18 Feb 2021

Block & Barnett vs. Murphy & Mises

Austrian School 24 Comments

I don’t like their chances…

Walter recently sent me his 2020 critique in the Review of Economic Perspectives (co-authored with Bill Barnett) of my 2019 QJAE article in which I weighed in on the fractional reserve banking debate.

Episode 181 of the Bob Murphy Show (which hasn’t dropped as of this writing, so that link might be broken depending on when you read this) features Walter and Bill debating/discussing me on the substantive point, namely, can newly discovered gold–even in a free society with no central bank, commodity money, and 100% reserve banking–cause the Austrian boom-bust cycle?

In my 2019 paper, in order to show that Mises himself thought fractional reserve banking per se caused the business cycle, I quoted his view that newly discovered gold could cause it too, if it hit the loan market before the rest of the market had a chance to fully adjust to the new influx of commodity money. My rhetorical point was that, if you understood Mises’ position vis-a-vis gold, then it would obviously follow that FRB per se caused the business cycle, not just “too much” FRB as Selgin & White would have it.

Anyway, Block & Barnett hit back on this point, arguing in their 2020 paper that in a free society, newly discovered gold couldn’t cause a business cycle, even in principle. However, they seem to have misunderstood the layout of my own argument.

It’s not worth spelling out the details, I’m just warning readers that they should not trust Block & Barnett (2020)’s summary of what “Murphy argues in his 2019 paper.” They at times put words in my mouth that I do not in fact endorse.

To succinctly demonstrate that they are confused about what my actual argument is, I’ll offer just one example. In their conclusion, B&B write the following, and note that the initial quotation (which I put in italics to clarify) is from my own paper (i.e. they are quoting me in the beginning of the block quote below). Note that the “[of FRFBs]” is added by Block & Barnett, NOT by me. This is part of the confusion–Block and Barnett are wrong to add “[of FRFBs]” there; that’s not the camp to which I was referring.

The claim [of FRFBs] — from Mises and Hayek through Rothbard up to writers such as Salerno in the present day — has always been that credit expansion sets in motion an unsustainable boom.” That is, according to those thinkers and Murphy, commodity credit in the form of new commodity money, both in principle and under typical conditions, has the same distortionary effects as new circulating credit; to wit: such additions to the stock of commodity money and credit cause business cycles, and thus such additions constitute market failure. 

So let me now explain why the above block quotation from Block & Barnett is confused, and shows that they got mixed up with what I was doing in my paper.

First and most obvious, FRFB stands for Fractional Reserve Free Bankers. It is guys like Selgin and White. My paper was written against them. So to reiterate, when B&B inserted “[of FRFBs]” into that words quoted from me, they mixed up me with the target of my attack.

Second and less obvious, but still important: The claim I made in that quote is something Block & Barnett agree with too! To wit, credit expansion sets in motion an unsustainable boom. (Credit expansion is the issuance of new fiduciary media, in Mises’ terminology.) So Walter Block and Bill Barnett can be added to the list of thinkers, along with Murphy, Mises, Hayek, and Salerno, who would agree with that claim.

And yet, B&B quoted that and held it up as the thing they were knocking down in their 2020 paper.

24 Responses to “Block & Barnett vs. Murphy & Mises”

  1. guest says:

    “… namely, can newly discovered gold–even in a free society with no central bank, commodity money, and 100% reserve banking–cause the Austrian boom-bust cycle?”

    Thank you for bringing this up. I couldn’t fit this extremely important issue into other posts out of fear of the banhammer! Heh.

    Ok, so I think this particular issue is basically the only “weak” spot in my anti-crypto-currency views, and it had to be addressed at some point.

    The reason this is a problem area is because if I’m going to criticize fiat money (and, by extension, crypto currencies) on the basis that their lack of a link to use-value is what causes businesses to produce things out of sync with consumer preferences (what I consider the fundamental source of the boom-bust cycle), then I have to have an explanation for why an increase in the supply of gold can cause crashes (which I have admitted before on this blog).

    If both fiat/cryptos and commodity money are capable of causing crashes, then that suggests that gold is no better off at preventing the boom-bust cycle *at least as far as its quality of being a commodity goes*. And that would remove any use-value based objection to the use of fiat/cryptos.

    But I believe I’ve solved this issue for the anti-fiat/crypto position.

    The reason an increase in the supply of a commodity into the banking system can cause systemic crashes is not because it first created an unsustainable boom (which fiat does, and I hold that, by extension, cryptos do, too), but because there is a supply-and-deand reduction in the valuation of a commodity for which consumers don’t need so much of, now.

    A commodity money can cause crashes in an existing banking system that uses that commodity as money and for loans, but – and this is a thought experiment, here – only the introduction of fiat money in the absense of a banking system can cause the boom/bust cycle, whereas if you started a banking system entirely with a deposit of gold equal to the existing circulating gold (so that the suply of gold doubles, but does not increase thereafter), that could not cause a systemic crash or the boom/bust cycle.

