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Stumbled upon this post in a Bitcoin article in howtovanish.com:
The attitude of the Austrians is very odd behaviour indeed, and as Bitcoin grows, the excuses they don’t give will make it harder for them to explain why they did not get start accepting it sooner.
Will they say that Bitcoin was not big enough to justify accepting it? And when they do end up accepting it, will they claim that they did not think that it was money, but now they do? Will they say that they were waiting for other people to accept it before they did, relegating them to the level of a herd of followers of the ignorant masses? What possible excuse can they have for rejecting Bitcoin? One thing is for certain, in the end, they will be using and accepting Bitcoin and they will have nothing to fall back on as an excuse for not doing so sooner rather than later. This is important, because they are asking people to change their minds about deeply held beliefs about money the law, rights and ethics and how the world could work as a free society. If they are not willing to accept Bitcoin to help make this change come about, in the most crucial area of life that keeps the empires running, money, it means there is a serious disconnect and flaw in their thinking. The question is where is that flaw, and what is its character.
Many in the Austrian camp have bravely and to great effect, embraced the power of superdistribution in the giveaway model. Almost every book sold in their online stores is available as a free download in many different formats. For certain, this has accelerated the spread of their correct ideas, and caused the sales of their paper books to increase. Not accepting Bitcoin is the equivalent of refusing to allow people to download PDFs without charge and using restrictive copyright clauses to try and prevent readers from spreading the books and ideas. It is pure Luddite in its character, and very out of character for a group of people whose focus and purpose is creating a future where liberty is spread all over the globe.
A few of these Libertarian Bitcoin refusers will claim that Bitcoin is not money, therefore they cannot accept it in exchange for goods. They will refer to the Mises regression theorem to assert that Bitcoin is not money. This is a position that I understand completely because strictly speaking, Bitcoin is not backed by anything.
The other reason why they may not accept Bitcoin is that they are all computer illiterates. This is possible, though unlikely. Remember, these are the same people who have embraced download for free and copy as you like superdistribution of the books they are selling; a revolutionary, counter intuitive manoeuvre that to most book publishers is anathema. In this respect, once again, they are very forward thinking, out of the box, and ahead of the curve. And it has worked spectacularly.
Perhaps what we are seeing here is a classic case of The Emperors New Clothes. All of these people are subjects in the same Austrian Empire, and none of them wants to be the first to stick his head out and take the risk of accepting Bitcoin. In a small community with decades of reputation and good will built up, accepting Bitcoin, in the unlikely event that it fails spectacularly, may tarnish their reputation forever. Bitcoin is risky, for ‘apostates’ and is not part of the mainstream yet. On the other hand, being able to accept Credit Cards is a mark of respectability and stamp of approval; it gives buyers a sense that the people selling these ideas are acceptable, not a threat, or group of anarchists. Even though they are. Bitcoin is still of the underground, its an unknown quantity. When you are trying to convince someone to throw away decades of statist brainwashing, any barrier to entry is a bad thing, and perhaps, the thinking is that Bitcoin would put people off. Of course, this doesn’t work at all, because Bitcoin can be used side by side with Credit Card payments and PayPal. This is not an either or proposition, its a pure win enhancement for everyone.
Really there is no excuse for not accepting Bitcoin. As the this article says, Bitcoin sales cannot cannibalise PayPal and Credit Card sales, it can only add to your bottom line.
I fear this can only be a philosophical, psychological objection to Bitcoin, and given the brush off the owner of this blog received in an email exchange with the owner of one of these sites, its clear that the Emperors New Clothes effect is what is causing a point blank, fingers in ears refusal to integrate Bitcoin payments into their carts.
Despite all of this, I am not at all concerned that the Austrians are rejecting Bitcoin.
There is not a single movement started by man that has not fallen to dust. The people who make up the Austrian School will eventually all die, and their useful ideas will be picked up and adapted by the people of the coming centuries, the bad ideas discarded.
