30 Apr 2020

Bitcoin and the Theory of Money

Bitcoin 14 Comments

The latest installment in my series on Money Mechanics for mises.org.

14 Responses to “Bitcoin and the Theory of Money”

  1. guest says:

    “Imagine a community where the money is based on the integers running from 1, 2, 3, … up through 21,000,000. At any given time, one person “owns” the number 8, while somebody else “owns” the number 349, and so on.”

    I remember seeing this in your Understanding Bitcoin book.

    At a certain point in your book you start talking about how the blockchain works to secure and authenticate transactions, which I don’t consider to be relevant to the question of whether or not bitcoins can be money. (Making a transaction secure and authenticating the parties does not turn the transacted items into money.)

    It looked as if, from skimming the headings, that the rest of the book was dedicated to addressing security and authentication, and so I stopped reading and focused my thoughts more on the system of “numbers as currency” that you presented.

    This is just a digital version of a chit system, which is entirely speculative in a recursive sense. The value of bitcoins is, essentially, what Person A believes Person B will pay for it, whose valuation is based on what Person A will pay for it.

    That’s not money because it’s not conveying information about the subjective value of the arbitrage opportunities involved in the trade of one good for another. Yes, some people make real profits off of bitcoins, but only in the sense that some participants of a Ponzi scheme make profits.

    To bring this point home, I’ll quote Tom Woods in his video “Smashing Myths and Restoring Sound Money”, except I’ll substitute some of the words, and hopefully you can see where I’m coming from. The substitutions will be in brackets [like this]:

    [Time stamped]
    Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
    [www]https://www.youtube.com/watch?v=HAzExlEsIKk#t=5m43s

    “Imagina a society without money, and then you’re trying to describe money to these people. They’ve never seen this system work, they’ve never heard of it. And you say to them – and here I borrow from Bob – you say to then, “Here, I’ve got a bunch of totally useless [bitcoins]. Why don’t we all use these? I promise you everybody will accept them, and this will facilitate our transactions. People would say, “Why don’t we burn this guy at the stake? What a social nuisance this is.” It would be very, very hard to persuade people of this who had never been exposed to money.

    “But there’s actually an insuperable obstacle to the introduction of money any other way other than as originating as a useful commodity that people initially valued because it was a useful commodity, and then they realized, “Hey, because it’s a useful commodity, everybody wants it, and then once it begins to be used in exchange, even the people that don’t want it, they still want it because at least they know they can exchange with it.

    “The difficulty, here, is that, hey, let’s say the government just suddenly said, “Here’s a piece of [bitcoin]-“; In fact, let’s say I do this: I just put a big ol’, instead of a dollar sign I put a [b] for [bitcoin], and I put a number five, and I say, “Here’s a five [bitcoin] bill, here you go.” What is society supposed to do with that? How in the world would you know what five [bitcoins] were worth? How would you know if you were getting a good deal or really getting the short end of the stick? How could you know? You have no idea what this thing is worth.

    “So, the problem is nobody would know what the thing is worth. Certainly as a [string of characters] it’s not worth a thing [snip: “other than a fraction of a cent” could apply to paper, but not the string “paper”]. So, how would you know how to make transactions if you were simply to say, “This is the thing we’re going to use, so everybody go out there and try to use it. Where would you even begin?”

    Here, Tom is talking about useless stones and arbitrarily assigned paper, and he recognizes that such things can’t be money, and he’s right.

    But if pro bitcoiners are consistent, they would actually say that they could, in fact, see how otherwise useless stones and arbitrarily assigned paper can be money because this is precisely how bitcoins began to be traded – someone arbitrarily assiged the value of a pizza to some portion of bitcoin and now it has a history of value on which later valuations can be based.

    You cannot hold that useless stones can’t be money because nobody knows its value and also hold that bitcoins *can* be money because we can just arbitrarily assign whatever value we want to it. That’s a contradiction.

    If bitcoin can be money, then useless stones can be money – and also useless Federal Reserve pieces of paper can be money, too, if you believe hard enough and just get on board with the Fed just like you chose to get on board with useless bitcoins. That’s why believe in bitcoins is pro-Keynesian, something our famous Keynesian commenter @LK agreed with some time ago.

