Why Misesians Need to Tread Cautiously When Disparaging Bitcoin
In my EconLib article on Bitcoin, I wrote:
Some critics rely on the work of Ludwig von Mises and his “regression theorem” to argue that the world will never embrace Bitcoin as a true money. According to this argument, Mises demonstrated that all money—even today’s fiat money—must have been, at some point in the past, linked to a commodity that was useful in the days of barter. Since Bitcoin has no such history, the critics argue, we have the authority of Mises himself to show that Bitcoin will never be more than a fad.
This article won’t address the question of whether this is a valid interpretation of Mises’ writings. Instead, I will make the modest point that if Mises is used to rule out Bitcoin’s acceptance as money, then it seems that Mises has already lost. If this logic is correct, then Bitcoin should never have been adopted as even a medium of exchange because it served no useful role as a regular commodity. (Recall that money is simply a medium of exchange that is accepted by everyone in the community.) But Bitcoin has already surpassed that hurdle, as there are websites on which people from all over the world exchange their bitcoins directly for goods and services.
In my current project for the Independent Institute I’m going methodically through Human Action, and can now make my case much more simply. Mises didn’t make his case of the regression in terms of money, he made it directly in terms of a medium of exchange, thus skipping the step I thought I was making in the quotation above. So here’s Mises from page 407 (Scholar’s Edition): “[N]o good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments.” And later on page 423:
A medium of exchange without a past is unthinkable. Nothing can enter into the function of a medium of exchange which was not already previously an economic good and to which people assigned exchange value already before it was demanded as such a medium.
So my point is, the certain group of Misesians who keep deriding Bitcoin and saying it will eventually collapse, it’s a passing fad, it will never take off beyond internet geeks, etc. etc., because of Mises’ regression theorem, aren’t making any sense. Mises’ regression theorem wasn’t making an empirical prediction about a medium of exchange never attaining the status of money, unless it started out as a regular commodity. No, Mises is saying we can’t conceive of even a medium of exchange (which is a weaker condition than money) that didn’t start out as a regular commodity. Bitcoin is clearly, unequivocally a medium of exchange right now. There are websites where people trade Bitcoins directly for “real” goods. There are people who will sell a “real” good for Bitcoin, intending only to trade away the Bitcoin in the future for something else “real.” Thus Bitcoin is right now a medium of exchange, no doubt about it.
So, am I saying Mises was wrong? Not necessarily. If you want to reconcile his claims with the existence of Bitcoin, you can argue along the following lines: What actually happened is that in the very beginning, when Bitcoin was first introduced and no one had any idea of its purchasing power, the very first people to trade for it did so because it provided them with direct utility because they knew there was at least a chance that it would serve to chafe the governments of the world with their printing presses. So just as someone might chip in a nickel to someone raising donations for his plan to hand out copies of What Has Government Done to Our Money?, by the same token, the early adopters of Bitcoin were doing it for ideological reasons, not for pecuniary reasons. Then, once Bitcoin got off the ground because of such motivations, people had a framework for evaluating its purchasing power, and then it was off to the races in terms of standard Misesian theory.
Note that I’m not even saying that the above reconciliation is my preferred way to handle the situation; I would need to think about it. I think an important piece of the puzzle here is that in the very early days, Bitcoin was practically free. In other words, it had an extremely low market value. So I’m open to the idea that there actually is a loophole in Mises’ categorical statements, since someone might acquire something as a medium of exchange at a very low price just on the off chance that it might take off. As a general rule, this would be an odd policy; nobody would even expend the labor effort to pick up a stone in the forest, on the off chance that stones of that size and composition would one day become the global money.
But, it’s not as farfetched to say that somebody might be willing to be the first person to give up something of market value in order to acquire a completely new good with no usefulness except as a medium of exchange, even without having any history of its purchasing power, so long as (1) the price were very very low and (2) there was something special about this new good that made it extremely suitable as a medium of exchange, if only enough people began to adopt it too. This is arguably what actually happened with Bitcoin.
So to be clear: I do not think Bitcoin is money, at least not yet. In fact, if governments got out of the way, I am very confident that gold and silver would once again become the world’s market monies. My modest point in this post is that fans of Mises need to stop saying that the regression theorem proves Bitcoin can’t ever become money, since that argument really doesn’t make sense, and if anything just shows Mises was wrong.
(One last request: Not only am I currently writing a book for the Independent Institute on Human Action, but I’ve also written the study guides to it and The Theory of Money and Credit. So in the comments, if you want to say I’m wrong, please by all means, I love defenses of Mises more than most people. But please don’t lecture me on the basics of the regression theorem. I know what it is. And also keep in mind that not a single professional economist–many of whom are card-carrying Austrians–used the regression theorem to say Bitcoin couldn’t possibly be money, when Robert Wenzel recently polled us. [Hans Hoppe, not in the survey, did not seem to be using that argument either, namely that the regression theorem means Bitcoin can’t ever be money, according to Stephan Kinsella’s account.])
Those who claim that Bitcoin usage could ever refute Mises’ regression theorem fail to take into account the obvious fact that the value of Bitcoins is derived from the value of dollars. Dollars, as everyone knows, were derived from the value of gold and silver.
It is pretty clear what’s going on. Those who are intellectually invested in Mises’ regression theorem believe they are threatened by the existence of Bitcoins. The belief is that if Bitcoins take off, then it will serve as an empirical falsification of the regression theorem. But this fear is misplaced. The regression theorem remains intact. It will always remain intact. The only reason why anyone knows the value of a Bitcoin, is due to Bitcoins being exchanged for something.
Just think about it. Suppose in the next minute, I, Major_Freedom, said to the world “I have a supply of 1000 Major_Freedom dollars.” What would be their value? If they were to ever become money, the only way it could ever pass the medium of exchange barrier, would be if I succeeded in exchanging them for something else. But guess what? The only way my Major_Freedom dollars can be exchanged, would be if they are exchanged for something that already exists. So logically speaking, the value, namely, the exchange value, of Major_Freedom dollars, would invariably be predicated on that which is exvchanged for Major_Freedom dollars, be it Federal Reserve notes, or back rubs, or celery stalks.
Misesians would rightly identify that the value of my Major_Freedom dollars, assuming they become money that is, would be based on the value of whatever scarce goods are exchanged for Major_Freedom dollars.
The regression theorem is a praxeological necessity. All Misesians should not worry one single bit about Bitcoins possibly becoming money.
As far as I know, there has never been an entity offering a fixed exchange rate between Bitcoin and dollars.
Since the exchange rate has always floated, you could equally argue that everything depends on the dollar for value since everything can be exchanged for dollars at some price or other. However, this argument is clearly silly… a floating price means that neither side is tied to the other; and that’s the whole idea.
There doesn’t have to be a “fixed” exchange rate.
There only has to be a historical set of exchanges, at any rates.
Where are you and Murphy getting the notion that there has to be some centralized, i.e. governmental, agency that “sets” an exchange rate?
The fact that fiat dollars were exchanged for gold and silver is sufficient. That a government was involved, that its involvement consisted of “fixed” rates, is all besides the point.
“Since the exchange rate has always floated, you could equally argue that everything depends on the dollar for value since everything can be exchanged for dollars at some price or other.”
Not if the context is the regression theorem. It is not the case that sugar, or salt, as examples, derive their value, regression theorem speaking, on fiat dollars, because sugar and salt were exchanged prior to fiat dollars being exchanged.
That just makes the entire “Regression Theorem” meaningless… because anything can be exchanged at any price, even zero in some cases. Thus, you could argue forwards, or backwards or sideways, from anything to anything else (provided some trade happens somewhere).
“That just makes the entire “Regression Theorem” meaningless… because anything can be exchanged at any price, even zero in some cases.”
The regression theorem isn’t what you think it is.
It is not even the case that “anything can be exchanged at any price”. Goods invented today, or yesterday, were not exchanged at any time prior to yesterday.
History is one of unfolding exchanges in a chain. It is not a spiderweb, temporally speaking. Every good is exchanged for only one subsequent good, which is what we call a price. A price is a specific exchange event.
When it comes to money specifically, we know the value of fiat money not because fiat money can potentially be exchanged for everything under the Sun, but rather, because it was at some point exchanged for gold and silver, and gold and silver in turn have known values because they were exchanged for commodities prior to that.
All the regression theorem says is that commodity X has an expected purchasing power as money because it was at some point valued, i.e. exchanged, for final use value in the past.
Yeah, at a floating price. Which means you have to find a buyer for the first bunch of MF dollars that you issue.
Bingo. And what will I exchange my Major_Freedom dollars for? Goods and services…that exist, right? The value of my dollars will rest on the value of those goods and services, regression theorem speaking.
Only if you guarantee some particular goods and services can reliably be obtained in exchange for MF dollars. If you make a guarantee like that, then yeah you are regressing back to a fixed exchange rate against some commodity.
But in the case of Bitcoin, who ever made any guarantee against any commodity at a fixed exchange rate? There never was one against US dollars — the Bitcoin exchange against USD is extremely volatile.
“Only if you guarantee some particular goods and services can reliably be obtained in exchange for MF dollars.”
The existence of the exchange is enough for it to be “reliable”. If someone is “special” enough to accept MF dollars, then we know the exchange value of MF dollars, at that time, at that place….which is how we know any exchanges whatever.
