Edit: Posted before I saw your last post. I agree but in this case the wearing of coins isn’t enough to make much of a difference so Greshams law wouldn’t apply on a hampered or unhampered market. The point I was making was that Gresham’s law does not happen on the free market
End edit
I think if we had no legal tender laws people would not care as much what is stamped on the coin but would care more about the metal it is made out of. Old worn coins might start trading at a discount and on a free market with no legal tender laws it might be profitable to melt the older coins thus only keep the highest quality money in the economy. On the free market only the highest quality money would survive
Even with paper money old paper money is frequently replaced with new ones so we don’t see alot of old torn paper money
In Hayek’s book on a free monetary system he gave examples of governments ceasing the free minting of coins thus making the government minted coins a higher quality than regular gold bullion, so Hayek gave examples of a higher quality money outperforming lower quality money
Edit again: Hayek was talking about silver coins not gold. Anyway this is a good article to read http://mises.org/daily/3204
The same happened with British India with silver coins
my point is that youre wrong because greshams law always applies. so you spend a dirty coin and the merchant discounts it. so you spend two dirty coins and the merchant gives you a smaller dirty coin as change. both of you keep your shiny coins in your pockets.
Sorry, I’m not reading 90+ pages on why you think Bitcoin is money. It can be explained why gold is money in a paragraph, maybe two. The same can be done as to why we pass around fiat. Condense your thesis into a couple pages and I’ll take a look at it.
All predictions are only worth the odds and stakes you’re willing to accept for them. Otherwise it’s just abstract nonsense like how many angels can fit in a pinhead.
In case you’ve already made the trade please disconsider this… it’s that I just got this vibe from the few things I’ve ready that you’re talking out of your ass, but hey, maybe I’m wrong.
Your post is exactly what a gambler would write. Take a risk, what the heck. The bitcoin crowd kind of thinking. A few have even said that the whole value of bitcoin is to gamble with. Of course, that’s a total fail of understanding the regression theorem, but they said it.
In any case, AE does not say when bitcoins will collapse. If you look at my blog, you will see that the Ithaca Hour lasted 20 years before falling dead. other currencies lasted 5 years.
How many people do you know who short something 20 years hence?
Just to give you some perspective on how an economist thinks, Mises said it was dead certain that Socialism would collapse. 100% guarenteed, as sure as the sun will shine. It took SEVENTY YEARS. Would you have told him to short Russia, because otherwise he is talking out of?
Of course in an anarcho capitalist society people would most likely use mostly bank notes backed by precious metals and they could also use silver and gold minted by trusted private mints so people don’t have to go through all the trouble of testing weight.
If merchants decide that bitcoin is a desirable currency they will accept bitcoins, they will however not accept what they consider to be inferior imitators. Bitcoin owners have nothing to fear from Gresham’s law. If bitcoin turns out to be the best currency then it will beat out everything else
However bitcoin seems extremely dangerous right now can’t believe it shot up over $200
in light of your qualification I am unsure as to what signature you allude. however I will inform you that I am reporting you for attempting to instigate violation of forum rules.
neither gold nor Bitcoin are money. Money is, per Mises/Rothbard/etc, a generally accepted medium of exchange. Gold and Bitcoin are media of exchange, but they are not generally accepted.
Regarding my theses, all chapters have conclusions, and there’s a final conclusion at the end. You can skip over the other parts and just read the conclusion.
But “gambler” can be anything from a poor schmo seeking to get rich quick with what he perceives to be sure-things, or a thrill-seeking individual with a somewhat large and disposable networth, or an expert forecaster that makes his living by prospecting favorable odds and placing calculated bets on them.
But if you happen to identify the mistakes of the “fish” (the gambling addicted schmo or the deep pocketed thrill-seeker) it makes no sense not to become the “shark”, and bet against them.
Of course, talk is much cheaper.
Just to give you some perspective on how a “real gambler” thinks, you don’t need a “sure thing” to place a bet.
If you expect something, say “bitcoin”, to have, say, 10% chance of collapsing in the next year, and the market seems to believe that on aggregate the chance is 1% or less, in the sense that they are paying the corresponding odds, you should take the bet.
Of course, not with your entire bankroll, because in any case, even if you’re right about bitcoin risk, you’re going to win money only 10% of the time. But you size your bet by some risk-management criteria, and you look for similar odds happening elsewhere, and you repeat the process. Such favorable odds will make these wins large enough to compensate the 90% of the time you loss, so in the long run you expect to profit.
Now if you’re not willing to walk your talk, and show your performance by beating the market, there’s not much relevance in your prophecies.
Anything that has a small chance of happening will happen after enough time has passed. It’s like that Fight Club quote: “On a long enough time line, the survival rate of everyone drops to zero.”
So if your claim is that “eventually” bitcoin value will revert to zero, eventually meaning anytime between now and the eternity, I totally agree, but, then again, that’s a useless platitude.