    • Bob Murphy says:

      guest, it’s your kind of take that makes no sense to me.

      If someone offered you 1000 bitcoins right now, would you take them?

      Tom and I used those arguments to show why it would be implausible for a bunch of stones to have served as a medium of exchange, for a society that began in direct exchange. We never would have developed those arguments if we knew, in fact, that people were actively trading stones that had emerged in 2008 from a state of direct exchange.

      There are two acceptable ways of handling Tom’s commentary and our knowledge of Bitcoin:

      (1) Acknowledge that Tom and I were simply wrong.

      (2) Tweak what we said, to say it would take a long time and the villagers in the beginning would accept the rocks at a very low market price per rock, if they had reason to suspect the rocks might take off in value down the road.

      But what *doesn’t* make sense to me is to argue:

      (3) Because Tom/Bob were so compelling in their argument about rocks, people must not have any idea how to value bitcoins right now and it’s a giant bubble that will collapse any day now.

      • guest says:

        With #2, you are conceding too much to the Keynesians, et al.

        The reason is that you are now saying that we no longer need a Regression Theorem to account for the purchasing power of money, and we can all stop blaming monetary inflation for booms and busts since, consistent with #2, money doesn’t really need to be grounded in anything related to actual subjective ends – we can just make up the value.

        There would be no causal mechanism you could now refer to without the Regression Theorem.

        Besides, just because I can get people to value something down the road does not mean it is communicating anything meaningful about subjective ends – Ponzi schemes are based on it, and we don’t conclude from all the voluntary transactions that the Ponzi scheme has value.

        People can be tricked for a very long time, and all the while be unknowingly consuming capital, and being impressed by an increase in current consumption. It *is* possible to have your losses shifted onto someone else.

        So just because someone believes rocks or bitcoins to be money, and they try to use it like it is, and acquire goods from someone else who accepted them does not make them money.

        With regard to the idea that people would be willing to accept rocks or bitcoins at a very low value (something I’ve heard you mention before as the reason bitcoins ended up trading more heavily), the value at which they accept it is based on on of two things, neither of which convey meaningful economic information.

        Such a very low valuation is either based on:

        1) an actual good – say, a pizza – where someone in the world would actually give up a pizza for a bitcoin even if he were convinced that no one would ever attempt to use it as money.

        Bitcoins (small “b”), being created out of thin air, has nothing to offer that guy – they’re literally nothing but strings of characters that we pour meaning into. We could just as easily pour the same meaning into rocks or handfuls of dirt.

        -or-

        2) speculation about how much *other* people would value it in trade – and I think that, even given the orignal pizza transaction, that this is really the underlying basis for all the trading in bitcoins.

        But this is recursive – it ultimately relies on people trading it because someone else will accept it in trade, except that in no circumstance will anyone ever value it for any reason but that.

        That’s insane. Keep in mind that the whole point of having a Regression Theorem is to avoid the two traps of the Austrian view that money’s purchasing power comes from yesterday’s purchasing power (which I think is only incidentally true, and there’s a more fundamental reason), which are the trap of circular reasoning and of an infinite regress.

        Bitcoins’ trade value falls to the first trap, circular reasoning.

        Mises said, in Human Action:

        “It is illogical, they said, to explain the purchasing power of money by reference to the demand for money, and the demand for money by reference to its purchasing power. …”

        “… It is erroneous to object to our theorem, which may be called the regression theorem, that it moves in a vicious circle.”

        And no, bitcoins do not escape this circular reasoning by referring to “yesterday’s arbitrarily made up values”. If you made up the value “pizza” yesterday, then the value you choose today is also made up and is not communicating anything economically meaningful – the same is true of all fiat currencies.

        (FRN’s give gains to some at the expense of others, and any distribution of resources is going to present its own set of arbitrage opportunities, the trading in FRN’s is *not* due to them having a value, but to the value of the new arbitrage opportunities that emerge from the destruction caused by the use of FRN’s This is also the right way to think of the trading people refer to when commiting the Broken Window Fallacy.)

        For what it’s worth, I don’t think Frank Shostak opposes bitcoins for the right reasons (I haven’t read his stuff in awhile, though), and I also don’t think Peter Schiff opposes them for all the right reasons.

