Is money a separate praxeological category? If yes, how exactly? Not sure what this means. Seperate from what? Also, the word “category” is a very difficult one. Indeed the very phrase “separate praxeological category” makes me suspicious some BS is being used. So you can clear this all up by explaining in easy English what you mean here. I suspect you just mean the next question.
What is the praxeological difference between money and other phenomena subject to network effects? The risk is much greater [=possibly losing a lot of money] with money.
How many people do have to find non-monetary use for a phenomenon for it to be classified as money? So glad you asked this. Commonly accepted is the key phrase, which though vague [as it must be] eliminates bitcoin as it is now.
Does speculation and aesthetics count as non-monetary use? Speculation no, because it means passing it on to the next guy contemptuously, not valuing the thing for itself; aesthetic yes
If the government uses force to promote a specific currency, is that currency money? Sadly, yes, because it creates a reason, however artificial, that people want to hang onto some of the money.
If the government uses force and prevents money from satisfying all market participants, will the market use non-money as a substitute? Will have to hear specifics to understand the q.
Commonly accepted is the key phrase, which though vague [as it must be] eliminates bitcoin as it is now.
I guess the vagueness you have in mind corresponds to a disagreement such as whether 20% or 30% of a population constitutes ‘common acceptance’. But there’s another vagueness here that prevents you from using the ‘commonly accepted’ clause to rule out Bitcoin as money.
Which population is the relevant one to consider when thinking about potential acceptors of the currency?
Are we talking about all humans on earth? Or all sentient beings in the galaxy, or in the universe?
If it’s the latter, it may turn out that gold isn’t money after all. If the former is insisted on instead, what grounds can one offer for arbitrarily drawing the line there, rather than (for instance) around the world’s population of cryptography nerds instead? (in which Bitcoin is commonly accepted)? Is there a reason for insisting on a delimitation that excludes Bitcoin? If so, I’d like to hear what it is.
Sorry I don’t follow your reply. Why are you (it seems) assuming that all humans on earth is the relevant population to consider when assessing whether a medium of exchange is commonly accepted (and thus in the running to be considered money), rather than all crypto nerds, or all sentient beings in the universe?
Wasn’t clear. I meant that there are enough people willing to accept bitcoins that you can buy whatever a guy with dollars can in the US, or a guy with yen can in Japan, etc.
thank you very much for a reply. I’m following up.
You tell me. Since regression theorem is allegedly a praxeological argument, it means that money is somehow distinct from other goods, and other rules apply to it. Otherwise the regression theorem is a circular argument, either being simply wrong, or a meaningless tautology. So, do different rules apply to money than other phenomena?
That’s not a praxeological distinction, rather a quantitative one. It does not explain why other rules should apply to money. Can you think of other distinctions?
The government fiat we have now does not then fall into this category either. I normally use euros. So from my perspective, dollars are not money. This makes the concept of money subjective and therefore the regression theorem not praxeological. Rather, it appears more like the distinction between production and consumption goods. It’s contextual. To continue with the analogy, while consumption gives value to production goods, it does not mean that a production good needs to be a consumption good before becoming a production good. Indeed, some production goods are specifically designed to be production goods. Assuming that this is true (there are production goods that never were consumption goods), why is money different? If it is not, then why is a consumption value necessary for money?
Good, I think that answers my question. This clearly establishes that Bitcoin does have a non-zero non-monetary value.
However, people sometimes accept government fiat even if there is no direct force involved. I for example often buy stuff from China, and typically pay in dollars. Neither of the parties involved is forced to accept dollars, nor does the US government give us any other benefit if we choose dollars. Probably what is happening is that there are exchange restrictions on the RMB, and the euro is too young. I’ll agree with this answer, but I’d like to stress that the effects of the force sometimes exceed the direct scope of the force (network effect as pointed out earlier).
I explained this in the past (my very first post on mises Forums), but maybe not in this thread. Also, see the example from previous paragraph. My original claim is that because government interferes with money, e.g. by legal tender laws, banking regulations, attacks on gold minters and commodity-backed digital currencies, this creates a market gap. I have spent a lot of time on the forums explaining why neither government fiat nor gold are suited to fill the gap (plus if they could, there would be no gap in the first place), such as transaction fees, regulation compliance costs, no reason for standardisation among competitors, single point of failure and so on. Bitcoin does not suffer from these, so it’s better suited to fill the gap. With Bitcoin, you are your own minter and bank: it eliminates the distinction between the creation of money, merchants, consumers, payment processors and the banking system. So let’s put this into questions:
Are all trades homogeneous, meaning that one good is a better choice in all cases?