“But in the case of Bitcoin, who ever made any guarantee against any commodity at a fixed exchange rate?”
There is no need for a “fixed” exchange rate. Only “an” exchange rate.
The price of Bitcoin is not derived from the dollar and never was. It always had a floating exchange rate against the dollar. Rather a large proportion of Bitcoin’s liquidity is derived from the liquidity of the dollar.
“Media of exchange” is a subjective phenomenon only realized through action. If a person uses something as a means in order to achieve an exchange it can thus be labeled a “media of exchange”.
The term “general media of exchange” does not follow from the study of praxeology. This can only be determined through historical and empirical observation.
There are no principles to determine when something becomes a “geneneral media of exchange”. This determination can only be made arbitrarily.
I see your point. The way I reconcile this complexity with principle-based frameworks, like praxeology, would be to consider the idea of “general medium of exchange” to be a logical category of the individual’s expectations.
Logical categories are, after all, grounded on epistemological constraints, even though “the external world” is also so constrained.
So commodity X would logically be a “universal medium of exchange” if it were true that should any individual seek to exchange his dollars for other individual’s goods or services, the individual with commodity X has a rational basis for concluding that commodity X would be accepted.
For what would be the alternative? Suppose I as an individual refused to accept Yuan if I were living in China. Would the existence of me not accepting Yuan serve as a rational foundation for refuting the argument that the Yuan is a universal medium of exchange…in China?
Notice how I had to say “…in China.” The Yuan is not universally accepted throughout the world, so does that mean the Yuan is not money because it is not universally accepted…in the world? But most people, Misesians included, would argue the Yuan is money, because it is generally accepted in “an” economy, namely China.
So it appears that the term “universal” is the key concept here. What does it mean to be “universal”? Apparently, as long as a particular commodity is generally accepted throughout a country, it is a “money.” But that seems arbitrary doesn’t it?
US Dollars for example are not accepted everywhere. Neither is any other national currency. So does this mean no national currency is a universal medium of exchange, and hence no national currency is truly a “money”?
I think that “money”, like every other economic concept, is, or at least should be if it is not yet clear, grounded on individual action. What does this mean? It means that “money” arises when the individual is rationally justified in concluding that the commodity he owns, that he calls “money”, is expected to be accepted by anyone he approaches, so long as the exchange rate is mutually beneficial.
I am rationally justified in concluding that anyone I approach, in this country, would accept US dollars. Rationalism after all is the cross section between idealism and empiricism. It is a combination of my mind, and the external world, bridged by my action. If my actions give me the knowledge that US dollars are accepted by everyone I trade with, then I am rationally justified in concluding US dollars are money. If I were born in a black box, I would not be so justified.
If you want to make an assumption about money, then you are “rationally justified” in doing so. In fact there are no theoretical constraints to any assumptions you want to make. Whether your assumption is useful is a whole other matter.
“I think that “money”, like every other economic concept, is, or at least should be if it is not yet clear, grounded on individual action.”
If by “grounded on individual action” you mean deduced from the category of action, then this proposition is false. Like I said, whether something is money (if by money you mean a general media of exchange) is an empirical or historical observation, determined arbitrarily.
Economics, through praxeology, is not a normative science. Whether you think something “should be… grounded on individual action” is irrelevant.
“If you want to make an assumption about money, then you are “rationally justified” in doing so. In fact there are no theoretical constraints to any assumptions you want to make. Whether your assumption is useful is a whole other matter.”
I don’t think you are using “rational” the same way I am. I for one do not distinguish “rational” from “useful.”
“If by “grounded on individual action” you mean deduced from the category of action, then this proposition is false.”
I don’t.
Thanks for clearing it up MF. You are very helpful. I don’t think I am too well versed in this kind of vocabulary.
However, it grinds my gears when you said:
“The regression theorem is a praxeological necessity.”
This, I think you would agree, is a fair criticism.
“US Dollars for example are not accepted everywhere. Neither is any other national currency. So does this mean no national currency is a universal medium of exchange, and hence no national currency is truly a “money”?”
Right Currency is not money. Money is those things that have a history of being a medium of exchange world wide. Food, Salt, oil, gold are all money.
Currency is a system of measurement of value. Imagine you have a million barrels of oil that you want to sell, but that you dont want to carry to market. How could you do that? Very simply you would write it down on a piece of paper.. That is currency!
Money is not a measure of value, and currency is not a store of value.
The problem as I see it is that the whole world as forgot what money is and think that currency is money. Currency is the unit of measurement for value, but measurement requires a standard unit. The dollar is not a unit of measurement because it changes. Units dont change and neither do definitions. You cant define a dollar so you cant use it to measure with.
What the regression theorem is really stating is that you cant have measurement without a unit or standard.
I think praxeology allows you to fairly reliably predict that there will always be something that becomes a medium of exchange (although possibly more than one thing), and it allows you to clearly rule out (just for example) apartment blocks from ever being a medium of exchange (I mean actual apartment blocks, not a certificate claiming ownership of an apartment).
Bitcoin opens into new areas: computing machinery, global Internet connectivity, cryptology, anonymous trust networks, etc. These things are literally new things, that didn’t exist when Mises was writing. The world is literally different now… just a question of how different.
Praxeology gives us exact laws that are apodictic. To say “praxeology allows you to fairly reliably predict” would be false. Praxeology doesn’t allow us to predict anything. A prediction is a hypothesis subject to falsification. Praxeological laws are not subject to falsification by evidence.
Theoretically speaking, there is no reason that apartment blocks could not be considered a media of exchange. If a person were to use a certificate of ownership in an exchange, he/she would in effect be using his/her apartment block as a media of exchange.
There’s an interesting paper by Gertchev which dehomogenizes Mises’s monetary theory, drawing a distinction between what Mises wrote in TMC and Human Action:
http://mises.org/document/1974/
To make a long story short, Gertchev claims that Mises puts more more emphasis on forward looking expectations in HA than he did in TMC, which relies on backward expectations (ie the regression theorem) to explain the positive value of money. Mises’s HA monetary theory provides more wiggle room to fit bitcoin in.
JP Koning except the quotes I gave in this blog post are from Human Action. So if there is indeed any tension between Mises’ writings and Bitcoin, the tension is right there in Human Action.
You don’t need any ‘wiggle room’, there is no inconsistency, see the first comment by MF.
Bob, I do not see why would Bitcoin be a problem for the Misesian reasoning any more than fiat money? If you haven’t seen any contradiction between the existence of fiat dollars as a general medium of exchange and regression theorem, I don’t see what is different with Bitcoins? Their value is historically derived from paper dollars in the same manner the value of paper dollars is derived from the value of gold.
No, sorry MF and Ivan, your solution doesn’t work at all. Fiat money is easily explained because at one point, governments redeemed their notes legally for gold and silver. There was never such an offer for Bitcoin. The first person to issue Bitcoin didn’t say, “I pledge to redeem returned Bitcoins at the rate of 1 penny per thousand Bitcoin.”
Or at least, I have never heard of such a thing.
There doesn’t have to be a government doing any “redeeming” of fiat money for fiat money to be argued as “regressed” on gold and silver.
It only requires exchanges.
Bitcoins were, and are, exchanged. That which they are exchanged for, is the chain in the regression.
Mises never argued that a government per se has to be a party in the mix.
Sure, but this applies just as much to toenail clippings. If anyone comes to the door and offers me five bucks for a toenail clipping then I’d accept.
Thing is, people have been trimming their nails for thousands of years without that ever becoming accepted as a method of exchange. So therefore something must be different between Bitcoin and toenail clippings.
“Sure, but this applies just as much to toenail clippings. If anyone comes to the door and offers me five bucks for a toenail clipping then I’d accept.”
Again, the context is the regression theorem as it applies to the money commodity specifically.
In the case of you being the first to sell a toe nail clipping for dollars, you have to ask how we know the value of the dollars from which you exchanged your toe nail clipping. If you exchanged your toe nail for $5, then the regression theorem is still true. It’s true by virtue of how we know the value of dollars.
“Thing is, people have been trimming their nails for thousands of years without that ever becoming accepted as a method of exchange. So therefore something must be different between Bitcoin and toenail clippings.”
Yes. But this difference is not one that refutes or weakens the regression theorem as I explained it above. You’d just be talking about a non-money good.
Toe nail clippings don’t have to become universally accepted for you to be able to argue correctly that the value of the toe nails is a function of the value of dollars, which is a function of the value of gold and silver, which is a function of….
There doesn’t have to be a government doing any “redeeming” of fiat money for fiat money to be argued as “regressed” on gold and silver.
It only requires exchanges.
You can’t just assume an initial exchange and say the regression theorem works from that point on. You have to explain the very first bitcoin exchange from which later exchanges derive value.
The regression theorem works with fiat currency because prior to that first exchange using the fiat currency people had expectations for the fiat currency which were based on the previous, redeemable notes.
“You can’t just assume an initial exchange and say the regression theorem works from that point on. You have to explain the very first bitcoin exchange from which later exchanges derive value.”
What’s the difference?
“The regression theorem works with fiat currency because prior to that first exchange using the fiat currency people had expectations for the fiat currency which were based on the previous, redeemable notes.”
Same thing is true for Bitcoins. People expect Bitcoins to be given exchange value because of historical exchanges of Bitcoins.