        Frank Shostak believes (I think this is current), like Rothbard did, that the FRN’s we use are money, and I think that since they share the lack of use-value that bitcoins do, that he’s being inconsistent.

        Siminlarly for Peter Schiff, although he has come out and said that he ultimately understands that paper money’s real value is zero, he has apparently also come out and said that the FRN only has value because we are forced to use it to pay taxes.

        My problem with that would be that it would mean he thinks that value is being created, or infused, by the violence, and that’s actually the Keynesian position, too.

        Thank you for your response. Let me know if I missed something.

      • guest says:

        “… it would take a long time and the villagers in the beginning would accept the rocks at a very low market price per rock, if they had reason to suspect the rocks might take off in value down the road.”

        I just thought of the greatest question to ask pro-bitcoiner Austrians, since I do believe that they are obligated to hold the above position.

        Question: Hypothetically (because such is not now the case), if people had a reason to suspect that worthless pieces of paper might take off in value, even if they believed it would be printed out of thin air without their knowledge, would they still believe that such inflatable currency could fith the description of money, as they understand it?

        The reason I ask is because if the definition of money rests solely on a person’s belief about a currency’s value, and if such a definition holds even for a currency that people understands is inflatable and will be inflated without their knowledge, they they are obligated to *not* believe that an increase in the money supply, *per se* – no matter how much it is inflated – can cause malinvestments and therefore set in motion the business cycle.

        I think that’s a problem for pro-bitcoiner Austrian Economists.

        I think a more consistent position is to ground the definition of money not in mere belief, but in whether or not belief coicides with a link to use-value.

        Because you need the belief, for sure. But that belief needs to be grounded in real subjective values for subjective ends.

  2. Harold says:

    Money needs to have certain properties for it to work: durability, portability, divisibility, uniformity, limited supply, and acceptability. All but acceptability are intrinsic properties of the medium itself. Something that lacks any these properties cannot be money, and that has nothing to do with acceptability.

    The analogies I usually see for things that cannot be money lack many of these intrinsic properties, such as stones or soil. Therefore using them does not establish anything about acceptability.

    A proper analogy requires something that does have those other properties but is not have acceptability. As far as physical things go, I cannot think of anything that has those properties and would not be useful in some manner. therefore any physical thing that has been used for money is likely to have had some use value, if only decoration. However, I am open to suggestions of something that could fit the bill.

    I do not hold that useless stones cannot be money because no one knows their value, but because they lack the intrinsic properties required of money.

    The problem of viewing the world as made up only of individuals is that it prevents one from seeing emergent properties. Viewed from the individual perspective, money may not arise from something that did not have a use value. However, once you remove those blinkers and view the world in multi-layered manner, cooperation becomes possible and money can easily start from something that has no use value.

    Thus Mises not only believed in the regression theory, it was necessary for him to do so to hold to his theories. If the regression theory falls, so does his whole enterprise.

    I think this is why many people are so adamant about it. If bitcoin is money, then viewing the world only through a Praxeological lens no longer works.

    • guest says:

      “The problem of viewing the world as made up only of individuals is that it prevents one from seeing emergent properties.”

      Emergent properties aren’t the support of collectivism that people think they are.

      We don’t call it an emergent property of multiple eggs that we can make cakes. We just say that the cake I want requires multiple inputs.

      If I didn’t want the cake, the emergent property of multiple eggs would be meaningless.

      It’s the same with multiple human workers. A particular outcome requires X, Y, and Z to be done, and multiple humans can accomplish those tasks. There’s no special property of hive-mindedness anyone needs to be cognizant of in order to see the value of using multiple humans or multiple inputs.

      One individual does this task with this result, and another does that task with another result. And each, as an individual, believes he is benefitting from doing his task on some level, with the employer being the only one who needs to care about how all of these inputs come together.

      “Money needs to have certain properties for it to work: durability, portability, divisibility, uniformity, limited supply, and acceptability.”

      It’s my view that it is more consistent with Methodological Individualism (as well as making more sense) to see these properties as belonging to already existing goods (in various degrees) that are being traded in the economy, and those goods for which most people have the lowest time preference (for their own use) but are valued by others logically have more of these properties.