    The reason gold can cause crashes in the banking system is only because of a legitimate change in consuer preferences for gold as a commodity, the same reason an increase in the supply of any good would reduce its value on the market. An increase in the supply of gold in the banking system isn’t sending false price signals, but merely satisfying a demand for gold sooner than certain speculators had anticipated.

    Whereas the introduction of token money (such as fiat and cryptoes) necessarily sends false price signals because there is no link to use-value.

    Fiat / cryptos = boom/bust; Gold = possible systemic crash but without the prior boom, resulting in a cheaper commodity, which is good for production. People would do fine in a banking system comprised entirely of gold that had occasional enormous increases in the supply of gold (eventually, people would naturally switch to something else as money, if the market and prices were left completely free of central planning interventions).

    • random person says:

      An increase in the supply of gold in the banking system isn’t sending false price signals, but merely satisfying a demand for gold sooner than certain speculators had anticipated.

      Gold can certainly cause false price signals if it’s produced by forced labor, which has happened too many times throughout history.

      It can also cause false price signals if the producers pollute land and water without proper agreement with and compensation to the locals, which also tends to happen a lot. Or if the producers force agriculturalists or other inhabitants off the land to make way for their gold production.

      Roman history records damnatio ad metallum, condemnation to the mines, as a punishment for things the Romans in power considered crimes (which might not be the same as what you or I would consider crimes). Some of the mines people were sentenced to work in would have been gold mines. Roman history records that those sentenced to work in the mines were sometimes mutilated.

      The Brazillian gold rush that started in the 1690s used a great deal of forced labor.

      There was some amount of forced labor involved with the California gold rush, though I’m unsure how much. One perpetrator recorded by history is Charles Perkins.

      I remember there’s a whole book, by Jules Marchal, about forced labor in the gold and copper mines of the Belgian Congo.

      In present day times, some of the gold produced in Ghana is tainted by forced labor.

      • guest says:

        “Gold can certainly cause false price signals if it’s produced by forced labor, which has happened too many times throughout history.”

        Remember, the price we’re concerned about is goods in terms of gold. So, forced gold mining labor would have nothing to do with the price signals of gold because it’s not a particular amount or change in the amount of gold that sets its value.

        Whether slaves mined all the gold or a bunch of gold meteorites landed on the earth, the supply is what it is, and there’s a certain demand for gold as a commodity.

        The demand for gold relative to its supply is what sets price on the market. How the supply increases or decreases is irrelevant.

        So, consumers set the value of all goods. If you’re a producer that sets a value on their merchandise out of sync with consumer preferences, then congratulations, you’ve become a partial consumer of your own goods in that you are producing goods which are not entirely intended to be sold (because otherwise, the producer would price them to sell).

        What causes the boom-bust cycle is being tricked into believing you’re richer than you are so that you make investments that consumer demand hasn’t justified.

        (It does also require that many businesses make such mistakes at one time, but I think that consistency in Methodological Individualism demands an explanation of what’s going on in a boom-bust cycle at the level of the individual business.)

        • random person says:

          The demand for gold relative to its supply is what sets price on the market. How the supply increases or decreases is irrelevant.

          But the supply of gold available on the market isn’t a given. And how the supply increases or decreases isn’t irrelevant. It’s dependent on labor to bring it to the market. And that labor matters. Now, I suppose if gold meteorites landed on the earth, then the labor might be rather minimal, but there would still be transportation involved to get the gold meteorites to the consumers.

          Considering that isn’t the typical scenario, gold production involves a lot of hard, dangerous work (especially if done without fancy machinery, which is how it was done throughout most of history, and how it is still done some of the time to this day). Furthermore, the dangers can afflict not only the miners, but also the other locals.

          When forced labor is not involved, people are less likely to do hard, dangerous work without whatever they consider adequate compensation for the danger and difficulty. So, the gold supply would be smaller, since gold mining, particularly artisanal gold mining, is not a particularly desirable profession, and to the extent it would still happen anyway, the gold would probably be sold at higher prices.

          However, when people are forced to engage in less desirable professions against their will, the costs can be much cheaper from the gold customer’s perspective. (Admittedly, this could happen whether the force was direct or indirect… i.e. it could be directly forced labor in the sense of sl***ry, or it could be indirectly forced labor in the sense of a bunch of people’s farms got razed and now they aren’t sure what to do other than mine gold.)

          But, you know there are other factors at play. A lot of torture and human suffering. And, if people who want to be farmers are forced to mine gold instead, that means a lower food supply. Greater susceptibility to famines. Basically, whatever those people could do with their lives, both for themselves and for others, other than mine gold, they are prevented from doing.