Peter, it is true that gold is not money today but it was at one point. There are reasons, which I’m sure you are aware of, that gold is not being used as money today but I don’t believe that matters. I thought that this debate was about bitcoins and whether it is or could be money. I used gold in my previous reply because, like I said, it was once used as money and the reason for that could be explained in just a couple of paragraphs. The fact that it takes you and many others pages upon pages of explanations to defend bitcoins, quite honestly, tells me that you and others don’t really have a simple explanation as to why bitcoin is or could ever become money. It shouldn’t take a 90+ page thesis to have to explain something like that in my opinion.
It’s one thing to make a theoretical argument of the eventual impracticality of central planning within a complex economy.
This is a very valid argument, when it’s correctly understood, and not mistaken with a prediction.
In his “Economic calculation in the socialist commonwealth” Mises studied the implications of this particular element in the coordination of production, an argument further refined by Hayek.
Everybody knows the anecdotes of soviet bureaucrats struggling to affect millions of prices in and the subsequent losses in shortages and surpluses they created, sometimes intentionally, but almost always by accident and lack of better information.
But it’s a mistake to assume that the validity of such arguments are enough to establish the collapse of the soviet economy in any reasonable timeframe.
Soviet style socialism was a very complex self-perpetuating and adaptive political system, with certain elements of economic central planning.
But a huge number of other factors were involved in determining the survival rate of the regimen.
The extent of existent human and physical capital feeding the slave economy of their gulags with large supplies of disposable labor factors from Russia and it’s orbiter states, the penetration of soviet academic propagandist and operatives in the West and the credibility and approval of their opponents, Stalin acquisitions after WWII, their virtual control of the U.N. general assembly through their multiple puppets in Africa, the results of their attempts to nuclear blackmail and other brinksmanship tactics and so on.
These and other factors contributed, for a while, to the persistency of the soviet self-perpetuating conspiracy form of government.
They offered opportunities of growth that were, at the time, enough to overcome the production costs of a central system.
The socialist calculation argument was an impressive tour the force pulled by von Mises, but it was by no means a definitive death sentence for bolshevism in any practical sense, and that’s why they survived for 70 years threatening the free world.
I can do that briefly if you want, but you’ll have additional questions and so on.
I don’t know if Bitcoin ever becomes money. However, Bitcoin already is a medium of exchange, and that’s a success. In this function, medium of exchange, I expect its market share to grow, because it decreases transaction costs.
I know the reasons why gold isn’t money anymore. It wasn’t able to withstand the attacks from the banks and the state. But Bitcoin is more resistant in both of these categories, so it has a comparative advantage against gold.
If Bitcoin ever becomes money (i.e. outcompetes other media of exchange), that would be really awesome, because it would provide an inelastic supply and, if you believe in ABCT, end the business cycles. Unlike gold, Bitcoin gaining market share does not require a political reform or a total economic collapse, nor does the enforcment of an inelastic money supply require legal reform of fractional rererve banking.
So you believe that Bitcoin could become money because it “decreases transaction costs” and it is more resiliant, in your opinion, against “attacks from banks and the state?”
In regards to your last point, are you insinuating that gold needed “political reform” and a “total economic collapse” in order to gain market share in the past?
Introduction
Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.
(bold added)
Nakamoto’s intent was to design a payment system that eliminates the middleman in an exchange between two people, and that therefore prevents the possibility of the middleman reversing the transaction. Bitcoin also reduces payment processing fees (Visa, Mastercard, Amex., PayPal, etc.) from 2.5% -3/5% of sales to close to zero. If a small merchant has monthly sales of $50,000, a typical payment processing fee could be $1,400 per month or $16,800 per year. By contrast, Bitcoin transaction fees are negligible.
Merchant (market) demand for a superior payment system would lead to market demand for the various components of that system. With regard to Bitcoin specifically, people will realize that if the Bitcoin payment system were to become widely utilized, the individual Bitcoins which are part of the system would become more widely demanded, would become more marketable, and would gain in exchange value. People might begin to accumulate individual Bitcoins not only for the purpose of using them in the Bitcoin payment system, but also in order to sell them for a profit in the future. Whether individual Bitcoins will become more marketable than fiat currency units or commodity currency units is an empirical question and (perhaps) a technical question. Paraphrasing a famous Austrian economist, I believe it would be preposterous to assert apodictically that individual Bitcoins could never become more marketable than individual fiat or commodity currency units.
I do not know if Bitcoin can become money. I merely cannot exclude it for the time being. I have a more modest proposition, in that the acceptance of Bitcoin (or something similar) as a medium of exchange will probably grow.
No. I argue that in order to replace fiat, it either requires political reform or a near total economic collapse, because it needs to outcompete fiat, and fiat has various factors working for it at the moment, for example is more liquid, has more beneficial legal standing, its forms have lower transaction costs and so on. In the past, when fiat didn’t exist, gold didn’t have to outcompete it. It was competing against other commodities only.