      So, for example, “durability” just means that it will retain its use-value over longer periods of time.

      “Limited supply” just means that the marginal utility of its use-value is considered high relative to the opportunities foregone by acquiring it. (“Limited” being relative; If someone wants a lot of something really bad, even something that is not limited in supply can be seen as limited.)

      “Uniformity” just means I can more easily compare its utility against the utility of the things I trade for it.

      Etc., etc. Those properties of money are the properties of existing goods that have been distilled through many people’s time preferences, and those goods left over that have these properties can logically be used as money.

      It’s not that you need money and therefore have to come up with somethig with these properties. Attempting to manufacture these properties through legal tender laws or arbitrarily limiting the supply with algorithms simply means that a money that was manufactured in that way requires people to “believe hard enough” about the arbitrary valuation of that money.

      But when the money is an actual good in the economy, such as gold and silver, it is naturally conveying information about subjective values.

      “… The analogies I usually see for things that cannot be money lack many of these intrinsic properties, such as stones or soil. Therefore using them does not establish anything about acceptability. …”

      “… However, once you remove those blinkers and view the world in multi-layered manner, cooperation becomes possible and money can easily start from something that has no use value. …”

      Again, you don’t need to see the world in a multi-layered manner to see the value of cooperation – each person is benefitting in his own way from coordinating with someone else.

      Also, we “cooperate” with inanimate objects all the time – it’s called taking the laws of science as a given and working within those limits. It’s the exact same thing with humans, except I can communicate with a human resource or tool.

      “If the regression theory falls, so does his whole enterprise.

      “I think this is why many people are so adamant about it. If bitcoin is money, then viewing the world only through a Praxeological lens no longer works.”

      I agree, and hopefully Bob and other pro-bitcoiners will see this, too.

  3. Harold says:

    “So, for example, “durability” just means that it will retain its use-value over longer periods of time.”
    No, it means it will not wear out or degrade. Nothing to do with use value, although if it did have a use value that too would persist.

    ““Limited supply” just means that the marginal utility of its use-value is considered high relative to the opportunities foregone by acquiring it.”
    No, it means there is not so much around that you can easily just pick more up when you want.

    ““Uniformity” just means I can more easily compare its utility against the utility of the things I trade for it.”
    No, it means that each unit of the money is the same as other units.

    It is fine for you to use your own definitions, but it is not fine to assume other people are using your definitions. these properties have nothingto do with use value. For something to be used as money, with or without a use value, it must have these properties.

    “It’s not that you need money and therefore have to come up with something with these properties” Why do you say that? I thought money was needed in order to refine the barter system and allow trade. If we want trade, and we do, we need money. It is logical to say we need money therefore we must come up with something with these properties.

    “But when the money is an actual good in the economy, such as gold and silver, it is naturally conveying information about subjective values.” Why? If gold was not used as money what would its use value be? Much less than current value. The use value has become separated from the money value.

    “Again, you don’t need to see the world in a multi-layered manner to see the value of cooperation – each person is benefitting in his own way from coordinating with someone else.” Yes, but you cannot see how money could arise without use value.

    It is fine to postulate that money must have had a use value – it is a reasonable hypothesis. But it is no more than that. Your problem is that it has to be an axiom, as you acknowledge in your final line.

    It is also a reasonabe hypothesis that money could originate with something that did not have a use value because the need for money was there. As I mentioned before, I can not think of anything physical that would have the necessary qualities that did not have a use value. Thus demonstrating that things that have been used as money had a use value does not advance your argument.

    • guest says:

      [Durability] “No, it means it will not wear out or degrade.”

      Economically meaningless unless there’s a link to use-value.

      If you’re making up the value (which would have to be the case without a link to use-value), then there’s no benefit in something being durable in your sense of the word.

      Nothing is preventing you from arbitrarily attaching any value you want to anything, and a lack of durability is no barrier to you doing so.

      [Limited supply] “No, it means there is not so much around that you can easily just pick more up when you want.”

      The key words being “when you want”.

      Again, if you’re arbitrarily attaching values to things, there is no supply, or lack thereof, that is preventing you from attaching any value you want to anything.