No one in the future will have any problem being a Libertarian and using Bitcoin; it will be as natural as drinking water. Historians will look back at the first two years of Bitcoin and wonder how it was that rational, highly intelligent, educated people who were deeply integrated into the web and understood its potential to spread ideas could have missed this crystal clear example of a game changing revolution, in the very field of their expertise: money. That many of them were historians will make the puzzle even more perplexing. No doubt, a book will be written on this subject, with a title along the lines of, “The Bitcoin Luddites: How the Austrian School Failed to Spot the Monetary Revolution”.
Either way, Bitcoin does not need Austrians to spread all over the world. The internet and its global spread did not need the advocates of the Austrian School to promote it, and it has changed everything and is everywhere, and the same thing will happen with Bitcoin. We do not need the Austrian school to achieve a breakthrough in the adoption of Bitcoin. It is already inevitable.
The problem for the reputation of the Austrians is that the internet is not concerned with money especially, and so it is excusable for them to not have predicted it or been boosters of it from its infancy. Bitcoin is a different matter however. Bitcoin is only about money and Liberty, and it is very much concerned with the matters that Austrians specialise in and have correct. That they have actively rejected it, with irrational hostility does not auger well for their reputation as forward thinkers and shapers of the future.
What an idiotic critique. Austrian monetary theory is built on the idea of a free market in the production of money and money substitutes. Note that there are market successes as well as market failures. Refusing to jump on board with every new money that comes down the pike just because it’s an alternative to the establishment doesn’t indicate any kind of inconsistency, it just means that the individual who doesn’t buy in didn’t think it was worth it for whatever reason. In other words, a person can agree that Bitcoin is theoretically sound but still refuse to buy in for other reasons.
Bob Murphy is the only Austrian economist I know of that has actually weighed on the subject and his verdict is that there is no reason Bitcoin cannot be money. So where are all these Austrian economists pooh-poohing Bitcoin?
Clayton -
Isn’t BiCoin being printed faster than US Dollars?
We can’t even get a forum to work properly. What do they expect from us?
Lol, good point.
They will refer to the Mises regression theorem to assert that Bitcoin is not money. This is a position that I understand completely because strictly speaking, Bitcoin is not backed by anything.
The only meaningful statement in all that mess.
It’s like writing a whole book about how Harry Potter is a real person, inserting one paragraph about how some object that the whole Harry Potter series defies the known laws of physics, accepting the objection, then going on again about how Harry Potter is real.
There’s clearly a theory-gap. Thus, and as usual, practice is preceding theory. Someone will earn a nobel or something explaining why bitcoin makes fine money, despite regression whatever, then the rest of the austrian followers will fall in line.
Thus, and as usual, practice is preceding theory.
No. The current situation with bitcoin, a couple of suckers using it for one transaction in a thousand in their lives, does not violate theory.
Someone will earn a nobel or something explaining why bitcoin makes fine money, despite regression whatever,…
Good luck with that. May as well explain why 2+2=5 while you are at it.
No point in repeating the whole bitcoin thing yet again. I refer people to my humble blog: http://smilingdavesblog.wordpress.com/2012/08/03/bitcoin-all-in-one-place/
Bitcoin is not money; it is a public ledger system keeping track of who was deemed by whom to provide a good or service the latter person valued. It is an extrapolation of “Oh you made dinner two nights in a row? We’ll all remember that and fill in for you later” on steroids, enabled by modern technology. Bitcoin obviates the need for money, but it is not itself money, not a medium of exchange. Actual bitcoins are just dummy tokens to facilitate the accounting process in the public ledger system. The marketing that these tokens are “money,” which is just a simplification for the masses, has been taken as fact by Austrians who correctly reject bitcoins as money without investigating what Bitcoin (the protocol and system) actually is so that they can evaluate it on its own merits - not as money but as an entirely new way of transacting.
