Don't buy Bitcoins (video)

[shurdeek]

Guys, esp. Clayton and Nielsio,

I have been trying to point out for a while that the regression theorem is based on arbitrary normative assumptions and induction. It’s not praxeological. I thought my little analogy with the English language demonstrates the logical fallacies involved in the regression theorem, but it looks like I wasn’t successful in communicating it.

If the regression theorem was true, by the same logic we would not have languages. The only use of languages is in communication, they have no use outside of it. Yet, they outcompeted other methods of communication. So it is not true that in order for a good that is subject to network effects (which also includes money) to outcompete others, it requires a value which is not related to that specific use that is covered by the network effects. Network effects were known at the time of Mises, but did not receive a systematic treatment yet, so he probably thought money is special. It’s not, it’s just another good subject to network effects, like communication.

Wikipedia says about network effects:

Network effects become significant after a certain subscription percentage has been achieved, called critical mass. At the critical mass point, the value obtained from the good or service is greater than or equal to the price paid for the good or service. As the value of the good is determined by the user base, this implies that after a certain number of people have subscribed to the service or purchased the good, additional people will subscribe to the service or purchase the good due to the positive utility to price ratio.

A key business concern must then be how to attract users prior to reaching critical mass. One way is to rely on extrinsic motivation, such as a payment, a fee waiver, or a request for friends to sign up. A more natural strategy is to build a system that has enough value without network effects, at least to early adopters. Then, as the number of users increases, the system becomes even more valuable and is able to attract a wider user base.

(emphasis added by me)

Clearly, Bitcoin does have some value to early adopters. Based on the quote from Wikipedia, once it reaches critical mass, it won’t matter that it does not have value to other people apart from the network effect itself.

Furthermore, in another thread I listed at four normative assumptions that I could think of the regression theorem is based on. Two of them are untrue, one of them is science fiction but hypothetically can be incorrect and the last one is simply unsubstantiated. Here is the list again.

• the non-existence of government interference with money. This can create a gap and the gap can be filled by something that does not fulfill the regression theorem

• the non-existence of the digital. The digital is not a commodity, nor property, yet it can behave as quasi-commodity. Digital clearly outcompetes physical alternatives in some areas.

• the non-existence of replicators (Star Trek). Replicators make the value of all physical goods with known composition dependant on their weight, i.e. a kilogram of dung would have the same value as a kilogram of gold. There would still be scarcity (like there is still scarcity with computers and internet), but commodities would not be practically usable as money.

• homogeneity of requirements for a medium of exchange. Same as with languages. Or programming languages even.

While you two have been sticking to rational approach and unlike some others not resorted to emotional reactions to Bitcoin, I would like to stress that the issues I have raised have not been addressed yet.