People expect Bitcoins to be given exchange value because of historical exchanges of Bitcoins.
The regression theorem is sort of like mathematical induction in that you have to show both that, given one step in the chain, the next step necessarily holds _and_ that the initial step holds.
The regression theorem is all about breaking the circular reasoning that money has exchange value because other people accept it for its exchange value. It does this by saying today’s exchange value is based on yesterday’s exchange value, is based on the exchange value it had the day before, all the way back to the beginning where the value was based _on something else_. The regression theorem is all about getting to the beginning in order to avoid circular reasoning.
What’s the difference?The difference is you’re skipping _the_ critical step for bitcoin, the first bitcoin transaction. The regression theorem says that first transaction either took place because a bitcoin had use-value, or because people did not distinguish it from a prior medium of exchange (which also derived its exchange value according to the regression theorem).
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What about the Euro? It was NOT created by governments redeeming their notes for gold and silver, but by governments redeeming the new fiat notes for the old ones (The Euros for the Marks, Francs, Liras etc). The Euro is exactly the same in this regard as Bitcoin, the only (irrelevant) difference is that Bitcoins are privately emitted.
And even if the “fixed” exchange rate between Deutsche Marks and Euros, Liras and Euros, Guilders and Euros, etc, was instead a collection of “floating” exchange rates, the regression theorem would still apply.
But in every case a country joining the Euro must first achieve a stable fixed exchange rate with the Euro before they make the transition.
http://ec.europa.eu/economy_finance/euro/adoption/erm2/index_en.htm
That’s no accident, that’s exactly the “Regression Theorem” being put into practice by the Eurocrats. They obviously believe in it.
Yeah just to follow-up on Tel: People knew how much purchasing power the euro would initially have, because upon acceptance they would exchange new euros for the old currencies (Mark, franc, etc.) according to a fixed rate. So the euro is a beautiful illustration of the regression theorem, as conceived by the orthodox Misesians.
Bob: “People knew how much purchasing power the euro would initially have, because upon acceptance they would exchange new euros for the old currencies (Mark, franc, etc.) according to a fixed rate.”
What about six months later? Three years later? Why did they continue to accept the Euros? After its wild fluctuations in value against Dollar or Yen, or any other major fiat currency?
If you don’ think that the existence of foreign exchange market refutes regression theorem, than you don’t have much basis to think that the Bitcoin market is any different. People trade with fiat currencies all the time, and the only difference with Bitcoins is that they added a private fiat money to the mix.
I think that your mistake is in treating Bitcoins as “money’ in the Misesian sense, whereas they are just another fiat money whose value is derived from the value of paper currencies whose value is derived from gold and silver.
Of course nobody imposed the fixed price of Bitcoin in dollar terms at first moment but that is irrelevant. Somebody offered a Bitcoin for say 2 dollars, the value of which was fully traceable to gold and silver.. And somebody else accepted or negotiated for a better price. that is exactly the same transaction that ‘s going on everyday when somebody offers more Yens for fewer Euros and someone else buys.
If you say that Bitcoin could not go off the ground, I would say that the Euro could not CONTINUE for 2 weeks, let alone all those years
Bitcoin never spent two years with a national government (nor any other powerful entity) holding it at parity with any existing well accepted currency.
It just sprouted from nothing into something… totally different to the Euro.
“But in every case a country joining the Euro must first achieve a stable fixed exchange rate with the Euro before they make the transition.”
I notice you’re transitioning to “stable” exchange rates from “fixed” exchange rates.
Stable exchange rates also does not presuppose a government.
“That’s no accident, that’s exactly the “Regression Theorem” being put into practice by the Eurocrats. ”
The regression theorem isn’t a central plan.
What role does taxation play in the valuation of the Euro? Let us not forget that we are told to use these currencies and to give then can to their originator at gunpoint.
“The first person to issue Bitcoin didn’t say, “I pledge to redeem returned Bitcoins at the rate of 1 penny per thousand Bitcoin.””
Neither did the first person to trade gold coins for services declare that there was a fixed exchange rate between gold and various goods and services. It had a floating exchange rate when it initially became a medium of exchange – it did so because of an expectation that it would buy about the same tomorrow as it does now.
Bingo.
It’s interesting to read those who put such little weight on the market process.
It’s like they believe something isn’t real unless those calling themselves statesmen declare it is real.
A bitcoin is basically just an entry on a huge, decentralized ledger (the blockchain).
If you ‘own’ a bitcoin, all you really own is an entry on this ledger
I think the value of these ‘ledger entries’ are that no single individual has control of them. No one can alter them. But they are publicly available for all to see. I think maybe that’s the ‘commodity’ that bitcoin serves as.
or not. lol
I think you are correct, but what actually makes this ledger system have a real-world value at all?
The only answer is that the ledger serves a purpose as a system of exchange. So Bitcoin is the first “pure” currency in the sense that the ONLY value it has is the exchange value and nothing else whatsoever. Owning a Bitcoin gives you absolutely no guarantee other than the ability to exchange for another Bitcoin,
“Owning a Bitcoin gives you absolutely no guarantee other than the ability to exchange for another Bitcoin,”
Every economic good is like that.
I am not “guaranteed” to find a buyer for my dollar at time and place X. Even if I lived in 1932, and the government promised to redeem dollars for gold, it still wouldn’t be “guaranteed.” FDR showed this was the case.
Well enough people believed the gold standard guarantee to satisfy the regression. It’s the confidence in the currency that matters.
“Well enough people believed the gold standard guarantee to satisfy the regression.”
The regression isn’t founded on “enough people”. It is founded on people.
Even if a particular class of good, say salt, was exchanged only once per day, by only one couplet of traders (buyer and seller), then the regression theorem would apply to that salt.
The existence of an exchange presuppose confidence in the ability to exchange.
Exactly righ MF. But it makes a pig’s breakfast of your universal criterion.
What universal criterion? Tel is the one who insists that the regression theorem relies on a FIXED, i.e. universal, exchange characteristic of money for the regression theorem to hold.
All I am saying is that this is not the case. There is no universal “fixed exchange” rate that is necessary. Just exchanges rates as such, which provide objective information about the preferences of individual traders, and hence “value”.
I think the value is that you can exchange btc (or ledger entries) with others directly with no third party involvement, and you don’t have to trust any single entity with keeping the ledger accurate.
You also know beforehand that there will only be 21 million ledger entries and you know how often they are created.
But yes, I guess this can really only serve a purpose for exchange of some sort.
Don’t forget the value BitCoins may have because they are part of a nearly frictionless global payments system.
(1) Murphy’s statement 1:
“There are people who will sell a “real” good for Bitcoin, intending only to trade away the Bitcoin in the future for something else “real.” Thus Bitcoin is right now a medium of exchange, no doubt about it.”
(2) Murphy’s statement 2:
“So to be clear: I do not think Bitcoin is money, at least not yet. In fact, if governments got out of the way, I am very confident that gold and silver would once again become the world’s market monies. My modest point in this post is that fans of Mises need to stop saying that the regression theorem proves Bitcoin can’t ever become money, since that argument really doesn’t make sense, and if anything just shows Mises was wrong.”
You contradict yourself. You’re saying Bitcoins are not used as a unit of account and store of value? But they undoubtedly are. People can value goods in Bitcoins and other people store savings in bitcoins.
It’s not a contradiction, because money is a universal medium of exchange, not just a medium of exchange.
Murphy didn’t make that explicit in those two statements you quoted, but it’s pretty obvious.
If I accepted your copy of Keynes’ General Theory, only because I wanted to trade it away for future considerations, then that book is a medium of exchange, but it isn’t a money. I could call it a medium of exchange without having to concede it is money.
“If I accepted your copy of Keynes’ General Theory, only because I wanted to trade it away for future considerations, then that book is a medium of exchange, but it isn’t a money.”
The GT in such an instance would not be a medium of exchange. It would be involved in an individual barter transaction and then would be an asset you hold.
By contrast, a number of goods are given prices in bitcoins and bitcoins are accepted as currency by a community of people.
“The GT in such an instance would not be a medium of exchange. It would be involved in an individual barter transaction and then would be an asset you hold.”
No, it would be a medium of exchange, because I used it not to use myself, but because I know someone else wanted it, and I couldn’t offer them something they wanted.
It isn’t a barter trade, which is direct.
It is an indirect exchange, which is a medium of exchange.
“By contrast, a number of goods are given prices in bitcoins and bitcoins are accepted as currency by a community of people.”
Define “community”.
Sure but if even one guy out there will not accept US dollars as payment, then the US dollar is not universal right? Therefore not money.
Come to think of it, my cat won’t accept US dollars as a medium of exchange so the US dollar already fails the universal test. So much for world reserve currency.
And besides, even if Murphy did present contradictory statements, how would you claim to know that one of them would be false, given that you reject rationalism, i.e. epistemological a priorism?
As a positivist, all you could say, at best, is that your hypothesis that contradictory statements cannot both be true, is contingently supported or not supported by a finite set of observable data, and can be potentially falsified in the future with new observations and new data.
You wouldn’t be able to claim that Murphy is apodictically wrong.
Guess a priorism is only wrong when others use it.
I think Lord Keynes believes in analytic a priori truth, just not synthetic a priori truth.
I do not accept the existence of synthetic a priori truth.
The synthetic a priori was figment of Kant’s imagination.