          But people who force others to mine gold (or do something else) are NOT just being tricked into making investments that consumer demand hasn’t justified. They are knowingly and deliberately prioritizing the desires of some consumers (e.g. gold buyers) over the desires of certain other consumers (e.g. people who just want to farm and eat and stuff like that) by means of torture.

          And these laborers, who are sometimes forced laborers, often die of silicosis. Even if they are freed at some point, or find a better job, they could still be dealing with lasting health problems for the rest of their lives, and health problems also cause both human and economic problems.

          And it’s also not just the question of whether or not the workers are there voluntarily. (That is a huge question, just, not the only one.) Gold mining can poison the local area with mercury, as Kevin Bales explains in Blood and Earth. (Note: Mercury is often but not always used in gold mining. It may depend on what tools the miners have available, or perhaps what sort of gold ore they are mining, but it is used some of the time, even if not all of the time, and often enough to be a significant problem in the world.)

          To go from ore dust to gold requires another ancient mining technique, one familiar to the forty-niners of the California gold rush, the innocent-sounding work of “washing.” Near the pounding site, close to a stream, rickety sticks and boards are assembled into long, narrow sloping tables. Like a dinner table, two or three feet wide and six to eight feet long, the washing tables slope slightly downward to ease the flow of water. The tables are covered with towels or sometimes a bit of thin nylon carpet. Once pounded to a very fine powder, the ore dust is mixed with water, stirred, and then slowly poured out at the top of the table. As the mixture ripples down the slope, the heavier gold particles begin to fall out of the water and are caught in the toweling or carpet. The quartzite dust is lighter and washes past and into a bucket at the bottom. Whatever ends up in the bucket is mixed and poured over the slope again for a second wash, and sometimes a third time as well. In time a sludgy black mud collects in the toweling, called simply “the black.” In yet another bucket “the black” is gently washed out of the toweling, making another batch of dark dirty water, but one with a difference.

          Left to sink to the bottom, the thick “black” sludge is scooped into a smaller pail or maybe one of the helmets. The worker doing this job moves carefully and thoughtfully, almost reverently, for this is the moment when the gold appears. From a safe place a tiny flask of mercury is produced, and some of it is dribbled into the fine dark mud. Watching intently, the miner carefully churns the mercury through the “black” with his fingers, finding the shining silver droplets and smearing them around. Now the magic begins, and beads of an off-white waxy paste appear, beads that can be pressed together into lumps. They are small and nondescript, but excitement grows as they form tiny waxy pebbles. These waxy nodules occur when mercury and gold bond together, the mercury absorbing two or three times its own weight in gold particles. Placed on a cotton handkerchief the waxy blobs are squeezed hard and most of the mercury passes through the cloth back into the bucket for more stirring and gathering of gold. The hard waxy ball left behind is set aside to be joined to others as they too are squeezed free of most of their mercury. More water is scooped into the bucket to further spread the mercury through the mud until no more waxy beads form. Then the bucket is emptied into the stream or spilled one more time over the washing table.

          The water that splashes into the stream is laced with mercury. It is easy to see how the mercury begins to flow into the bodies of the workers and the environment poisoning anyone and anything nearby. At one pounding and washing site I watched the mercury runoff flow into a rippling stream, and then I walked along the brook to see where it went. In just a quarter mile the forest opened and I found myself among a loose cluster of houses. On both sides of the stream were vegetable gardens that families watered from the stream. Goats and chickens, whose meat and eggs would be eaten by these families, nibbled and pecked in the grass and weeds and drank from the stream. Near the brook was a long yellow building of battered clapboard with shuttered windows and a wobbly tin roof, a hand-lettered sign above the door reading “Christ Apostolic Church International.” Children played in the churchyard and I wondered if they had been baptized in this stream as well. For the people living in this little village, and especially for the children, the poisoning would be slow but unstoppable.

          That mercury poisoning of the local environment is likely to have serious human and economic consequences. Not only that, the damage caused my mercury poisoning can be multi-generational.

          And the environmental pollution doesn’t happen only with the artisanal miners. Newmont, a Colorado-owned (legally owned, not necessarily morally owned) mining giant goes around stealing land from people in Ghana and using sodium cyanide to extract gold from ore. (When land is taken from farmers by force, it’s theft, even if the farmers receive some sort of “compensation” that was unilaterally set by the thieves without genuine negotiation.)

          https://www.sierraclub.org/sierra/2018-1-january-february/feature/women-ghana-battle-us-owned-gold-mine-for-land-and-livelihood

    • random person says:

      Also, governments can inflate paper fiat currency by simply printing more, and debase gold by diluting the gold with less valuable metals. The latter caused runaway inflation during certain time periods of the Roman empire.