Are all payment methods and currencies homogenous, meaning that no matter what currency or payment method you use, you get the same utility from the act of trade itself?
Assuming the answer to both is no, if you trade with A and have a higher utility than when trading with B, but B has a lower consumption value, can you make the claim that people would use A rather than B for trades?
Assuming the answer to the last one is no, then how can you conclude that people would not prefer Bitcoin to, say, paypal?
Rick Falkvinge wrote good blog posts about “Four Bitcoin Drivers”, you can find it if you google for it. Let me then build upon it and create an example. If you accept credit card payments, you pay, say, 3% fee. If you instead accept Bitcoin, you have 0% fee. Then you can trade it, say, once a month on an exchange and transfer the money to your bank account (which will total in lower fees). If more people accept Bitcoin, you can avoid the exchange at all. If you have 6% profit margin (pre-payment), switching from credit cards to Bitcoin doubles your profit. If you are a buyer from a different country, by using Bitcoin you avoid the currency exchange fees (e.g. USD ↔ EUR) charged by the credit card company. So already now you can see the advantage for both parties. Why should they care about non-monetary uses?
“You tell me. Since regression theorem is allegedly a praxeological argument, it means that money is somehow distinct from other goods, and other rules apply to it. Otherwise the regression theorem is a circular argument, either being simply wrong, or a meaningless tautology. So, do different rules apply to money than other phenomena?”
The regression theorem is praxeological because it follows from the rules of logic and the action axiom. The word “money” may be replaced with the phrase “medium of exchange”. That is the definition of money, and what distinguishes it from other goods. If a good is being used as a medium of exchange it is money, if not it isn’t. No “other rules” apply to it but the consequences that follow from its being a medium of exchange.
The regression theorem is not circular or wrong. If you will summarize it and show where and how it is circular or wrong you might make a case. Nor is it meaningless, for it has logical consequences that make predictions about the real world, something a “meaningless tautology” is incapable of [by definition]. One such prediction is that bitcoin will never be a currency.
What aesthetic value does bitcoin have? And to how many people? Something invisible that is odorless etc incites no emotional response in anyone.
“However, people sometimes accept government fiat even if there is no direct force involved etc” That only happens after it has become a currency. We are talking about what is needed to start it off as a currency, a distinction that’s been made here countless times.
Yes there may well be a market gap for money, but it can only be filled by money, not by bitcoins, which are not now money, and the regression theorem predicts they never will be. It’s like saying that in times of famine the market gap for food can be filled by bitcoins.
I don’t understand you. The population of where? The universe? I am talking about a community large enough to offer in trade whatever people buy from each other. Bitcoin has no such community. You can buy a couple of things from a couple of stores, but you cannot buy most things. Take a sears catalogue, or any catalogue, and note the vast variety of stuff available. If the sears catalogue only had things buyable with bitcoin, how big would it be? How varied?
The USA is such a community, Japan is such a community, etc, and 90 to 95 percent of the trade in these places accepts a single currency [dollars in USA, yen in Japan etc]. If bitcoin had such a thing, it would be money; now it doesn’t, so it isn’t.
These Bitcoin threads become so lengthy I have not been able to follow all of the discussion. One thing to me is crystal clear. Bitcoin has opposition on Mises.org and Lewrockwell.com. I have yet to understand why. The most plausible explanation I have seen yet is a lot of Austrians are holding metal :).
Perceptions from an observer:
Bitcoins are created with a combination of electricity, computing power, and an internet connection required to perform an algorithm.
Bitcoins are voluntary.
Bitcoin software is open source.
Public awareness of Bitcoin as a possible currency alternative is growing.
Bitcoin is a belief based currency which makes it no worse off intrinsically than any fiat paper issued by any State.
What perplexes me is that for all of the bitching about Bitcoin I can’t think of one Austrian write up complaining about virtual currencies used in MMORPG’s such as Entropia Dollars, WOW gold, etc.