Well, I think Frege did a pretty good job of refuting Kant’s claim that arithmetic was synthetic a priori, and Hilbert and Tarski did a pretty good job of refuting Kant’s claim that geometry was synthetic a priori, and I’m skeptical of the Austrians’ claim that Mises’ theory of praxeology is synthetic a priori (because they haven’t made a rigorous axiom-theorem-proof formalization of it), but that doesn’t mean that there’s no such thing as any synthetic a priori truth. Godel has made a pretty good case that set theory, especially the transfinite theory of types and large cardinals, constitute synthetic a priori case. (I’m not entirely convinced by it yet, but it’s worth taking seriously.) Overall, I’m pretty much in agreement with you that mathematics is analytic a priori (I have a strong affinity for Frege and Russell), but I don’t totally discount the synthetic a priori.
I agree with all this fwiw, but I’m more skeptical of the large cardinals thing. As Keshav knows but most readers won’t, properties of the real numbers are tied to the existence of large cardinals. And I think there is ral uncertainty about a lot of that, and about how well the reals describe the world as well.
Actually, as I’ve been trying to point out to Steve Landsburg for a while, the natural numbers and the real numbers don’t differ in this regard. You can take N as a given and define R using set theory, in which case your conception of real numbers depends on your conception of what sets there are. But you can equally well take R as a given and define N using set theory, in which case your conception of natural number will depend on your conception of what sets there are. Landsburg finds the natural numbers more intuitive and basic than the real numbers, but there are no technical results that distinguish one as special compared to the other. The second-order theory of real numbers has a unique model up to isomorphism, just like the second-order theory of natural numbers does. The axioms of first-order Peano arithmetic are provable in the second-order theory of real numbers, and the axioms of the first-order theory of real numbers is are provable in the second-order Peano arithmetic.
By the way, if you want to see Godel’s Platonist views about the transfinite theory of types in action, look at section 3 of this article:
http://plato.stanford.edu/entries/type-theory/#3
These views were the intuition behind his development of the constructive universe, which ultimately lead to his proofs that the axiom of choice and the continuum hypothesis are independent of ZF. So if Godel really didn’t have a synthetic a priori intuition about these things, then how in the world did he come up with such a complicated structure?
As I said, I’m not fully convinced by Godel’s arguments that we’re dealing with the synthetic a priori here (because the Feferman-Schutte analysis in that same section looks like an analytic a priori alternative to Godel’s approach, and it reaches a lower ordinal), but it’s at least food for thought.
“I do not accept the existence of synthetic a priori truth.”
Is that an a priori true statement about the reality of the human mind, or is it just your hypothesis which is subject to possible falsfication in the future?
Synthetic a priori knowledge does not exist.
That statement is a synthetic a posteriori proposition and its truth highly probable.
What would constitute synthetic a posteriori evidence (i.e. empirical evidence) that synthetic a priori knowledge exists?
“Godel has made a pretty good case that set theory, especially the transfinite theory of types and large cardinals, constitute synthetic a priori case. (I’m not entirely convinced by it yet, but it’s worth taking seriously.)”
Well, what would it take for you to accept that ” the transfinite theory of types and large cardinals constitute synthetic a priori”?
And I would say that claims for synthetic a priori knowledge fail because all such claims can be shown to be
(1) analytic a priori (like classical mathematics) or
(2) synthetic a posteriori.
If you show me a type of knowledge x that cannot be logically or empirically fitted into either category, then I would take your claim that x is synthetic a priori knowledge seriously.
What would convince me of Godel’s claim would if I studied his work on transfinite types and then I eventually came to share the a priori intuition that he claims to possess on the subject. That is, after all, what synthetic a priori knowledge is: truth that is known not by virtue of meaning, but because of a priori intuition.
“Synthetic a priori knowledge does not exist.”
Is that statement right there an analytic statement, in which case I should treat it as the result of arbitrary rules concerning the manipulation of terms, or is it an empirical statement, in which case positivism requires us to treat it as a hypothesis only, subject to possible falsification?
“That statement is a synthetic a posteriori proposition and its truth highly probable.”
If it is a posteriori, then it is a hypothesis, and not apodictic, and you would be required to take seriously arguments against it being a posteriori, but rather a priori.
You cannot a priori reject the existence of true synthetic a priori statements without contradicting yourself.
“And I would say that claims for synthetic a priori knowledge fail because all such claims can be shown to be:”
“(1) analytic a priori (like classical mathematics) or
“(2) synthetic a posteriori”
Shown to be HOW: a priori or a posteriori?
Computing Science would have to be in the category of synthetic a priori. All computing operations reduce down to NAND gates (let’s ignore analog computers) and NAND gates are very simple devices. Theoretical comp-sci doesn’t even bother with the details of the gate, they just use a idealised model.
Despite this, it would be difficult to look at the software industry and say it was analytic. Can you say that Bitcoin is merely an analytic extension of a NAND truth table?
Tel, if you can demonstrate that Bitcoin is a synthetic a priori truth, you’ll win over the remaining Misesians. 🙂
I was only referring to the purely derivable part of Bitcoin, i.e. the software, and the encryption algorithms.
I don’t want to confuse the issue by bringing in the user’s response to Bitcoin nor network effects, prices, exchanges and all that stuff which might start to involve empirical real-world measurements.
Throw all that external stuff away and just look at the core Bitcoin concepts and then look at a NAND gate truth table. We know 100% for sure that the entire Bitcoin algorithm can be reduced to just NAND gates, that’s a basic, fundamental result of computing…
However you can stare at a NAND gate truth table for a very long time and not even get the slightest idea that Bitcoin exists.
Reductionism does not rule the world… it has it’s useful place, but it isn’t the tool for all jobs.
You do not even understand the definition of synthetic a priori, Tel, because that is not an example of it.
What is it then?
By Kant’s definition Computing Science (at the theoretical level anyhow) cannot be “a posteriori” because no empirical measurement is required to derive the results.
You claim it cannot be “synthetic” so by elimination that only leaves “analytic a priori” or in other words you are attempting to claim that just glancing at a NAND gate truth table is a complete education in Computing Science.
I doubt you would get far in the job market with that approach but give it a go because I’m fascinated to know what kind of responses you get.
The statement that digital computers use NAND gates is nothing but synthetic *a posteriori*.
You are kidding me right?
Any boolean expression can be reduced to NAND. That’s not an empirical result, it’s fundamental theory.
I’m not even talking about a physical gate made of transistors and stuff, I’m just talking about the truth table expansions. Write any boolean expression you like, then tell me which “a posteriori” measurements are required to expand out that expression.
Wolfram does the expansion for you including a circuit diagram, a truth table, a Venn diagram, and strangely also a cellular automaton.
http://www.wolframalpha.com/input/?i=BooleanConvert%28+x+%26%26+y+%26%26+z%2C+%22NAND%22+%29&dataset=&asynchronous=false&equal=Submit
If you talking about statements of logic as in truth tables, that is standard analytic a priori.
All programs that get compiled and executed are thus reduced down to logic expressions, truth tables, and ultimately NAND gates.
In that case “standard analytic a priori” would have to cover the entire software industry (not including the bits where the software interfaces with a physical device).
However, when you think about it, learning a NAND truth table is insufficient to teach you to program. There’s a guaranteed and mechanical way to decompose a program down into NAND gates, but there is no way to go in the opposite direction — from NAND gates up to a working piece of software. That’s the difficult part.
The demonstrable fact that it is difficult, it what proves Kant wrong.
Tel,
“In that case “standard analytic a priori” would have to cover the entire software industry (not including the bits where the software interfaces with a physical device).”
I guess this is exactly how logical positivists see it.
I too think there is a difference in saying “a bachelor is unmarried”, which really is nothing more than saying the definition itself “bachelor = unmarried and a man” which makes the sentence a pleonasm “an unmarried man is unmarried”.
However saying “7+5=12” is not a mere definition or a pleonasm. It is rather an application of the starting definitions. I can see how you can say that this result is already logically implied in the starting definitions, though it is of different quality then merely stating a definition which tells us nothing new. However that 7+5=12 is something ‘new’ that is not immediately clear from the starting assumptions. And this can be applied to the real world in a useful way. A mere definition cannot be applied to the world in a useful way.
I struggle in really getting the definition of what “analytic” and “synthetic” really mean. Depending on that interpretation I think you can make both standpoints work. To me it seems that it is not really about who is right (Kant or Frege) but rather they defined those terms differently. Then the only question would be which viewpoint is better, not who is right.
Maybe someone could tell me where I should start if I want to delve deeper into this topic. Should I start with Kant or even earlier?
This is nonsense. Where do you get the notion positivists reject the law of non contradiction?
It must be one of your a priori fantasies as it has no empirical foundation at all!
“This is nonsense. Where do you get the notion positivists reject the law of non contradiction?”
Because MF labours under a grotesque caricature of modern empiricism, probably derived from Hoppe:
http://socialdemocracy21stcentury.blogspot.com/2013/09/hoppes-caricature-of-empiricism.html
It isn’t grotesque to notice the basic propositions of postivism. These are out of the mouths of the founders of it.
And MF was kind enough to confirm your speculation LK!
He’s being very agreeable today.
Apparently to Ken B, absence of evidence is the same thing as presence of evidence.
Yes, Hoppe’s arguments are a part of my convictions regarding positivism, but they aren’t monopolized by them.