…it is a public ledger system…
Huh?
Bitcoin may be something like a pure medium of exchange. True that it lacks any commodity value on its own. However, if you exchange two things using bitcoin, aren’t those two things also commodities themselves? Thus, bitcoin is a pure medium exchange that uses w/e is bought or sold as its commodity backing its exchange value to facilitate the exchange.
All bitcoin really needs to faciliatate exchange is its exchange value, which it clearly has since its commodity value is vanishingly small (a blip of electricity and math).
The reason theory needs to catch up is because there’s never in history been a currency that didn’t have both commodity and exchange value wrapped up into the same package. The two were inseparable as long as money was represented by a physical object. But bitcoin breaks this rule.
Gold has some commodity value–it’s not really useful for very many industrial things, more as jewelry. But its exchange value is very high–which is to say that it has unique characteristics that make it a good money: It’s hard to fake, it doesn’t rust, it doesn’t take up a lot of space, low melting temp, etc., etc.
Bitcoin is a whole other animal categorically. It is a spiritual currency, something that is more an idea than material.
I stand by my statement that theory needs to catch up to reality.
However, if you exchange two things using bitcoin, aren’t those two things also commodities themselves? Thus, bitcoin is a pure medium exchange that uses w/e is bought or sold as its commodity backing.
No. And the simple reason is, we are not talking about a barter economy. The whole concept of a medium of exchange, and its great advantage, is that it seperates barter into two stages. Today A buys apples from Farmer F and pays for them with bicoin. Tomorrow the farmer takes the bitcoins and buys a pair of shoes from B.
The reason bitcoin cannot do this, explains Mises in his regression theorem, is because Farmer F has no clue what value bitcoin has for him. How many shoes can he buy with one bitcoin? He doesn’t know, nor does anyone else. I mean, the real answer is that he cannot buy any shoes, because nobody but a small handful of people accept bitcoins for anything. And the reason nobody accepts them is because, although mtgox will find you someone who will give you, say, ten bucks for a bitcoin right now, who is to say that they will give you that in five minutes, or in six months? If there is ever a mass bitcoin dumping, and it has happened in the past, bitcoins can drop to five cents, as they have done in the past.
Also, saying bitcoin has commodity value because people can use it to barter is to misunderstand what commodity value means. By your definition, everything in the world has commodity value, even useless camel dung or radioactive ebola viruses. What Mises said is needed is intrinsic value, which bitcoin lacks.
The claim that theory lags behind the reality because bitcoin is a whole new kettle of fish that never existed has been refuted in my blog. It’s not the first time people have tried that tired excuse to defend bitcoin. The refutation is actually very simple. Summarize the the proof of regression theorem, please, then show at exactly what point the proof breaks down. Hint: There is no point, the proof des not break down.
It’s like saying 2+2=5 when we are counting plastic bags, because when Euclid proved 2+2=4 there were no plastic bags in existence. Plastic bags are a whole new reality, etc etc.
I like a lot of what you said there, Anenome, but I get confused as I try to understand clearly what you mean. Do you mean that, for example, since someone sold an ounce of gold for 1000 bitcoins and then bought a used Ford truck with those 1000 bitcoins, that 1 ounce of gold = 1 used Ford truck to that person, and this is what makes bitcoin different, more pure, and a spiritual money? I mean, how is it wholly different from someone selling an ounce of gold for $1750 and then buying a used Ford truck with that $1750? In both cases, the currency has no value in and of itself but only as much as it is valued by others willing to trade for it. That is, both bitcoin and fiat notes are devoid of commodity value by themselves, but do have exchange value (for commodities). Like I said, I’m just confused as to what makes it so brilliantly different from fiat currency.
yup!
The post you replied to explained this. I suggest you spend more time reading and thinking about what you have read, and less time linking to your own blog.
I suggest you spend more time reading and thinking about what you have read, and less time linking to your own blog.