Clearly, this is either wrong or tautological. I also believe you are misstating the definition, which is more likely to be “dominant medium of exchange”. Anything can be used as a medium of exchange, merely some goods are better suited for specific exchanges and some are worse. The differences can be regional, specific to industries or ways people interact. This means that the acts of trade have differing utility. Other human action is also subject to utility analysis. The regression theorem requires a specific connection between these utilities. But we know that utility is heterogenous. So you cannot conclude anything specific here. If you can, what is it, and why is it true?
Ok, let me then formulate it, in the way I consider it valid but meaningless: In order for a good to become money, the good must have non-monetary value prior to being a medium of exchange. Furthermore, due to network effects, in the absence of force, a small number of such goods will end up being dominant.
What are the exact conclusions that follow from this?
The regression theorem is about money, not about currencies. I’ll just assume it’s an ommission rather than error. Furthermore, even if it was true, it would be, as I said above, meaningless, since apart from having to use a different name for it in economic discourses, there is no other effect.
Its design has aesthetic value to geeks. You have not yet explained what number of people is relevant. Furthermore, my wife is pretty excited about Bitcoin and she’s not a geek.
You probably meant money. Furthermore, you missed the point, which is that the number of people who are affected by the non-monetary value building the critical mass is an empirical issue.
But based on your explanations above, your objection is actually not that Bitcoin does not have non-monetary value (which it clearly has), but that the value is insufficient (either due to spread or due to lack of consumption uses). You merely allege that the critical mass is higher than the current one. But that’s an empirical issue rather than a praxeological one. The spread of Bitcoin has been increasing, and it continues despite dramatic events that occurred in June. This either means that the critical mass can be crossed in the future, or it could also mean that the mass has already been crossed.
Based on the network effect theory, the network effect kicks in when the number of users exceeds critical mass. The network effect is caused by the total utility an individual derives from using the good increasing as more people use it. Once the utility you gain through using the good exceeds (or in praxeological terms, ranks higher) than the goods not subject to network effect, it will have a comparative advantage against those other goods. There is no qualitative change occurring, it’s merely a change of ranking on the utility scale.
Let’s take computers. If one person has a computer, he can do a lots of cool things, but for most people in that position it would not be very useful (not being able to write code and such). But if many people have computers, suddenly everyone can reap a huge benefit from using the computer. Yet, computers do not magically gain new praxeological properties.
Circular argument.
To summarise: by referring to the regression theorem, you are making the appearance as if you were making a praxeological argument. However, as you explain the meaning of the claims, it turns out that it’s an empirical argument.
Now the questions: is your claim that Bitcoin has no non-monetary value, or that it has an insufficient one? If the latter, can it be praxeologically defined what amount of non-monetary use is necessary, or is it rather an empirical question? If it is an empirical question, then why is the regression theorem supposed to be praxeological? Also, if it is an empirical question, how do you know whether the critical mass has been reached or not?
I also asked about the utility differences in trades, and you left it unanswered.
That’s what you have to explain, not me. Without explaining this, the definition has a gap.
You’re forgetting international trade. Based on data from Wikipedia, the international trade in 2010 was about 22% of world trade volume, slightly more than the GDP of USA. You’re just going to ignore this?
Of course it does, it’s just is not regional but virtual.
But who determines this necessary composition? That’s not a praxeological argument. It’s like measuring price increases (“inflation”) by building a basket of commodities. It’s an empirical approach.
I don’t know who Sears is. Why should I care what currency they charge in?
Who decides what aspects of the community are relevant? Why is the regional aspect relevant in any way? That’s just a historical datum, it’s not a praxeological argument.
So, why does the community need to be regional, and cannot be virtual? If it can be virtual, what composition of goods is relevant for determining whether it’s money or not?
All you say about the regression theorem is indistinguishable from gibberish, to my poor understanding. Perhaps someone more intelligent will grasp what you are saying.
Saying your wife is excited about bitcoins is also incomprehensible to me. What aesthetic value is she getting excited about? Its pretty image on the screen? She can have that without paying $17 for it. Again, perhaps someone more gifted than me will get it.