For me, Liebniz, Kant and Mises form the strongest backdrop for why I think the way I do regarding positivism. Hoppe’s strength was in formulating already existing more disparate ideas.
But this is neither here nor there. I am not Hoppe, so anything LK says regarding Hoppe is an ad hominem against me.
“This is nonsense. Where do you get the notion positivists reject the law of non contradiction?”
The logical status of ALL propositions in positivism are that they are either hypotheses, subject to future falsification and non-apodictic, or they are analytic, in which case they are really just arbitrary verbal conventions.
There are no objective “laws” open to be known in positivism.
“It must be one of your a priori fantasies as it has no empirical foundation at all!”
You said it. It claims all knowledge is empirical, but at its base, it cannot help but be a priori, with contradiction.
The law of non-contradiction is, if positivism remains consistent, either a hypothesis about the world, subject to possible falsification, or it is just an arbitrary analytic convention about how people can manipulate certain terms.
There is no justification in positivism to claim that reality as such follows the law of non-contradiction, which of course is necessary for LK to claim that Murphy is certainly wrong.
“The law of non-contradiction is, if positivism remains consistent, either a hypothesis about the world, subject to possible falsification”
That is exactly what laws of thought ultimately are. Empirically, we have strong evidence that they apply to the macroscopic world we inhabit, but once we move to the world of quantum mechanics it is not clear they all apply: the law of excluded middle may not apply to certain quantum mechanical phenomena, as noted by Quine, W. V. 1986. Philosophy of Logic (2nd edn.). Harvard University Press, Cambridge, Mass. pp. 86–87. We know this empirically, not a priori.
“There is no justification in positivism to claim that reality as such follows the law of non-contradiction
Rubbish: it follows with a very high degree of probability from straightforward experience. E.g., there cannot be (1) a cat on my kitchen table and (2) no cat on my kitchen table at the same time. Therefore the law of contradiction is sound.
And therefore, purchasing power cannot be two places at the same time. It resides either with the person who earned the money or else it is snatched away so that others who didn’t earn it have increased “aggregate demand”.
“That is exactly what laws of thought ultimately are. Empirically, we have strong evidence that they apply to the macroscopic world we inhabit”
You’re trying to have it both ways by failing to make these issues concrete.
For postivism, any claim to “laws of thought” are not at the same time “laws of the real world” in the objective sense. To positivists, any laws of thought are arbitrary and analytic only. There is no direct connection between these rules of thought, and reality itself. For positivists, the mental rule that non-contradiction can be opposed, is not rejected a priori.
At the same time, you claim that these “laws of thought” have “strong evidence” as true in the real world. But this is not apodictic. At best, the positivist could only claim that heretofore the positivist just so happens to have not personally observed them being falsified. Yet, and very importantly, the positivist if he is to be consisent, must admit the possibility that it could potentially be violated at some future time with the right observations.
“but once we move to the world of quantum mechanics it is not clear they all apply: the law of excluded middle may not apply to certain quantum mechanical phenomena, as noted by Quine, W. V. 1986.”
May not, or does not?
Even quantum mechanics experiments are necessarily treated by the researchers as following the law of non-contradiction. The conclusions made in quantum mechanics are of the form “nature is like this, but not that.” For example, “single electrons are assumed to exist in more than one point in spacetime at the same time….”….which of course implies that electrons behave like this, and not something else.
“We know this empirically, not a priori.”
Then why is the law of non-contradiction used a priori before any experiment is even run, by virtue of the experiment method itself presupposing it and cannot help but do so?
“There is no justification in positivism to claim that reality as such follows the law of non-contradiction”
“Rubbish: it follows with a very high degree of probability from straightforward experience. E.g., there cannot be (1) a cat on my kitchen table and (2) no cat on my kitchen table at the same time.”
Again, this is not something that a positivist can claim as apodictic. At best, he could only claim that it is a hypothesis, subject to possible future falsification.
“Therefore the law of contradiction is sound.”
Non sequitur. What you said above does not logically imply what you claimed here.
“Again, this is not something that a positivist can claim as apodictic. At best, he could only claim that it is a hypothesis, subject to possible future falsification.
Correct. Just as the belief that there is
(1) an external world of matter independent of minds or
(2) that the earth orbits around the sun or
(3) the universe began via the Big Bang around 13.8 billion years ago
are all scientific theories that are synthetic a posteriori — their truth is contingent, and at best extremely probable, never apodictic.
Modern science gets along perfectly well without apodictic truth in its fundamental theories, but were’re expected to believe that the Austrian cult has apodictic truth about economics.
“For postivism, any claim to “laws of thought” are not at the same time “laws of the real world” in the objective sense. “
If this is supposed to mean that “laws of the real world” in the objective sense are supposed to be known with apodictic truth, it is plainly ridiculous.
Not even scientific laws can be known as universally and necessarily true.
Witness the evidence reported recently that the “fine structure constant” – a fundamental law of nature – may not be constant throughout the universe:
http://www.newscientist.com/article/dn19429-laws-of-physics-may-change-across-the-universe.html#.UicDUX83dLo
“Correct. Just as the belief that there is”
“(1) an external world of matter independent of minds or”
“(2) that the earth orbits around the sun or”
“(3) the universe began via the Big Bang around 13.8 billion years ago”
No, those are empirical statements, not a priori statements. Empirical statements are grounded on experience. A priori statements are not.
The statements to which I refer are not empirical statements.
You cannot a priori reject the existence of true a priori statements, without contradiction.
“are all scientific theories that are synthetic a posteriori — their truth is contingent, and at best extremely probable, never apodictic.”
“Modern science gets along perfectly well without apodictic truth in its fundamental theories, but were’re expected to believe that the Austrian cult has apodictic truth about economics.”
Modern science MUST treat true scientific statements as apodictic, or else there would be no advancement of knowledge. The only way science can progress is if over time, true apodictic statements are discovered which ground the validity of subsequent statements.
Positivism in practise tends to be rationalist, that is, not actually positivist.
“If this is supposed to mean that “laws of the real world” in the objective sense are supposed to be known with apodictic truth, it is plainly ridiculous.”
Is that statement you made right there apodictic, or is it merely your hypothesis, in which case it cannot be regarded as actually “ridiculous”?
There are laws of the real world that are apodictic, although they are few, relative to the total number of possible statements.
“Not even scientific laws can be known as universally and necessarily true.”
Is that a necessarily true statement regarding the powers of the human mind, or is that merely your hypothesis, which can possibly be falsified?
“Witness the evidence reported recently that the “fine structure constant” – a fundamental law of nature – may not be constant throughout the universe:”
The fine structure constant is not claimed to be a true synthetic a priori statement by those who claim the existence of true synthetic a priori statements. It is categorized as an empirical statement, which requires observation.
If you see logic as empirically falsifiable, I don’t see how you could view it as analytic a priori.
On the contrary, laws of logic can be conceived as either analytic a priori or as synthetic a posteriori — exactly as geometry in different contexts can be conceived as analytic a priori or as synthetic a posteriori.
No, the laws of the geometry are not a posteriori. They are universally a priori.
I think what Lord Keynes’ point about geometry is that if a pure mathematician uses the Pythagorean theorem, he’s engaging in an a priori endeavor. On the other hand, if an architect uses the Pythagorean theorem in building a house, there’s not the same a priori guarantee that the Pythagorean theorem will work in the real world. All we can say is that empirically, the Euclidean geometry is a pretty good approximation for a lot of practical situations.
I think you’re conflating two separate issues.
The Pythagorean isn’t a statement concerning the strength of physical materials. It is only a geometric relationship.
The Pythagorean theorem will always “work” in the real world because it is unthinkable for a plane right triangle shaped object to violate it. Whether or not we find or create a perfect plane right triangle is besides the point.
The fact that people are using Bitcoin as a medium of exchange does not prove they are using it as a store of value. Money has a dual purpose (some argue that’s half the problem) and the line between exchange and store is necessarily a blur because it depends on the statistical property of how long people hold Bitcoin before they spend it.
“You’re saying Bitcoins are not used as a unit of account and store of value?”
Murphy did not say this. He made no contradiction.
Please read carefully before making false propositions.
You should consider changing your name to Lord Troll.
Lord Keynes,
there is a distinction between “medium of exchange” (which falls under what Mises calls “category of action”) and “money” (which is a subset of media of exchange and for which even Austrians have several definitions and many of them vague). In my recent presentation at the CryptoCurrencyCon I provided five different definitions of “money” from Austrian sources. Furthermore, medium of exchange is derived from the act of exchange, whereas store of value and unit of account are derived from other types of actions (hoarding and economic calculation). Bitcoin is used for hoarding, so arguably it could be said to be a store of value (I’m not insisting on this, just saying it’s plausible). It is however almost never used as a unit of account (either in bookkeeping or for economic calculation and planning). But even then, defining money as a unit of account is just one out of the five definitions I found.
Media of exchange that are not money, yet are highly liquid are in Austrian terminology called “secondary media of exchange” (Mises) or “quasi-money” (Rothbard). Examples are blue chip stocks, commodities such as gold, US government bonds or credit issued by non-banks with good reputation. Just google for it. And I would say Bitcoin falls into this categoy as well, even though it has been climbing up on the moneyness scale.