      Cryptocurrency is valuable because of the math behind it. People want a currency that the government can’t mess with so easily. To open a bank account, or to do anything with your bank account, or get a credit card, or do anything with your credit card, there are a lot of rules you have to follow. Rules that don’t necessarily benefit the alleged owner of the money. I remember the first bank account I ever opened, the bank decided to close my account without refunding my deposit. I lost everything I deposited in that bank. And there was like, nothing I could do about it.

      Being on gold and silver doesn’t seem to have stopped the Roman empire from messing with its currency and disrupting the economic lives of its inhabitants, even if the methods were different.

      And it’s not just that. The same so-called “security measures” that make it hard to hide money from the IRS (and other tax-collecting organizations) also make it hard to hide money from domestic abusers.

      If you look at the Trezor hardware wallet devices (for cryptocurrency), they support the functionality to create plausibly deniable, hidden wallets.

      https://wiki.trezor.io/Passphrase

      So if someone is beating you up for information about your finances, you can point them to a low balance crypto-wallet to placate them, and keep your main crypto-wallets hidden.

      Nothing like that exists in the fiat currency world. And the IRS is unlikely to allow anything like that in the fiat currency world. And your options with gold are pretty limited to. You’d have to find a good hiding place for the gold, and that might be much easier said than done. It’s not like a passphrase you can store safely inside your head.

      • guest says:

        “Also, governments can inflate paper fiat currency by simply printing more, and debase gold by diluting the gold with less valuable metals. The latter caused runaway inflation during certain time periods of the Roman empire.”

        Yes. The printing of fiat money in excess of specie is functionally equivalent to debasing gold and silver with other metals in that both misrepresent the actual supply of the gold and silver.

        Cryptos also misrepresent the supply of the goods bought with it because cryptos were deliberately created with zero backing and therefore literally all crypto prices are the wrong price – it survives on speculating on the value another speculator will place on it, and it’s impossible for it to have any grounding in use-value (it has no uses other than speculation).

        To be sure, there’s nothing wrong with speculation, as such, but speculation eventually has to be right or wrong so that someone can make a profit or loss that is *not* based on just guessing. And since cryptos can *only* trade based on guesses, the speculation can never end.

        Those that accept cryptos for their gods are merely taking losses that they must pass on to someone else in order to benefit from the Ponzi Scheme. Cryptos are like playing Hot Potato.

        “People want a currency that the government can’t mess with so easily.”

        Ok, but people also want a currency that has value. And I’m not talking about *intrinsic value*, which doesn’t exist, but value that is linked to someone’s subjective ends.

        (A sandwich *does*, in fact keep me alive, and so one could reasonably speculate that investing in the production of sandwich ingredients has the grounding of someone actually wanting to eat a sandwich.)

        If all we had to do was play pretend in order to have a functioning economy, we can do that with literally anything at any made up price, or even nothing (since we’re just making up values, anyway).

        Turns out you can end poverty by getting other people to pretend you have something valuable when you don’t. You can run an entire economy on the fumes of pure speculation – who knew.

        How are so many Austrians not able to recognize the Keynesianism / John Law in cryptos?!

        (Aside: I, personally, do *not* value having my personal information attached to say, a car or a house, indefinitely, so I don’t think that using the blockchain [different from cryptos, with possible value outside of cryptos] to track the history of ownership is a great idea.)

        • random person says:

          Cryptocurrency has value to people because math has value to people. Of course, it’s not intrinsic (at least not in the sense of having the same value for everyone) because not all people value math, and those who do value math don’t all value math equally, but in so far as there are people who value certain kinds of math, and cryptocurrencies provides the kinds of math that certain people value, cryptocurrency has value.

        • Tel says:

          Cryptos also misrepresent the supply of the goods bought with it because cryptos were deliberately created with zero backing and therefore literally all crypto prices are the wrong price – it survives on speculating on the value another speculator will place on it, and it’s impossible for it to have any grounding in use-value (it has no uses other than speculation).

          There’s no crypto that ever pretended to have backing, nor any intrinsic value other than whatever the heck you want to pay for it. Sure, don’t buy it if you have come to the conclusion that the value is zero … no one forces you to buy it … but what exactly did they “misrepresent” ?

          As a disclosure statement: I do not own any cryptos although I probably will tinker around with Monero at some stage, when I have more time … but no I do not recommend that anyone put their life savings into crypto currency … it is highly speculative and risky. The point is that some people sometimes find it interesting for their own reasons, and it’s a new technology that might one day take off.

          • random person says:

            The first bank I ever opened an account with closed my account without ever returning my deposit, so I honestly can’t recommend anyone put their life savings in a bank account either.

            Also, according to US law, since I don’t have a financial adviser license I can’t legally give financial advice to anyone.

            Nevertheless, the first bank I ever opened an account with completely robbed me of my entire deposit, so while I can’t give financial advice, I do definitely feel that I can say that I really don’t like banks.