      An abundance of supply is not preventing you from arbitrarily assigning a high value to individual units of that supply.

      Your belief that money needs to be in limited supply, in your sense of those words, therefore, is economically meaningless without a link to use-value.

      [Uniformity] “No, it means that each unit of the money is the same as other units.”

      This, too, is economically meaningless since nothing is preventing you from arbitrarily assigning the same value to different things. You can choose to value your house as having the same trade value as a handful of dirt.

      So, unless “uniformity” has a link to use-value, as in my definition, then there doesn’t actually need to be uniformity in your sense of the word since they are made up values, anyway.

      “For something to be used as money, with or without a use value, it must have these properties.”

      If the values are made up, then no, they musn’t.

      What you instinctively realize, in your insistence that money *must* have these properties, is that other people obviously are going to have their own valuations of the thing you want as money. It is precisely for this reason that a money without a link to use-value cannot work as money – it’s merely theft for the benefit of some at the expense of those chasing a higher standard of living that, for some reason, seems to keep escaping them – which is how a Ponzi scheme works.

      To believe that non-commodities can be money is to believe in the Broken Window Fallacy; Handing people value-less paper (or bitcoins) in exchange for something with a use-value is obviously making the recipient of the non-commodity poorer; That someone else, still, is willing to accept that non-commodity in exchange just means that the prior recipient is able to pass off some of his losses onto someone else.

      Such trade activity does not express a mutual gain in value, but a preservation of value that would otherwise have been a loss (paper and bitcoins having no use-value), with the latest recipient always being the biggest loser until he can pass his loss onto someone else.

      This is true whether or not the users of paper realize it (as Keynes, himself, admitted, paper money turns the act of gaining wealth into a gamble).

      This has been especially true of the Federal Reserve Note (so-called “King Dollar”), which I find amusing since the Lefties who like paper money complain that America is robbing other countries of their resources and do not realize that it is their paper money system that is the only thing that can do this.

      Free markets result in mutual benefit between rich countries who outsource jobs to poor countries, whereas the Left’s paper money scheme (also favored by those who believe themselves to be on the Right on this issue, including Trump and his supporters) requires poor countries to accept worthless paper in exchange for their goods – which is obviously theft through, essentially, counterfeiting.

      And this is the real menace of the Petrodollar; It’s not that America wants all the oil – we have plenty on our own soil if the government would get out of the way – it’s that the Petrodollar forces other countries to use a reserve currency that is printed out of thin air.

      To focus on the Petrodollar’s link to oil is to miss the forest for the trees. If it wasn’t oil, it would be something else to persuade other countries to use the unconstitutional, printed Federal Reserve Note.

      “Why do you say that? I thought money was needed in order to refine the barter system and allow trade. If we want trade, and we do, we need money.”

      No, money logically emerges out of barter as people’s higher time preferences get met, and therefore free them up to think about the future. People want to have things in the future at a certain point, and so they come up with ways to save resources for that future. Those saved resources, having as their utility the attainment of increased, or better quality, future consumption, logically are going to have some of the properties that we associate with money.

      Besides, nothing is preventing you from accepting a handful of sand in exchange for all of your goods, if you really want to engage in the act of exchange that much, just for exchange’s sake. Such transactions would be super easy to make – everyone would take you up on your offer.

      But since the goal of trade, for each party to a trade, is for he, himself, to gain in the transaction, the money has to actually convey information (to each party) about the utility of the goods sold for money and also the utility of the goods eventually to be bought with that money. And if the values are made up, then it cannot convey such information – it can only convey specualative values in the recursive sense (there’s nothing ever wrong with speculation, per se).

      Money that is not also a commodity just forces people to play musical chairs with resources, with differing allocations of resources resulting in different arbitrage opportunities to different people.

      For example, if a burgler steals from my home, the fact that I want to go out and spend does not mean that the burglary was an economic benefit. We trade because we want to have things, and if we had everything we wanted and didn’t need to trade with anyone, anymore, our lack of tradihg would actually be an economic benefit, since the purpose of engaging in commerce has been fulfilled.

      “Why? If gold was not used as money what would its use value be? Much less than current value. The use value has become separated from the money value.”

      This is also Bob’s position.