Let’s think about this people. Why did anyone exchange dollars for bitcoin back in 2009? So they could then exchange the bitcoin for another good/service? Obviously not, because the dollars could be exchanged for the good/service much more easily and pretty much no one accepted bitcoin for goods/services.
What Mises was saying is that something cannot become a medium of exchange without first having a non-exchange value/use. Which should be obvious as you run into the chicken and egg problem. Something has exchange value because people are willing to exchange goods/services for it, but people are only willing to exchange goods/services for it because it has exchange value?
Bitcoin’s original non-exchange value was as a speculative investment. People bought bitcoin expecting it to rise in value. Why did they expect it to rise in value? Because other people would buy it also expecting a rise in value(ponzi). Because it would eventually become a medium of exchange. Because people can be scammed (Nigerian email scam).
Key blunder is this part right here:
“Bitcoin is clearly, unequivocally a medium of exchange right now. There are websites where people trade Bitcoins directly for “real” goods. There are people who will sell a “real” good for Bitcoin, intending only to trade away the Bitcoin in the future for something else “real.” Thus Bitcoin is right now a medium of exchange, no doubt about it. ”
So many huge mistakes in so few lines.
First of all, the stores do not price things in bitcoin. They all price them in local currency, and then translate that price into bitcoin at the current mtgox rate. Think about it. A few months ago bitcoin dropped in a few hours from $266 to less than $100, and to this day has never risen back above $150. Do you think all those stores will give you $266 worth of whatever they sell for $150? Do you think they can survive with such a business model? They make good and sure that every change in bitcoin’s price instantly converts to a change in the price of their wares. If a bitcoin drops 5% in value at 12 PM, then the price of their wares will not be the same in bitcoins, but will change in a few seconds to reflect that drop. What will be the constant price through all the vagaries of bitcoins wanderings? The dollar price.
Same thing with the customer. If bitcoin rises by 10% today, but the price of the widget in bitcoins does not drop by 10%, do you think he will still buy at the bitcoin store? Or will he go to amazon.com?
So that the bitcoin is not the medium of exchange, the dollar is. Or do you think that credit cards are a medium of exchange, and travelers checks too? If you do, let me correct you. Credit cards, traveler’s checks, and bitcoins are all means of transmission of the real medium of exchange, the dollar. If you send a messenger boy to buy you a coffee, and give him a dollar to pay for the coffee, the medium of exchange is not the messenger boy. It is the dollar. Bitcoins are messenger boys, as we have shown in the previous paragraph.
They forgot to poll Frank Shostak, an adjunct scholar of the Mises Institute. Here is what he has to say [=exactly what I am saying]:
“Contrary to the recent hype, we hold that Bitcoin is not money but rather a new way of employing existent money in transactions.” Do you want me to google that for you, or can you find the article yourself?
[As an aside, Peter Schiff, who has schooled Bob in the past about the whole American economy and why it is was about to go into recession, forcing Bob to eat his words publicly, also was not polled, because Peter has come out that bitcoin is garbage and always will be, because it violates the regression theorem. No intrinsic value, is how he puts it. Doug Casey also was not polled, because he too has nothing but contempt for bitcoin, and for the same reason. Timothy Terrell… but more about him later].
Second big mistake is thinking that those stores that get payment in bitcoins take the bitcoins in order to buy something else. Remember, if A trades his horse for B’s cow, neither the horse nor the cow are media of exchange. Only if B doesn’t really want the horse, but wants to trade it later on for clothing, say, is the horse a medium of exchange. But those stores don’t take bitcoins to buy things, How absurd. [There is not enough stuff out there to buy if they they are taking in a serious volume of bitcoins. A pizza shop might take payment in bitcoins, but do you think the shop’s supplier of cheese and flour accepts bitcoins? No such place. Bitcoin is for people who deal with customers, not for wholesalers.] They are accepting bitcoins either to convert them instantly into local currency, or to hoard them, hoping they will go up in price. In either case, they are like a horse or a cow, or a messenger boy, but not media of exchange.
Finally, and this is the blunder only someone with a little common sense could understand, a medium of exchange, in this context, means something that is widely used. This cannot be emphasized enough, because it is the key blunder all those “professional economists” in the poll Bob mentions are making.
Twelve years ago, in 2001, when bitcoin was just a twinkle in the fraudulent eye of Namashaki or whatever his name is, Timothy Terrell, associate professor of economics at Wofford College in Spartanburg, SC, and an adjunct scholar with the Ludwig von Mises Institute, who was also not polled, anticipated the scam that is bitcoin and explained why it is doomed to fail.
His reason, and I quote: “One of the consequences of the regression theorem is that money must arise from a commodity already in general use. If there is no nonmonetary use for the good, it will not develop the widespread demand that must precede its use as a medium of exchange.” [My many bitcoin articles elaborate on why “widely used” is so important.]
No, Bob, you do need an education in the basics of the regression theorem. But you will only consider something written by a professional economist. Lucky for you, you can google the mises website and find the articles by Shostak and Terell, and learn something. The Mises website also has an interesting take on bitcoins by Patrik Korda, and by Nikolay Gertchev, who holds a Ph.D. in economics from the University of Paris.
You also need an education in the basics of education. Here it is: Look at the ideas, not at the credentials.
Look at the ideas, not at opinion polls. What a sad, sad way of examining the merit of ideas, taking a poll.
Is this what AE has become in the hands of Bob Murphy? Will all his research be opinion polls from now on? Does your study guide to Human Action, when discussing Mises’s claims that we must look at the ideas, not the person stating them, contain a section rejecting Mises, and explaining that the way to go is opinion polls?
Go to Smiling Dave’s website, do a search for Bitcoin All In One Place, and educate thyself. To make it easy, here’s the link:
http://smilingdavesblog.wordpress.com/2012/08/03/bitcoin-all-in-one-place/
“First of all, the stores do not price things in bitcoin. They all price them in local currency, and then translate that price into bitcoin at the current mtgox rate.”
People in Europe do the same thing with US dollars. Does that mean US dollars are not a money?
Bitcoin is a medium of exchange because people are trading for it solely to trade for other goods. It just isn’t universal.
Your posts are crap.
US dollars are not a money in Europe. The Euro is the money there.
As long as you read my posts, that’s the best I can expect from you, it seems. So thank you for that.
Like I say, this venue is hostile, so you can just drop your further comments anywhere on my website.
You invite the hostility.
“US dollars are not a money in Europe. The Euro is the money there.”
But that’s my point. The same way people “price” US dollars in Europe is the way people “price” Bitcoins in an economy where Bitcoins are not the universal medium of exchange.
You yourself argue that shops that accept Bitcoin in order to convert it into a local currency, or in order to hoard it. But both of these actions are a part of indirect exchange, so you refute your own arguments. I know you invented your own definition, which says that only one-step exchanges are indirect exchanges, but you won’t find anyone, in particular out of the Austrian school who takes that seriously. That definition has no support in the Austrian writings, makes no economic sense and causes ridiculous conclusions. As JP Koning explained on his blog, an overwhelming majority of monetary transactions in the current economy involves multiple steps. The four trillion daily forex market, to you, is not indirect exchange. Interbank clearing is not indirect exchange and neither is international trade (because, obviously, at least one party needs to use a different currency than the local one). I find it funny how many absurdities people are willing to go produce in order to avoid cognitive dissonance.
You quoting Shostak show exactly the same issue. Shostak’s implied conclusion is that while Bitcoin is not money (because it is not treated as a final means of payment, which is one of the definitions used by Salerno), it is a medium of exchange. That went by you unnoticed.
Last but not least, your approach is not even acatallactic but nonsensicalaltogether, because rather than explaining the exchange value of Bitcoin, it denies it exists.
Oh, yes. Walter Block [look up his credentials if you have to], who has called bitcoins a malinvestment, was also not polled.
Smiling Dave wrote:
Oh, yes. Walter Block [look up his credentials if you have to], who has called bitcoins a malinvestment, was also not polled.
Hey everyone, I just want to draw your attention to the fact that Walter Block is in fact the second guy in Wenzel’s poll. So Smiling Dave either can’t read or is a liar.
Everything else in his comments on this topic is equally wrong, it’s just not as easy for you to verify.
“So Smiling Dave either can’t read or is a liar.”
Both.
Thank you for pointing that out. Edited the article to omit Walter Block from the list.
As for the rest of my article being wrong, maybe you should take a poll and decide that way, Bob.
Note that whenever I bother to comment here, Bob doesn’t dare address the actual ideas, but rather slings a little mud and is content with that.
Well, except from the time when I pointed out that he blundered about Say’s Law and he backtracked from his original position to an equally untenable one, at the same time denying that I was right.
At any rate, this is a hostile venue. If you hve anything to say,guys, you know my website.
Now you’re just trying to drive traffic to your little-read website.
Yeah, he bonered, but take it easy, Bob. Cast the first stone and all. Pot kettle, etc. I seem to remember a certain someone admitting they hadn’t even read David Graeber’s book when they attempted to respond to assertions made in it.
As for SD’s post, nothing’s wrong with it or its contents. “Not easy for you to verify” is code for, “maybe he’s got me here.”