            • random person says:

              Also of interest, coerced debt and domestic violence go hand-in-hand

              She attributes much of coerced debt to the ease of applying for credit cards — often done online or by mail. Simply knowing someone’s personal information, such as date of birth and Social Security number, is often enough for an abuser to get his hands on a credit card in the victim’s name, then run up tens of thousands of dollars in debt.

              https://www.hppr.org/post/coerced-debt-often-follows-domestic-violence-survivors

              So in other words, shoddy bank security (so shoddy it should really be called “bank insecurity”) based on personal information that is often known to domestic abusers make it very easy for domestic abusers (usually but not always men) to steal from people (usually but not always women).

              A cryptographic private key, on the other hand, can be kept private in a way your government identification information can’t be.

              Although Littwin is wrong about this,

              “You could not have had coerced debt before we had mass access [to applications] and mass anonymity,” Littwin says.

              Actually, you can find cases of of “coerced debt” going back at least as far as the Roman empire, and probably longer. Of course, the methods were different, but in many cultures throughout history and going up to the present day, it was considered possible to “inherit” a debt that you personally never agreed to. Historically and in present times, this practice has often been used as a justification for forced labor across multiple generations.

              Also, going back to the domestic violence situations and coerced debt, a domestic abuser could simply beat or strangle or otherwise torment his victim until she or he “agreed” (under duress) to the debt. Anonymity was never required.

          • guest says:

            “There’s no crypto that ever pretended to have backing, nor any intrinsic value other than whatever the heck you want to pay for it.”

            Ok, but then why won’t anyone accept handuls of dirt in exchange for goods?

            You can’t offer the (arbitrarily) limited supply of bitcoins because once you decide you can make up the value of bitcoins (i.e. it has no link to use-value to ground the price in subjective ends), then supply is irrelevant because no one is preventing you from making up a different valuation along with a change in supply.

            Supply matters for prices when it’s a supply of something that satisfies subjective ends, not when the value of a supply is made up – because you can make up any value you want for any supply.

            So the arbitrarily limited supply of bitcoins is moot.

            People have ends they want to meet with actual physical things serving as the means. Those means are scarce. The demand for those means (based on people’s ends) given the supply is what causes prices.

            Bitcoins don’t act as the means for any end except speculation about another person’s speculation. It’s a Ponzi Scheme.

            Bitcoins aren’t even a money substitute (that is, a promise to redeem bitcoins in a particular good).

            (By “bitcoin” I usually mean “small b”, and the technology behind bitcoins I refer to as “blockchain”. They are separate economic concepts since “efficient delivery” of some thing cannot make that thing valuable.

            (For example, if Amazon allowed me to, I could use their efficient delivery system to sell you some doggy doo – I’ll even tell you that if you decide to buy it at the price of a pizza, that we can both tell people that it sold for some yesterday-price and that the fact that it has a yesterday-price is why others should value doggy-doo.

            (I doubt efficient delivery is what’s going to get people to buy doggy-doo.)

            The economics of why delivery can’t impart value is because value is subjective to the ends of an individual, and not intrinsic to the thing that is valued such that the thing, itself, is what sets part of its own value.

            So value can only be imputed backward through a structure of production – a diamond mine only has value because people value diamonds; bread machines only have value because people value bread.

            So, the thing being delivered must first be valuable in order for efficient delivery of that thing can be valuable.

            The blockchain may be valuable for efficient delivery or record keeping [let’s face it, blockchain doesn’t transfer anything, it just record-keeps], but that logically cannot be the thing that gives bitcoins their trade value.

            The technology, the math (as @”random person” mentioned), the security of transfers, the non-existent privacy in transactions – none of these can cause bitcoins to have value because delivery is a good [service] of higher-order than the thing being delivered, and value is only imputed backward through the structure of production.

            The only subjective end that bitcoins can have is the profit someone can from the Cantillon Effect of passing on their losses to someone else (handing someone nothing for something is not an exchange) who hopes to pass on their bitcoins to yet another speculator. Again, that’s a Ponzi Scheme.

            • random person says:

              Ok, but then why won’t anyone accept handuls of dirt in exchange for goods?

              Uhhh… have you ever been to a garden supply store?

              Also see:
              https://homeguide.com/costs/fill-dirt-sand-topsoil-cost

              People will certainly pay money for handfuls of dirt they consider to be of sufficient quality.

              Sorry, I am tired, and this is not a full reply to your comment, just one thing I feel like saying before crashing into bed.

              • guest says:

                Testing.

                (Responses aren’t going through.)

              • guest says:

                Oh, good, I’m not being cancelled.

                Ok, let me try this a piece at a time:

                “People will certainly pay money for handfuls of dirt they consider to be of sufficient quality.”

                The point was that they don’t accept handfuls of dirt as money.

