. Options prices give you different kinds of information than the price of the underlying assets.

Leave a Reply