Hi Bob,
I think another thing to bear in mind is that regardless of what we could consider the source of Bitcoin’s originary value it’s distinguishing characteristic as a digital, cryptographic medium of exchange has only helped it gain value through other uses that have further accelerated this strengthening in value as a medium of exchange. The case that immediately comes to mind is as a channel for wealth transfers, especially as seen recently in countries like Argentina and India. Furthermore, can we really be sure Gold and Silver would completely out-compete Bitcoin? Since it has already attained purchasing power, in its favour already are its superior, quicker transferability and portability, as well as better discretion.
So, am I saying Mises was wrong? Not necessarily. If you want to reconcile his claims with the existence of Bitcoin, you can argue along the following lines: What actually happened is that in the very beginning, when Bitcoin was first introduced and no one had any idea of its purchasing power, the very first people to trade for it did so because it provided them with direct utility because they knew there was at least a chance that it would serve to chafe the governments of the world with their printing presses.
Although you don’t endorse this argument yet, what are the implications of it if it is true? Could any random paper currency become a money on the free market without being strictly linked to gold (e.g 5 Rothbards = 1 ounce)?
“Although you don’t endorse this argument yet, what are the implications of it if it is true? Could any random paper currency become a money on the free market without being strictly linked to gold (e.g 5 Rothbards = 1 ounce)?”
I would believe it would be possible if the random currency (Rothbards) were traded enough. That ‘enough’ trading with some goods or a particular good or service would eventually establish an indirect link to gold because of the link of those goods or services to gold.
Raja
Published a polite, for me, response to this article:
http://smilingdavesblog.wordpress.com/2013/10/13/bitcoin-is-right-now-a-medium-of-exchange-no-doubt-about-it-seriously/
BTW Lord Keynes does not know the diff. between med. of exch.and money. Mises defined the two terms carefully both in Money and Credit and in HA. Hit the books, LK.
My polite, for me, suggestion would be to not spout a bunch on nonsense in a long reply before you try to get people to read your blog. I might’ve clicked over had you not exposed your ignorance already. And I could probably forgive your ignorance if you weren’t so arrogant about it.
Let’s stick to the ideas, and not stoop to personality slanders.
Now you may ask, why do I tweak Bob’s nose here in the comments, mentioning how he evades actual discussion, if the point is to discuss ideas?
The answer is simple. I am hoping he will be goaded into addressing the ideas, and not content himself with nitpicking about my mistakenly saying Walter Block was not polled.
As I say, this is a hostile venue, so I rarely check in here. Please send all comments to my website if you want to be sure I see them.
No thanks, your website is of no interest to me.
MF,
The regression theorem gives more stringent criteria than that. To requote Mises:
Bitcoin does not satisfy these criteria. Bitcoin was NOT already previously an economic good; it had no consumption value nor is it a capital good used in the production of other economic goods. Before it came to be a medium of exchange it had no exchange value.
Fiat money can skirt these criteria because it’s exchange value is enforced by government. Countries can even introduce new fiat currencies that have no history of commodity because they can coerce citizens into using their fiat bills. Bob’s point is that bitcoin has no such guaranteed backing. No one can force you to accept bitcoin as payment.
The question, then, is why do bitcoins circulate as a medium of exchange, given that: (a) they were not previously an economic good (no consumption or capital good value), and (b) no one can force anyone else to accept bitcoin as payment? If your response is going to be “because people accept dollars in exchange for bitcoins”, that doesn’t answer the question at all. We are still left wondering why people would give up dollars – which the government enforces as legal tender for all debts public and private – to receive bitcoins, which were never previously an economic good and which have no such coercive backing of their value.
The only way to reconcile Mises’ regression theorem with the reality of bitcoin is, as Bob wrote, to argue that bitcoins were previously an economic good in the sense of providing direct utility to people who felt that by participating in this project they were sticking it to governments, although this seems a bit dubious.
“The regression theorem gives more stringent criteria than that. To requote Mises”
The quote by Mises is consistent with my argument that you quoted above that. I tried to emphasize “exchanges”.
“Bitcoin does not satisfy these criteria. Bitcoin was NOT already previously an economic good; it had no consumption value nor is it a capital good used in the production of other economic goods. Before it came to be a medium of exchange it had no exchange value.”
Bitcoins do indeed satisfy the criteria laid down by Mises. Before Bitcoins were used as a MEDIUM of exchange, they were exchanged for goods from their initial owners. How else did Bitcoins transfer ownership hands?
“Before it came to be a medium of exchange it had no exchange value.”
That’s just wrong. Prior to Bitcoins being a medium of exchange, they did have “value”. That value is reflective of the goods that were exchanged for Bitcoins.
“The only way to reconcile Mises’ regression theorem with the reality of bitcoin is, as Bob wrote, to argue that bitcoins were previously an economic good in the sense of providing direct utility to people who felt that by participating in this project they were sticking it to governments, although this seems a bit dubious.”
No, that is not necessary. The regression theorem does not require a commodity to be valued for its own sake. It only requires that the chain of goods, heterogeneous or not, in the chain of exchanges dating back into the past, were at some point used as final goods. Bitcoins themselves don’t need to be final goods. The goods traded for Bitcoins prior, and the goods traded for those goods even prior to that, and so on, must at some point in the past be final goods.
” The regression theorem does not require a commodity to be valued for its own sake. It only requires that the chain of goods, heterogeneous or not, in the chain of exchanges dating back into the past, were at some point used as final goods.”
Again, to quote Mises:
“Nothing can enter into the function of a medium of exchange which was not already previously an economic good and to which people assigned exchange value already before it was demanded as such a medium.”
What you are saying is very different from what Mises is saying. Mises clearly states that the commodity that is the medium exchange must have previously been an economic good. That is completely different than saying it must have been exchanged for something in the past that was an economic good even if the medium itself never was. I don’t see how you can continue to conflate the two.
Before Bitcoins were used as a MEDIUM of exchange, they were exchanged for goods from their initial owners. How else did Bitcoins transfer ownership hands?
How do you know this? You’re saying people traded bitcoins simply to have them, not because they expected to be able to exchange them at a later date. That is a strong claim to make without any evidence.
“That’s just wrong. Prior to Bitcoins being a medium of exchange, they did have “value”. That value is reflective of the goods that were exchanged for Bitcoins.”
Again, you have not provided any evidence that the value of the bitcoin was due to anything beyond its value in exchange, which is to say that people expected they could trade the bitcoin for economic goods they value.
This is all very convincing except you are forgetting bitcoin jugglers. For decades now itinerant bitcoin jugglers have been a staple of fairgrounds and small circuses. They needed bitcoins not for exchange but for their livelihoods.
Of course Bitcoin fulfils that criterion. Bitcoin did have an exchange value before it was used as a medium of exchange the first time. This is evident both from empirical data, as well as from Mises explaining why it is not possible for it to have happened otherwise.
Bitcoins probably aren’t too smart to use. A transaction can’t be reversed in the case of fraud or identity theft. There are also several instances where servers and generators for the system have been hacked. The system doesn’t have much redundancy leading to spectacular failures where one can lose access to their bitcoins.
That’s… extremely inaccurate. Yes, direct transactions in Bitcoin cannot be reversed in case of fraud or theft… just like cash. That’s why you have escrow services.
There are no instances of servers or generators for “the Bitcoin system” being hacked. There is no centralized system. There’s nothing that can be hacked. The blockchain exists independently on every full Bitcoin client at once (many tens or hundreds of thousands). There is no way that there can be a spectacular failure of the system itself that causes one to lose access to bitcoin.
One last thing. Guys, forget about bitcoin for now. it’s over your heads. But why am I the only one calling out Bob for using opinion polls as deciders of truth? I hope at least some of you are familiar with the logical concept known as reductio ad absurdum, which I am going to use now.
1. Bob thinks opinion polls of professional economists, some of them Austrians, is a valid way of deciding the truth.
2. But an opinion poll of professional economists right before the Great Depression overwhelmingly concluded that everything will be fine.
3. Therefore, according to Bob, there was no Great Depression.
I leave it to the reader to make up a few more examples and see that Bob thinks 1. QE is a great idea. 2. Ben Bernanke saved the country from recession. 3. There never was a housing bubble, and we are not in a recession now, because polls before it happened said it would not happen. 4. Austrian Economics is totally wrong. 5. John Maynard Keynes is a god, and his book is full of deep economic truths. 6. The Fed has already tapered off QE, because earlier polls of prof ec. show they all said it would do so.
Need I go on?
Bitcoins are clearly over your head.
Opinion polls? Nonsense. Universal medium of exchange requires the existence of more than just you to agree. It isn’t ad populum. It is tied up with the very meaning of UNIVERSAL medium of exchange.
Go back to the books SmilingDave, you’re falling behind.
Bob, we’re in complete agreement.
The “utility” of Bitcoin was, early on, its novelty. The idea of Bitcoin was its value, and exchange did occur “just because I want to”.
I’ve often argued that “way back when”, the things people possessed were real and tangible things. Rocks, metals, wood, art, whatever. Some of these things because used as “money”, and once the social mechanism of “money” was invented, understood, and wide spread, then the material things used as money became more “refined” in the social sense. Good as gold, as it were.
Bitcoin didn’t need to invent the idea “money” because the idea, the social function of a medium of exchange, already existed. Bitcoin could be easily utilized AS “money”, a medium of exchange, because it was designed to be attractive in that role.
The US Dollar was originally pegged to silver. The Euro was defined by its exchange rate with Europe’s previous units when it was introduced, and each of those was, way back when, each originally tied to something like silver or gold that people had valued before.