Shave that mustache, Adolf.
Sure, I went back and changed something I didn’t like also, so go back up, might be clearer now (text is lined out so you can easily see the change).
Not exactly. In that respect you list here it’s indistinguishable from a simple fiat currency.
Primarily what I mean is that it can do the same thing a fiat currency does, but it does it without material existence. It is spiritual therefore in the sense of being more idea than matter, with its existence held together solely by mathematical concept subsumed within cryptography.
With a fiat currency, you have a group of atoms arranged in a particular order that constitute that currency.
But a single bitcoin is not tied to any arrangement of atoms. It is, in this sense, more spiritual in its existence than physical. It is an idea that continues to exist not through any one arrangement of atoms, but through a particular pulse of energy. In a very similar sense, our own brains and consciousness are produced in the same way. It is in this sense that I use the word ‘spiritual’, meaning non-material in the way that consciousness is non-material, rather than spiritual in some ghostly context.
It is this very non-material quality that allows Bitcoin to break the rules which fiat currencies cannot. Any fiat currency can be counterfeited by simply arranging a group of atoms and molecules in the same arrangement as all the others of that currency. As time and tech progresses, mark my words, all paper currencies will be rendered useless. When 3D printers get good enough to print a dollar bill on the molecular level, it’s over for physical currencies. There’s no putting the genie back in that bottle.
Bitcoin, by contrast, relies not on a specific atomic arrangement of molecules, a pattern of them, plus enforcement by the Secret Service, but on something much more sure: mathematical law, which really means the laws of reality itself.
This is the basis of its exchange value.
With all other currencies, commodity or fiat (really fiat borrowed the credibility of commodity to establish itself), the property of nature being relied upon was that atoms cannot be copied and pasted, they are scarce. Thus gold and other commodities.
But then fiat came around, and we’re relying instead on a pattern of arrangements rather than scarceness of atomic makeup.
Commodity by itself would be a viable money. However, in a digital age, relying only on a commodity currency makes fiat a necessity, because you cannot teleport gold through digital channels. Thus exchanging title to a commodity is a vulnerability in a currency, because title can be falsified.
With Bitcoin, its exchange value is tied to its unfalsifiability.
It’s value as money becomes its reason for being valued.
Smiling Dave may never agree to that, and that’s fine. But I maintain that if he were right then Bitcoin could never have a market price above zero, and clearly that’s not the case. Or at least would have to flash and burn out to the point where it was repudiated, and despite a crash or two that still hasn’t happened, and isn’t likely to based on the cryptography known.
A commodity cannot be copied. But paper money, or what I’ll call title to that commodity, can be copied and thus is subject to inflation via fraud and counterfeit. Fiat money is title to… nothing, or should we say title to the ability of the American taxpayer to be bilked.
With a commodity currency then, you could separate the item itself and the title to that thing. But the tradeoff became counterfeitability.
However, what makes Bitcoin different is that the title is the value. The title contains within itself a unique and uncopyable spiritual commodity, in the form of the uniqueness of that individual bitcoin.
This is where theory is lost. Mises’s regression theory is an attempt to explain how a money came about in the first place, and was built on the assumption of commodity moneys based on atomic and molecular value. If Mises were formulating it today he’d have to deal with digital currencies as a new category and explain, separately, why we value them. And the answer, I believe, would be tied to their innate fraud protection and uncopyability, meaning ultimately that their exchange value is the commodity they offer.
Well now, that has been a rather interesting post, hasn’t it 
Here you fall, because Bitcoin is already doing this in the real world, already serving as a medium of exchange.
That’s silly. Farmer F need only look at the exchange rate and prices for Bitcoin. It’s like you’re saying Farmer F can’t possibly buy something in Drachmas because he’s only used to the US dollar. Well, there is a solution to that.
All determined by supply and demand, like any other good.
The number of people doing it is irrelevant. If one can do it, it’s possible.