      It’s wrong to think in terms of the money-value as separated from its use-value as if gold’s more wide-spread (at one time) use as money as against its use as a commodity revealed some new or more valuable use.

      The reason is because it ignores the fact that what is actually being traded in the economy is, ultimately, goods against goods. It is meaningless to say that you value some good as X amount of FRNs if you’re making up those values (which is the case even when a money-substitute had, in the past, been convertable into gold, but is no longer so).

      The money can only convey subjective values of the goods exchanged through money if the money, itself, has a subjective use-value that become the terms in which both of the non-money goods are valued.

      People want goods because they believe them to be capable of satisfying their ends, so in order for the money to convey profits and losses to all parties, they need it to convey the subjective values of those who use the gold as a commodity.

      As for those wide-spread users of gold as money (at one time), all they are doing is finding arbitrage opportunities for gold before it reaches those who want it for its use-value.

      There’s no need to think in terms of money-value as separate from use-value; The money-value of sound money (a commodity money only) is merely the logical extension, through arbitrage opportunities, of its use-value.

      For example, if there’s a guy who wants eggs to barter with someone (he’s not going to use them, but he’s not using them as money), and he happens to value more what he gets from the egg-eater than what he is willing to give to you in exchange for some eggs, there might be an opportunity for you to acquire eggs for use in indirect exchange.

      And so on, and so on, for those who are willing to give *you* eggs in exchange for something. So, sound money never abandons the link to use-value that makes those arbitrage opportunities possible.

      The moment a commodity money stops being used as a commodity (or, at least, will not be used as a commodity once all the arbitrage opportunities have been exhausted in its use as a money), that’s the moment a link to use-value is severed and it stops being capable of being money since people would be just making up its value as they go along.

      (Full disclosure: Murray Rothbard did not believe this at all. He believed a commodity money that lost its use-value could continue being used as a money. I consider his view to be internally inconsistent, and I also strongly suspect that Mises held my view, which is why he could say things like it is a mistake to think of money-substitutes as money, even though they behave as money. It’s subtle, but I believe Mises would agree with me on this issue.)

      The reason a former-commodity money would *seem* to work as money, as in the case of the FRN, is because it takes awhile to miscommunicate the changing relative values for all of the other goods that used to be exchanged for a commodity money that was conveying correct subjective values for those goods.

      Those other goods have their own use-values relative to each other that are more or less the same on Day 2 of the commodity money losing its use-value, but decreasingly so as people’s preferences change.

      So, even though for a while it may look as if a former-commodity money can still be money, its actually the case that the moment it loses its use-value it is conveying speculative information in the recursive sense, and therefore can no longer be money.

      “Your problem is that it has to be an axiom, as you acknowledge in your final line.”

      It’s simply logical to say that things that are, in fact, axiomatically true must be an axiom.

      I get that you’re trying to point out that it is dangerous to base large chunks of one’s worldview on axioms. Duly noted.

      But surely you are willing to admit that I actually believe the axioms are true and that if they are true then there are large chunks of worldview that logically follow from that?

      It’s not enough for your position to simply point out that the wrong axioms can be dangerous.

      I also recognize that it is not enough for me to state axioms and their logical implications. I must prove the axioms.

      Which is what I’m ultimately trying to do.

      • Harold says:

        I started adressing point by point, which I include below, but I think a discussion of how money could exist without a use value would be most productive,

        Lets have a hypotheical barter society. They trade goats for chickens and eggs etc, but they have all the problems such systems have. An alien agrees to arbitrate by using a material that the people cannot replicate. The alien says I will will give 1 unit for an egg, 40 for a goat and 100 for a cow. 1000 for a forge and 3000 for a house.

        This material, which is duarable, limited and uniform then becomes money to the people. Initially 1 will buy an egg and 40 will buy a goat. This material had no use value prior to ths alien arriving. but can now function as money. It has nothing at all to do with use value. As long as this stuff is limited, durable and uniform it can function as money, so an egg farmer does not need to supply exactly 40 eggs for a goat.

        We can argue that the only reason anyone has faith in the currency os because eevryone else has failth in the currency is true. Nonetheless, the currency functions perfectly well as money.