The only unique aspect of Bitcoin is that no one declared it to have value (as compared to something else) at its start. It’s original value in exchange was purely what the people who exchanged it wanted it to be, by their own measure of the utility of poking their thumb into the eye of Leviathan.
So even Bitcoin satisfies the regression theorem. How much is sticking your thumb into the eye of Leviathan worth to you?
I think that’s a big part of it. Also people were already comfortable with online transactions, so “money” in this sense was already virtualized before Bitcoin came along.
Wait a moment, the US Dollar originally was silver!!
“Okay so I figured out why bitcoin and the USD is not and can not be currency.
Currency is supposed to be a measurement of value. It is supposed to represent the value of something. It does other things but mostly a representation of value.
If you look at every system of measurement known to man every one of them is dependent on a unit of measurement. That unit is imaginary it doesn’t exist accept in the shared consciousness of man.
An inch is an inch because we say so, same thing with gram, meter, foot,gallon. Every system of measurement requires a constant that doesnt change and the only thing that creates that constant is agreement.
The problem with currency is that it is a unit of measurement without a constant, it can not be defined and the only way to give it a constant is for people to start accepting it as a constant.
I suggest 1 unit of currency is equal to 1 joule of work.
The hard limit to bitcoin and the fact that it cant be defined bar it from ever being a measurement of value. Measurements dont change.”
The first argument is that value is subjective but all units of measurement are subjective until everyone accepts them then they become objective to mankind. Unit is defined as “a quantity *chosen* as a standard in terms of which other quantities may be expressed.”
REPLY — Well I don’t think this is right
Currency has value because of what it does
ChrisandAmber North
10/8, 4:50pm
ChrisandAmber North
No it is just a representation of value. It is a measurement of a concept. It is not inches that have value but the things they measure. Saying currency has value is like saying pounds have weight or inches have length.
I think we’ve passed a milestone here. In a big bitcoin discussion, I haven’t had to answer any questions — or correct any misconceptions — about the technicals of Bitcoin itself.
Dear professor Murphy,
I have tried to analyse the regression theorem with respect to Bitcoin extensively, for example here:
http://www.economicsofbitcoin.com/2013/09/professor-walter-block-is-clueless.html
Unlike most people who expressed their opinion, I actually gathered empirical data and attempted to match it to what Menger and Mises claim is supposed to happen.
Thank you for the Mises’ quotes you found explaining that the purpose of the regression theorem is to explain the origin of the exchange value of a medium of exchange, rather than only that of money. I wasn’t aware of these quotes.
Other writers that have tried to analyse it were Konrad Graf: http://konradsgraf.com/blog1/2013/2/27/in-depth-bitcoins-the-regression-theorem-and-that-curious-bu.html and Daniel Krawisz: http://themisescircle.org/blog/2013/07/02/the-original-value-of-bitcoins/
Have a nice day,
Peter
Thanks Peter. Others have also told me that you’re The Man when it comes to Austrian analysis of Bitcoin.
1. A “good” is a means to a subjective end or purpose of an individual.
2. Commodities may be valued by individuals for their direct use value or their exchange value.
3. Goods are commodities valued by individuals for direct use. Individuals consume goods in order to achieve subjective ends.
4. Monetary commodities are not valued for direct use. They are valued purely for exchange.
5. Mises regression theorem says that a commodity must begin from a condition of being valued 100% as a means for directly achieving ends before it will ever evolve into a commodity that individuals value purely for exchange.
Bitcoin seems to violate the theorem. But when you “think about it”, they always say that one of the “ends” that pre-monetary gold directly serviced was “ornamentation”. Well, hell just about anything that’s at all scarce is likely to be valued as a good by all those people on those dumpster diving TV shows to satisfy their “ornamentation” desires–including bitcoins.
So, I think bitcoin should make us stop and re-evaluate our understanding of the money regression theorem with respect to gold. If 99% of the pre-monetary gold in direct use was for ornamental statues of Baal and only 1% was for soup bowls, then how different is that from bitcoin’s evolution?
The IMG economic experts panel had a poll recently. The question was “A bitcoin’s value derives solely from the belief that others will want to use it for trade, which implies that its purchasing power is likely to fluctuate over time to a degree that will limit its usefulness.” Only 3% of th eexperts disagreed. Don’t know if this has any relevance.
http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_8qRwhHaLc7b5Sp7
Two articles:
First one proves, with explicit quotes from Mises, that a medium of exchange must be in wide demand. Careful research conducted in the article shows Mises meant that it is almost as widely demanded as money itself, which everyone wants.
http://smilingdavesblog.wordpress.com/2013/10/15/about-a-medium-of-exchange-having-to-be-in-wide-use/
Second one proves that even if we pretend for the sake of argument that for some reason bitcoin is today a medium of exchange, that this must be a temporary phenomenon. There is no kickstart effect. Proves this with explicit quotes from Mises, and from history. Explains praxeologically why the kick start effect is a mirage.
http://smilingdavesblog.wordpress.com/2013/10/16/the-kickstart-fallacy/
The value of bitcoin isn’t just as a commodity, but as a potentially anonymous global transaction system. That’s what seems to satisfy the regression theorem.
One thing the bitcoin enthusiasts have forgotten about is Gresham’s Law. For those who need reminding, it basically states that as long as the dollar is legal tender, meaning you are forced to accept it in payments, then people will spend their dollars and hoard whatever money they perceive as superior.
Which is exactly what is happening now to bitcoins. The tiny amount of people who know bitcoins exist overwhelmingly do not spend them at all. They are so positive bitcoin is superior to dollars, [especially since bitcoins will go up in price forever, they think] that the moment they get their hands on a bitcoin, they hoard it. 97% of all bitcoins have not ever been used to buy anything.
So that bitcoin has no chance whatsoever. If the bitcoiners bang the drums about how great bitcoin is, then people will hoard it, but never use it as money. If they try the reverse, and tell everyone what garbage bitcoin is, then, since no legal tender laws protect bitcoin, nobody will bother with it in the first place.
What about the small amount of people today who do buy things in bitcoin? They are exactly what I described them as, dummies. They have not figured out that whether bitcoin is better than their local currency, or whether it is worse, they are better off not using it to buy things. if you think it’s better, hoard it. if you think it is worse, don’t touch it in the first place.
Is there a network effect for stupidity? Can stupidity be kickstarted? You know what Abe Lincoln said, and the botcoin mania proves yet again. You can fool some idiots all the time, and everyone, maybe , in the short term, but long term, there is no network effect for stupidity.
Smiling Dave,
your portrayal of both Gresham’s Law and the current laws is invalid. Almost nobody in the US is forced to accept dollars, ever, and even if they were, that would still be an insufficient condition for the dollar pushing out other media of exchange.
Your portrayal of the economic relevance of “hoarding” contradicts the fundamentals of the Austrian school. If you took Murphy’s class about ToMC, you might understand it. But even then, as I showed in my master’s thesis, the monetary velocity of Bitcoin is higher than M2 of the US dollar.
I’m having a hard time parsing how you could possibly believe what you just posted. You’ve completely misstated Gresham’s law, for one thing. The rest is nonsense, but the misstatement of Gresham’s law is unforgivable.
If you are talking to me and not to Pete, this follow up article is for you:
http://smilingdavesblog.wordpress.com/2013/10/23/redditors-save-bitcoin-from-greshams-law-or-did-they/
Proof Positive That Bitcoin is a Bubble. No Regression Theorem, No Gresham’s Law, Just Basic Stuff in Simple Language.:
http://smilingdavesblog.wordpress.com/2013/10/24/proof-positive-that-bitcoin-is-a-bubble/
Of course, the reg thm and G’s Law arguments are also correct. Bitcoin is like a a man dying of old age who has been run over and stabbed as well.
Here’s Mises in Human Action [Chapter 21, section 6]:
“The regression theorem establishes the fact that no good can be employed for the function of a medium of exchange which at the very beginning of its use for this purpose did not have exchange value on account of other employments.”
A “fact”. Not a “we cannot conceive”.
My case for bitcoin-as-money relies on the definition of commodity, for something must operate as a commodity with no exchange value (so it only has the subjective value associated with barter economies and exchanges) prior to being a commodity with exchange value (saying nothing of its non exchange value).
Can we class bitcoin as a commodity? Does it divisibility preclude it as a commodity? Is it a trade token foremost and thus not a commodity? I can’t answer these questions and would like somebody with more “Umf” to tackle the question.
No Umf needed for this simple q. Lets start from first principles. Why does something need to begin as a commodity? Because if it’s starting off as money, how do you know how many bananas you can buy with that money? How can you be sure the grocer will even want your newfangled money that nobody ever heard of? In other words, money has to have a long past behind it, said past letting you rest assured you know what you are getting, and everyone else knows it, too.
So where does that past come from? From being a widely coveted thing for along time, coveted obviously for a non exchange use it had. All that is summed up in one simple word, “commodity”, but of course that’s just shorthand for “widely coveted and easily traded for plenty of things I want.”
When was bitcoin such a thing before it was used as money? Answer: Never.
As for infinite divisibility, that’s neither here nor there according to this analysis.
Source for all this: HA and Money and Credit. See earlier links.
[…] as I mentioned in this previous post, I am hearing a lot of self-described Misesians make arguments against Bitcoin that prove far too […]