              • guest says:

                I can’t get the next part to go through.

                Basically, I was saying I understand about the being tired.

                I responded to the comment about the garden supply store, but I basically was saying the same thing as what I was able to post.

                The supply store response was specific to the supply store, whereas the other response was more general. Same thing, though.

              • random person says:

                I mean, with over 7 billion people in the world, someone, somewhere, has probably tried using dirt as money.

                And, the reasons people don’t typically use handfuls of dirt as money isn’t because dirt is without value. If people did decide to use handfuls of dirt as money, it wouldn’t be a pyramid scheme.

                I suspect that the following are why handfuls of dirt are not typically used as money:
                * High quality dirt is *too* valuable to be used as money. It is absolutely essential for supporting large populations, which we tend to have a lot of around the planet. You want it to be out there helping food to grow, not being carried around from store to store.
                * Being kept in people’s wallets without access to the proper hydration, aeration, and sunlight could potentially reduce its value.
                * People who are not farmers, or otherwise experts in soil quality, might not be qualified to judge the value of any particular handful of dirt. People prefer a currency that is easier to count the value of.
                * It would be kind of heavy and messy to carry around everywhere to use as money. People prefer more lightweight currency that doesn’t leave stains.

                Again, if people did use handfuls of dirt as currency, it wouldn’t be a pyramid scheme. Dirt has real value. It could be a bad idea to use it as currency for other reasons, but it wouldn’t be a pyramid scheme.

            • random person says:

              Guest wrote,

              The only subjective end that bitcoins can have is the profit someone can from the Cantillon Effect of passing on their losses to someone else (handing someone nothing for something is not an exchange) who hopes to pass on their bitcoins to yet another speculator. Again, that’s a Ponzi Scheme.

              Bitcoin (and other cryptocurrencies) have other uses besides investment. For example:

              1. An immigrant working in a wealthier country may wish to send remittances home. (Remittances are like, when they still wish to financially support their family even though they no longer live with their family.) Even if the amount their family ends up receiving when they send money via Bitcoin or another cryptocurrency ends up being less than what they sent, because of transaction fees, price fluctuations, etc, it could still be substantially cheaper to send money home via Bitcoin (or another cryptocurrency) than to use the traditional banking system. This is especially the case of the traditional banking system of their home country is set up to rob the people of remittance money, e.g. like in Lebanon. In Lebanon, the “official” exchange rate between the dollar and Lebanese Lira is different from the black market exchange rate, and you can only withdraw in Lebanese Lira, and there’s a limit to how much you can withdraw per month, so, basically, the banks keep a lot of the US dollars people send their families from abroad and only let the people withdraw a little. With Bitcoin or another cryptocurrency, people can completely bypass the corrupt banks.

              https://www.elephantjournal.com/2021/02/the-biggest-bank-scheme-how-they-stole-my-money-estephan-haddad/

              www [dot] coindesk [dot] com/lebanese-bitcoiners-show-how-to-talk-about-crypto-at-thanksgiving

              www [dot] coindesk [dot] com/crypto-remittances-latin-america-geopolitical-tension

              2. Throughout the world, many people lack the government identification required to use banks. I can open an “account” with Bitcoin or another cryptocurrency without an ID, just by getting some software and generating a private key. True, I might not be able to use any of the exchanges that require KYC (Know Your Customer), but there are plenty of decentralized exchanges that require no such thing. (Cryptographic keys can also be stored on a smartphone, on a hardware wallet, or on paper.) Dash (one of the non-bitcoin cryptocurrencies) even has a system for sending and receiving Dash via SMS, for people who have SMS but not internet access.

              dashnews [dot] org/cryptobuyer-partners-with-dash-text-for-sms-cryptocurrency-purchases/

              decrypt [dpt] co/46019/bitcoin-helping-undocumented-immigrants-send-money

              3. With cryptocurrency, it is possible to do microtransactions, globally. For example, it’s possible to pay someone in the Philippines (or anywhere else in the world) 1 satoshi (which is still worth less than 1 US penny) to view an advertisement for like 2 seconds. Another popular minijob people often do in exchange for cryptocurrency is to complete surveys.