If I write a book and only one person has read it, does that mean it’s unreadable? ._.
They are already accepted by more than ‘nobody’. If nobody accepted them literally we wouldn’t be having this conversation. Furthermore, by making the “very few people accept them” argument you only forestall the problem for yourself. At what point do enough people accept it as a currency for you to agree it’s a currency.
You know, not everyone in the world accepts US dollars either? Shocking, I know.
This is why bitcoin is not generally being used as a value store but as a medium of exchange. Here’s the funny thing tho–to be a currency you primarily have to be a medium of exchange. Value store is actually optional, within reason. If a currency is fluctuating too wildly too quickly then it becomes a poor medium of exchange too, since purchase still take some amount of minimal time. But people were still using Deutchmarks when they were inflating at the rate of millions of percents a year, so that works against your point as well 
So, when I said bitcoin was backed by whatever you wanted to buy with it, I was also making the point that it’s value is primarily exchange and not value store. Want to store your value in any commodity? You can do that by using bitcoin to buy your preferred commodity. Just about anything will do.
But, again, money is and must be at the very least a medium of exchange**.** That’s how we define money. Value-store is optional.
Yet, no repudiation. Also, the only likely way to get a repudiation would be to have inflation occur–the very thing that cannot happen to bitcoin since it cannot be inflated.
Yeah that’s why I changed that section you quoted in my original post, I agree that’s not the right thing to say. I stick by its exchange value instead.
It exchange value is not something that’s going to change wildly.
Your entire point about Bitcoin boils down to the idea that no one can really know what it’s true value should be, so how can anyone trust the price Bitcoin trades at. If you focus only on commodity value, of which Bitcoin’s is vanishingly small, then it seems to you that a penny is too high.
What you neglect is its utility as a medium of exchange. Bitcoin has exchange value that is higher than any currency in the world, gold included, because of its nature as a spiritual, non-physical crypto-currency.
Just about everything in the world has been used as money. You realize that, right? Including rocks, seashells, etc.
I argue that Bitcoin’s intrinsic value is contained entirely within its exchange value, of which is has unique features as opposed to any other currency.
You simply refuse to accept exchange value as a value form of human valuation. But you have no reason, no theory, to back that up. I have a price on the Bitcoin exchange to back up my view. If you’re right, by all means, Bitcoin should be valueless on the market.
You have to harder task, to explain why everyone who values Bitcoin today is doing so foolishly. Yet, the longer Bitcoin continues to be valued, the more untenable your position becomes.
We know why fiat currencies continued tobe valued despite lacking commodity backing–because they are monopoly currencies. Were the monopoly removed their value would collapse.
But bitcoin exists in a free market of currencies, and is still being valued. So your task is made doubly harder.
I hardly need to mention how self-serving such a pronouncement is :\
The thing about digital plastic bags is that they don’t follow the same rules as real ones. Yes. One digital plastic bag is equal to an infinite amount, because copying them costs essentially nothing. So, your logic breaks down yet again.
The cleverness of bitcoin was figuring a way to make a digital good follow real-world rules of uncopyability, and that problem solved made the currency far more secure than even a physical currency could be.
The result is primiere exchange value as a currency.
Plus the fact that most of Dave’s concrete criticisms don’t apply anymore. Volatility isn’t a problem anymore because you can now insure your BitCoins. Usability isn’t a problem anymore either because now there are services which allow you to use BitCoins to fund credit cards meaning BitCoin can now be used to buy everyday things like shoes.
Thank you Anenome. I think I understand you now. I really liked the conclusion, that the “commodity” value it offers is its exchange value. Question: since it is easily just as possible/plausible to imagine a digital gold-backed currency, would such a thing be more preferable to you? That is, it has all the features you love about bitcoin with the additional perk of being a store of value? Or is such a thing unnecessary because of the properties of bitcoin? I see no reason why a “BitGold” wouldn’t be preferable to BitCoin.