Of course it can be an online community. But large enough to be able to sell all that is sold in Walmart’s. Oddly enough, you ignored that part, seizing on the inessential.
About how much non monetary value it has. I will spell it out. Imagine that you own an empty Walmart and are trying to stock the empty shelves, buying all goods from the suppliers in bitcoins. Bitcoin is not yet the coin of the realm. If there are not enough suppliers who will accept the bitcoins, even if you offer them a trillion bitcoins for a toothpick to fill all your shelves, [and even less suppliers who will take it in lieu of $17 in exchange for their goods], then it has insufficient non monetary value. If you can fill your shelves by paying all suppliers in bitcoin, at whatever rate, it has sufficient non monetary value. All that is included in the definition of medium of exchange.
I expect you to reply that Walmart’s did not exist in Mises’ time, thus making my argument irrelevant.
Live free or die:
Yes, you clearly do not understand the arguments, judging by the 5 irrelevant perceptions you posted.
There are two ways you can deal with your problem, the intelligent way and the Marxian way.
The intelligent way is to hit the books until you can summarize the position you disagree with in a way that satisfies those who believe it, and then show why it is mistaken.
The Marxian way is to ignore the chain of reasoning itself, instead claiming it must be wrong because of some feature possessed by its author, such as his owning gold. This is appropriate whether you know he owns gold or not. Caution: only a certain type of audience will be convinced by that sort of thing.
I asked you clear questions. If answered, they would tremendously help in making other people understand your position. Yet, you fail to do so and instead start metaarguing. To me, that is an indication that you are not interested in resolving the issue (either because you’re dishonest or do not understand your position yourself). This is why I consider the socratic approach superiour, because I figure out much sooner who is a waste of time.
Alright, if the definition of money is “commonly employed media of exchange”, then bitcoins, by this definition, might not be money.
But the opponents claim bitcoin will never become commonly employed.
Lets for the sake of argument agree that bitcoin has some value, for example as a collectors item for cryptography geeks, in the same way stamps are valued by philatelists (and perhaps we could say gold once was by jewelers).
If a rational person wanted to use a medium of exchange he would consider the advantages and disadvantages of using different media. If the advantages outweigh the disadvantages he would be prepared to accept it.
While stamps are small and potentially valuable compared to its weight, it’s hard to predict how much I would get in return from a philatelist, it might be hard to find a philatelist to exchange the stamp with and stamps are pretty fragile (even slightly damaged, it would loose value). Stamps are perhaps not the worst possible choice, but still not a good medium of exchange.
Gold however is also small and valuable (might still be a bit heavy for some uses), it’s relatively easy to determine how much I would get in return for a piece from a jeweler (by weighting it) and gold is sturdy and doesn’t degrade with time. Gold, history has proven, is a good medium of exchange.
Bitcoins have most of the benefits of gold, and then some. It takes up negligible space and weight, it can be transfered electronically without anyone else taking a transaction fee, It’s easy to determine how much I would get in exchange from a cryptography geek by looking at a website and bitcoins are also sturdy and don’t degrade (you can even back them up!). If I worry the bitcoins I receive will lose value tomorrow I could exchange them immediately for dollars (or other goods) on one of many websites. (We could make a long list and argue about the details but I think we can agree bitcoins has many attractive properties if they function as advertised.) So bitcoin sounds like a pretty good medium for exchange?
Why wouldn’t Alice’s Restaurant accept both traditional currency and bitcoins if the advantages outweigh the disadvantages? (maybe not so convenient for a “physical” restaurant yet, but for an Internet based shop it would be trivial to implement). One might even expect more and more people would want to accept bitcoin until, one day, it could be considered “commonly employed” and thereby, by definition, money..? In fact, isn’t that already happening?
I meant that [in order to be considered commonly accepted] there are enough people willing to accept bitcoins that you can buy whatever a guy with dollars can in the US, or a guy with yen can in Japan, etc."
It sounds like you’re using comparisons with existing fiat currencies as the test of whether a medium of exchange is commonly accepted. This is question begging. You first need to establish that these fiat currencies qualify as commonly accepted. To do this, you need to explain how we determine what the relevant population under consideration should be when we try to establish whether a medium of exchange qualifies as commonly accepted or not. I see no non-arbitrary way to do this.