              4. Bitcoin can theoretically be private, if you’re careful how you handle it. (Avoid buying it with credit card, use Tor or a VPN, avoid exchanges that require KYC, and so on.) However, for optimal privacy, many people prefer to use other cryptocurrencies, such as Monero, Zcash, or Horizen. A popular use for the privacy features that cryptocurrency offers is to pay for VPNs. People with a high need for privacy, e.g. dissidents living in oppressive countries, could even chain VPNs (that is, use multiple VPNs, one after another), and pay using Monero or something.

              www [dot] investopedia [dot] com/tech/five-most-private-cryptocurrencies/

              5. Certain cryptocurrencies, such as Ethereum, enable “smart contracts” which in turn enable tokens. Tokens can be backed by real world things, such as gold. Tokens can also represent shares of a company and therefore have the potential to replace the traditional stock market.

              cryptobriefing [dot] com/top-5-gold-backed-cryptocurrency-tokens/

              www [dot] quora [dot] com/Can-tokens-cryptocurrencies-replace-stock-shares-in-a-startup

              • guest says:

                “An immigrant working in a wealthier country may wish to send remittances home. …”

                “… it could still be substantially cheaper to send money home via Bitcoin …”

                This was already covered. People accept bitcoins as money only because they speculate that someone else will also speculate that someone else will accept it – it serves no value as a means to satisfy actual subjective ends, and so it has no grouding in the real economy. It’s a game of hot-potato, pure speculation. A Ponzi scheme.

                Also, for the pro-bitcoiners that correctly get on Peter Schiff’s case about his belief in “intrinsic value”, when you say that money doesn’t need to have a use-value of its own to have value as a money, what you’re saying is that money *can in fact* have a value of its own – a contradiction of the belief that there is no such thing as intrinsic value.

                Since there is no use-value of bitcoins, and since bitcoiners (should) want to avoid claiming that there’s something about bitcoins that are valuable on their own (intrinsic value), that means the only subjective value that bitcoiners have left is pure speculation – a Ponzi scheme.

                (I’m not convinced Peter Schiff actually believes in the concept of “intrinsic value”; Rather, he uses those words as a term of convenience to describe something that is actually valued for its use, as opposed to pure speculation. I’ve heard him address this point once before, and he said something to the effect that, whether you call it intrinsic value or something that people value for its uses, my criticism stands. I can’t remember his exact words, but that’s how it came across. So he seemed to be equivocating on those two concepts.)

                The rest of your examples are covered for the same reasons.

                “… but there are plenty of decentralized exchanges that require no such thing.”

                Exchanges imply you’re going to dump your bitcoins for something of value. The only issue for my side here is that I don’t hold fiat currencies to be money, either, and for the same reasons as cryptos.

                Cryptos are riding the fiat money Ponzi scheme, and cryptos would die even sooner that fiat if fiat money didn’t exist.

                If there was an exchange that accepted bitcoins for gold, then the sellers of gold would be taking losses because bitcoins aren’t money but gold can be, and is at least something with a use-value.

                “With cryptocurrency, it is possible to do microtransactions …”

                Transactions imply that one is trying to use cryptos as a money, but this was already covered.

                “Bitcoin can theoretically be private …”

                Already covered: Privacy in a transaction cannot imbue the things that are traded with value.

                “Certain cryptocurrencies, such as Ethereum, enable “smart contracts” which in turn enable tokens. Tokens can be backed by real world things, such as gold.”

                If the thing that enables “smart contracts” is the record-keeping function of the blockchain, then the blockchain’s usefulness is as a record-keeper, not a currency. I’ve already acknowledged this as a possible value for the blockchain.

                If the token is just proof that you’re a party to a contract, then the token is not being used as money.

                If the “smart contracts” are really just negotiable IOUs, then that’s no different from what banks originally did with negotiable paper claims to silver – they were never money, and they were only as good in trade as the bank’s promise to deliver on what the paper said was owed.

                When people made runs on banks, they didn’t say, “that’s OK, all we need is these IOUs; we’ll just use those as money”. But the logic of pro-bitcoiners is that they very well could have, and the economy would have hummed along just fine.

              • random person says:

                I mean, by your expanded definition, I think you could say that fiat currency is a big Ponzi scheme, since many people only accept fiat currency in the hopes that someone else will accept it in exchange for whatever it is they really want. (True, some people might value Fiat currency just for the pictures and the text saying “in God we trust”, but these people are probably a minority.)

                And, come to think of it, a lot of people who accepted gold or silver currency were probably less interested in the gold or silver itself than in whatever they could buy with it. I mean, really, if you consider all that forced labor and toxic pollution with mercury and cyanide that I mentioned above, we would probably be better off with a lot less gold mining on our planet.

                So, maybe the record-keeping is the value in and of itself? Maybe people want to know, that, according to the Lords of the Money, the person they are handing over their tamales (or whatever) to “deserve” those tamales. And then, when they have the money, then according to the Lords of Money, they “deserve” to get something they want, like a pair of shoes.

                Which is all well and good, until someone evil finds an evil way to get the money (e.g. selling bombs to murderers), and then even though they did something evil (sold bombs to murderers) for the money, now the Lords of Money are claiming they “deserve” lots of Starbucks cappuccinos (or whatever) in exchange for their work in selling bombs to murderers.

                Bitcoin (and other cryptocurrencies) doesn’t really solve that problem. But money has been useful primarily for it’s record keeping capability more than for anything “intrinsic” for a long time. And, if nothing else, bitcoin does give us a better chance of solving that problem than if we just let the governments continue controlling the money.