        Or do you disgaree? Because the alien stuff had no use before the alien, does this mean it is not in fact money?

        Now follows more discussion of points raised, but I think above is the crux of the issue.

        “Economically meaningless unless there’s a link to use-value”

        Not at all. If you want to store value it must not simply rust away or evaporate. No link to use value at all.

        “Your belief that money needs to be in limited supply, in your sense of those words, therefore, is economically meaningless without a link to use-value.”

        It is not just my belief, but a widely accepted view. There is no need for a link to use value. I really do not understand where you get the idea that there must be a link to use value for this to be an essentia criterion. The Hithchhiker’s guide for exapmple demonstarted that leaves cannot work as money because there is an essentially limitless supply. In the story this led to destruction of the forests to limit the supplly.

        “Again, if you’re arbitrarily attaching values to things, there is no supply, or lack thereof, that is preventing you from attaching any value you want to anything.”

        We arbitrarily attach a value to gold that has nothing to do with its use value. Are you arguing that we can all just arbitrarily attach any value we want to anything without considering what other people value? This isincoherent.

        It is difficult for me to understand where you are coming from, since it make such little sense. But I think is get it from the next part:

        “This, too, is economically meaningless since nothing is preventing you from arbitrarily assigning the same value to different things. You can choose to value your house as having the same trade value as a handful of dirt.”

        How does this make sense? Money ghas to ahve an agreed value. I can’t just assign my own or it does not work. If one wished to have some form of “money” then how could that be compatible with everyone deciding the value of everything individually? I could decide that my dirt is worth the same as your diamond. The whole concept requires a general agreement, which does not need a use value.

        ” Handing people value-less paper (or bitcoins) in exchange for something with a use-value is obviously making the recipient of the non-commodity poorer; That someone else, still, is willing to accept that non-commodity in exchange just means that the prior recipient is able to pass off some of his losses onto someone else.”

        This seems to be a fundamental misundrestanding of the regression theory. Without its money value, gold would be far less valuable. Handing someone gold as value is assuming the value as money will remain higher than then use value and is just as much a Ponzi scheme as any other money unit you describe. The only difference is that the material without use value could go to zero value, whereas the material with a use vaue has a floor below which it cannot go. However, that is not much compensation if you end up with 1% of the value of your asset. Nearly zero is effectively the asame as zero.

        “But surely you are willing to admit that I actually believe the axioms are true and that if they are true then there are large chunks of worldview that logically follow from that?”

        I do appreciate this and I recognise this as a point of view that we can discuss. Your comment here gives me encouragment that we could

        • guest says:

          “This material, which is duarable, limited and uniform then becomes money to the people. …”

          “… but I think above is the crux of the issue.”

          Austrians have already assessed such things. We call them “money substitutes”. They are IOU’s, and, as such do not need to have a use-value.

          Banks used to use paper notes as money substitutes, and as long as the banks honored their contractual obligation (IOU’s are contracts) to redeem their notes in actual money – gold and silver – then they more or less behaved as money.

          But they were not money.

          “If you want to store value it must not simply rust away or evaporate. No link to use value at all.”

          If you’re storing a made up value, then you can arbitrarily choose something else to have that much value whether or not it rusts away. No dirability required.

          “It is not just my belief, but a widely accepted view.”

          O … K. How about “the belief that you hold (that may or may not also be held by any number of others)” Same answer. More people holding the same view does not make it right.

          “Hitchhiker’s guide”

          It’s been awhile, so I won’t be referring to it, but the reason that leaves don’t work as money is because they have a high storage and transportation cost relative to the demand for their various use-values.

          Water has an extremely high use-value for staying alive; But since most people have far more water than is required to stay alive, its use-value, for most people, is far below what they would be willing to give up to stay alive.

          (Turns out that Austrians went and solved the Diamond-Water paradox.)

          “We arbitrarily attach a value to gold that has nothing to do with its use value. Are you arguing that we can all just arbitrarily attach any value we want to anything without considering what other people value? This isincoherent. …”

          “… I can’t just assign my own or it does not work. If one wished to have some form of “money” then how could that be compatible with everyone deciding the value of everything individually?”

          Thank you for this. I feel we are going to make some major progress, here.

