Why do you continue to fixate on the value derived from the future consumption of a money good? This does not provide a full account. You seem to ignore the value that is derived from its use as a medium of exchange. You don’t mention the vast increases in the standard of living that using a common medium of exchange brings to traders, in so much as it removes the requirement for a double coincidence of wants, thus drastically lowering transaction costs.
The monetary value of gold is actually much greater and much more important to society than the value from the relatively few cases in which you can consume it in the future. If the monetary value of gold were to disappear, gold holders would still be left as bag holders too. It’s true that they could barter directly with those who desire the gold for its non-monetary utilities, but the gold would fetch such a low price in return as to be practically negligable anyway, because all of the other gold holders would be doing the same thing. The supply would be large and the demand small. The monetary value that gold brings is orders of maginutes greater that its other values.
Value derived from possible future consumption is not relevant to this argument. It never was, even to Mises’ Regression Theorem. To quote Mises, from The Theory of Money and Credit, Ch. 8:
Before an economic good begins to function as money it must already possess exchange value based on some other cause than its monetary function. But money that already functions as such may remain valuable even when the original source of its exchange value has ceased to exist. Its value then is based entirely on its function as common medium of exchange.
Before it was usual to acquire goods in the market, not for personal consumption, but simply in order to exchange them again for the goods that were really wanted, each individual commodity was only accredited with that value given by the subjective valuations based on its direct utility. It was not until it became customary to acquire certain goods merely in order to use them as media of exchange that people began to esteem them more highly than before, on account of this possibility of using them in indirect exchange. The individual valued them in the first place because they were useful in the ordinary sense, and then additionally because they could be used as media of exchange. Both sorts of valuation are subject to the law of marginal utility. Just as the original starting point of the value of money was nothing but the result of subjective valuations, so also is the present-day value of money.
The value derived from using a medium of exchange is ADDITIONAL to the value derived from its non-monetary uses. The two aren’t strictly related, other than the second arguably being required to set an initial precedent and boostrap exchange ratios. Thus, there is no requirement for a continual production/consumption cycle like you are arguing here. We already have some examples of this anyway, such as the already mentioned Somali Shilling and the Swiss WIR.
If the objective exchange value of money must always be linked with a preexisting market exchange ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange value based on some other use. This provides both a refutation of those theories which derive the origin of money from a general agreement to impute fictitious value to things intrinsically valueless and a confirmation of Menger’s hypothesis concerning the origin of the use of money.
Mises was arguing that for a good that has no direct non-monetary utility (i.e. the ‘instrinsically valueless’ goods), exchange for that good will not begin to occur in the first place. Essentially, nobody will agree to purchase (by barter) something that is ‘intrinsically valueless’ to them, and so the monetary value cannot begin to bootstrap itself. Mises says they are not in a position to estimate the value of the money. However, I find fault with that. Why can one not begin to determine exchange ratios in the present based on an individual subjective evaluation of the future potential for the good to have more utility later as a common medium of exchange?
For example, even amongst the early Bitcoin community, and amongst those who think Bitcoin will succeed, there are some who are inevitably more confident than others. This presents an opportunity to trade other goods and services amongst themselves for bitcoins, as some of them will see holding bitcoins to be more risky than others. But in doing so, they set the first exchange ratios amongst themselves. Also, some Bitcoiners have more pressing desires, such as the need for food, but other Bitcoiners can afford to defer consumption. This also presents an opportunity to trade food for Bitcoins, even if both parties are equally confident in Bitcoin’s future success. Again, this sets exchange ratios.
And even with me saying this, there’s another argument that is going through my mind. If collectible shell money is deemed to be ok because it provided some non-monetary utility in some form of a status symbol, I don’t see how Bitcoin is technically exempt. Why is showing off your ‘geek cred’ with a Bitcoin balance not considered valid then? This is very much how they were used in the early days, as bitcoins are a proof of computing power and that’s kind of cool. I mean, I know for me personally, when I hear of somebody who has created customized hardware and has managed to mine 20,000 BTC or something, I know that I feel some sort of “respect” for that person. I’m not exactly sure what to call it. But it goes to show that his 20,000 BTC can provide some non-monetary value to him, as a status symbol.
And then even on top of all of this, we have namecoins (which are arguably a bad implementation of bitDNS, but the concept still seems to be valid). These coins basically provide the holder with private write access to a record in a decentralised global database of name->value pairs (which are stored as metadata in the block chain). These can effectively function as decentralised DNS records (amongst other uses too), and the government cannot seize them without your private key. Right now, you can register a unique .bit ‘domain name’ for your website or other Internet services using namecoins. This clearly has non-monetary utility, and yet in all other respects I believe that they’re identical to bitcoins. In order to be consistent, you’d have to argue that namecoins have a chance to succeed as money even if bitcoins a priori cannot succeed.
Ultimately, I don’t know who’s right. I don’t see what the point is of arguing so abstractly about what would happen if something like Bitcoin were to exist, because the fact is it does exist, so we can just see what happens empirically. If bitcoin crashes on its own accord, without government interference, I’ll be more inclined to accept what you’re saying: that bitcoin failed because you can’t do anything valuable with a bitcoin, except to trade it away. It shouldn’t take long for Bitcoin to crash, disappear and be forgotten about if you’re right about that. And some of you have already said that in 20 years time, if Bitcoin appears to be working just fine, then you will re-evaluate your position. That sounds fair to me. I’ve said to others that it was clearly designed for the long term anyway, and it shouldn’t be suprising that it’s unstable now, even if it is conceptually sound. And I too have said that I want to wait 5, 10, and 20 years. If it really will change the landscape of the future, waiting 20 years to see what happens is nothing at all.