              • guest says:

                “I mean, by your expanded definition, I think you could say that fiat currency is a big Ponzi scheme, since many people only accept fiat currency in the hopes that someone else will accept it in exchange for whatever it is they really want.”

                Yes, fiat money is a Ponzi scheme, but the words you’re using do not represent my positio.

                The fact that everyone who invests in a Ponzi scheme is doing so to get whatever it is they want does not legitimize the transactions.

                They are wrong about their investments, even when some of them are able to make profits off of other people’s losses.

                What I’m saying is that, just like in a Ponzi scheme, those who participate in the trading of bitcoins cannot all – even in theory – end up with a net gain.

                Yes, Ponzi schemes bear on the real economy in that real resources are changing hands – but it’s the exchange of speculation only.

                If you really wanted to, you, could do rain dances, and your decision would bear on the supply and prices of rain-weather clothing and supplies – but all your purchases does not imbue rain dancing with value.

                “… a lot of people who accepted gold or silver currency were probably less interested in the gold or silver itself than in whatever they could buy with it.”

                True. But the trade value of gold as money is grounded in the fact that some people in the economy value it for its non-monetary uses.

                If I find out my neighbor makes things out of gold and would prefer a supplier to mining the gold himself, the fact that I buy gold to give to him in exchange for something does not prove that gold functions as money without a use value.

                My holding of gold is grouded in my neighbor’s desire to make something out of it.

                And someone else, who knows nothing about my neighbor, who sees that I pay for gold, and then chooses to buy gold to sell to *me*, also does not abandon the link to use-value, since his purchase is indirectly grounded on my neighbor’s desire for gold’s use-value.

                Extend this chain of gold-money trades as much as you want amont those who don’t value the gold for it’s use-value – they are all still grounded in *someone’s* desire for gold’s use-value.

                So, the fact that most people don’t value gold other than as money does not require an abandoning of a link to use-value, and it doesn’t prove that the function of money can be performed with something that has no use-value.

                “So, maybe the record-keeping is the value in and of itself?”

                Well, something else that has value would need to be present for record-keeping, itself to have value. What good is a record-keeper without the need to keep a record of something.

                We could imagine a future need for record-keeping, but only when it is needed does it have value.

                “And then, when they have the money, then according to the Lords of Money, they “deserve” to get something they want …”

                Contracts are not money. Tokens can be used as money substitutes if they are redeemable in a specific good.

                But I would say that tokens that are negotiable (that is, they can be redeemed by any holder, even other than he to whom the bank made the obligation, are fraudulent.

                I believe negotiable tokens / IOUs are fraudulent because debts cannot logically be owed to someone other than debtor.

                I don’t owe anybody anything unless I made a contract with that person, specifically.

                “But money has been useful primarily for it’s record keeping capability more than for anything “intrinsic” for a long time.”

                To think of money as having a record-keeping capability is to think of them as tokens with identical values to the things being traded.

                This is impossible because trades cannot logically have the same value as the thing accepted – because if they did, there would be no need to make the trade (because you already have something of supposedly identical value).

                So, trades are always an attempt to satisfy double-coincidences of wants, even when using real (commodity) money.

                So the record-keeping capability of the blockchain cannot imbue bitcoins with money-ness.

  2. Andrew_FL says:

    Is Mises’ hypothetical gold rush caused cycle taking place in a free society, or does he actually not specify but you assume he means it would in one?

    The Selgin & White argument is that a free banking system increases of decreases the quantity of money substitutes only in response to, and are this constrained by, the demand to hold money substitutes. Do you also think that if gold production rose in response to increased demand for gold, that it would cause a business cycle?

  3. Julian says:

    Doesn’t the fact that the guy who found the new gold coins lends them out at below market rates (and thereby lowering them) imply that his time preference is lower than the time preference of the society at large. And him becomimg wealthy lowers the time preference of the whole economy? So why is it a problem if interest rates fall?

  4. Mark says:

    Mon. 21/02/22 17:45 EST

    Question for Bob Murphy:

    What (who, when) is the origin of the idea that the economy cannot grow unless the supply of gold/money also grows?

    Also, has this (fallacious) idea been given a name?

  5. Tel says:

    I think that Block & Barnett are confusing two different issues in the concept of money:

    [1] The invention of money as a tool that makes transaction easier, and the broadly accepted means to solve the “coincidence of wants” problem.

    [2] The total quantity of money in the system.

    Once the general problem has been solved … shunting more money into the system as a whole does not solve it proportionally better. Let’s use Warren Mosler’s analogy of football scores … the concept in principle of having a score to show who is winning makes the game more exciting, but if you change the rules making every 1 point in the old system 100 point in the new system it won’t make the game 100 times more exciting.

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