          First, gold does have use-values.

          Besides its ornamental use – which would be enough (any actual use-value gets it in the door for “consideration”, as it were) – it has medicinal and technological uses.

          And silver has such strong antibacterial properties that it made great silverware.

          Second, “what other people want” actually factors in to your own valuation of the opportunities foregone in acquiring the goods you want – in the same way that the location of goods you want are a factor.

          Think of other people as just another source of goods (like trees or water) with their own requirements for extraction. You may not want to travel half-way around the world to get a rare plant or animal, in the same way that you may not want to pay more than X amount of money to get something from your grocer right down the street.

          (People are obviously more than just sources of goods, but for purposes of increasing the quality of your life, your own ends are what determine what opportunities you will forego in the pursuit of those ends. You may want to help that old lady across the street, but you may value being near your wife as she gives birth more, or you may really want to get to the game store before it closes so that you can have many hours of fun starting right now. In both cases, you valued the second and third opportunities more than the opportunity to walk the old lady across the street. The opportunities foregone are your own personal costs of choosing another opportunity. And when seizing an opportunity with money is more valuable to you than an opportunity that would preclude you from getting that money, then your costs can be stated in money terms – but ultimately all trade is always *at least* about opportunities taken and the opportunities you give up when you take an opportunity.)

          Your own ends give value to the goods you want and also provide constraints on value in trade. All of those individual constraints ultimately result in money and money prices.

          I think the following portion of video could be helpful. It’s about Carl Menger’s “Theory of Imputation”. I’ll provide the start and end of the section, but I strongly believe the whole video would be helpful for this particular issue.

          [Time stamped, 43:09 to 47:55]
          The Birth of the Austrian School | Joseph T. Salerno
          [www]https://www.youtube.com/watch?v=dZRZKX5zAD4#t=43m09s

          “Handing someone gold as value is assuming the value as money will remain higher than then use value and is just as much a Ponzi scheme as any other money unit you describe. …”

          “… not much compensation if you end up with 1% of the value of your asset. Nearly zero is effectively the asame as zero.”

          What is actually happening, here, is that most people do not actually value gold for its use-value. But *some people* in the economy do, and it’s through the arbitrage opportunities made available by those people’s valuations of gold that we get the money-value of gold.

          You say, “Why would someone want the use-value of gold, when someone else in the economy can get all this other stuff?” The reason is because different arbitrage opportunities are available to different people.

          Consider this story:

          Got an old cell phone? Trade it for a Porsche
          [www]http://www.examiner.com/article/got-an-old-cell-phone-trade-it-for-a-porsche

          “Steven Ortiz, a 17-year-old from California, has pulled off a minor miracle. He has, through a series of trades, exchanged an outdated cell phone for a 2000 Porsche Boxster. It took him two years and 14 trades, and in the end he actually traded down from a more valuable 1975 Ford Bronco.”

          Why would someone want an old cell phone when someone else in the economy can get a Porsche? Same thing.

          • guest says:

            The Porsche link is broken, but here it is on the Wayback Machine:

            Got an old cell phone? Trade it for a Porsche
            [www]https://web.archive.org/web/20130303130111/http://www.examiner.com/article/got-an-old-cell-phone-trade-it-for-a-porsche

      • Harold Vandenburg says:

        “Besides, nothing is preventing you from accepting a handful of sand in exchange for all of your goods, if you really want to engage in the act of exchange that much, just for exchange’s sake”

        We could in principlle use sand – which has a use value of about $50/tonne . However that would require us to carry tonnes of sand about which is impractical. Sand has a use value, so could in principle be used as money (by your anaysis). So why do we not use sand? becuase it does not fulfill the requirements of money – it is not suficiently limited.

  4. Tel says:

    Totally off topic, but might be fun to hear Peter Schiff vs Bob Murphy debate on Whole Life Insurance.

    https://www.schiffradio.com/reality-ended-bear-market-rally/

    Spool forward to 1:06:35 after the question about life insurance policies.

    Schiff gives very much the standard argument about cheap term insurance while you are young and then don’t bother about coverage after the kids are grown up. He doesn’t like the investment concept of keeping the policy for the long haul.

    • skylien says:

      I would second that!

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