Bear in mind the possibility that somewhere there’s a galaxy where Mineral X is the dominant medium of exchange. There are so many entities accepting Mineral X, that gold, silver and all other earthly money’s are in fact disqualified from being monies, (since they’re accepted by a vanishingly small minority) assuming that the ‘relevant population’ is all sentient beings in the universe.
I’m holding both bitcoins and silver. I’m an ‘austrian’, or more accurately, a praxeologist. This doesn’t hold water.
False flag/mole. Those “Austrians” producing anti-bitcoin articles are either uninformed (which I will assume most of the detractors on this forum are) or actively in league with those who would wish to undermine Austrian Economic theories if the need should ever arise. All of those who argue against it’s use and value on this forum, that I have seen, argue falsehoods to begin with.
I don’t have anything against “metal” either. I have gold as well as Bitcoins. I keep some Bitcoins for aesthetic purposes, keep mining new ones and speculate with the rest (trading bot I wrote). I keep the gold as a hedge against inflation. I consider myself close to the Austrian school (I’m a falsificationist first and Austrian second).
I seem to have no common language or logic with the other respected posters here, but think you might grasp what I’m saying, which is why I’m replying.
Lets for the sake of argument agree that bitcoin has some value, for example as a collectors item for cryptography geeks.
Hold it right there. You are describing a universe where cryptography geeks will pay good money to keep a bitcoin forever on their computer, never passing it on to the next guy. And not just one bitcoin, the more they have on their computer forever, the happier they are. And the size of the geek community willing to keep it forever on their computers and never ever pass it on to the next guy is pretty large, so large that Farmer Jones is willing to give up a bushel of apples in exchange for bitcoins becaue he knows there are enough cryptography geeks willing to give him dollars for bitcoins that he will have no problem finding one and handing him more and more bitcoins to keep forever on that cryptography geeks computer.
If that is the case, then yes, bitcoin can become a money. Is this the situation now? I don’t think so. I think the vast majority of bitcoin holders, say 99.999999% have no intentions of keeping their bitcoins on their computers forever, never passing it on to the next guy.
Is anyone claiming that it is? Will it ever be? And if it is, will it last for twenty years, or will it be a fad like Beany Babies?
But yes, if that is ever the case, then bitcoin will then have the prerequisite to become money. And because of the many conveniences it has that everyone points out, it may become a very popular money. My personal opinion is don’t hold your breath.
Why wouldn’t Alice’s Restaurant accept both traditional currency and bitcoins if the advantages outweigh the disadvantages?
Because why don’t people use bitclothing if the advantages outweigh the disadvantages? Never needs ironing, takes up no closet space, etc. Just as clothing needs to cover the body of the owner, which bitclothing cannot do, so too money has to be useful for me in order for me to accept it. Mises’ regression theorem asserts that we can also deduce that money has to start out as being useful to me to keep in my house, not to hand on to the next guy. If it doesn’t have that usefullness right off the bat, it will never be money, claims Mises. And I think he’s right. I see no flaw in his reasoining.
If indeed the people at Alice’s Restaurant will sell you anything you want for bitcoins, and indeed will be able to stock up their store by paying their suppliers exclusively in bitcoin, then bitcoin is a money. Because it is then a commonly accepted medium of exchange. Is this the case now? No, of course not. You can buy a few odds and ends with bitcoins, but not everything in a Walmart. So it’s not a money now. Will it ever be the case that Alice’s Restaurant will pass the test? Maybe. I doubt it. And the gamble of $17 per bitcoin that it will happen seems to me the height of folly.
Lets for the sake of argument agree that bitcoin has some value, for example as a collectors item for cryptography geeks.
@Smiling dave, you said:
Hold it right there. You are describing a universe where cryptography geeks will pay good money to keep a bitcoin forever on their computer, never passing it on to the next guy.
Hold it right there you’re stacking the deck. In order to be a collector, to hold a good with no plan of trading it, there’s no requirement that you will keep it forever, and never pass it on. At some point in the future, when the conditions of the world have changed, and your value scale has changed, you may well decide to pass it on, if you can satisfy your future preferences better at that moment by doing so.
We already live in a universe in which cryptography geeks have mined bitcoins and held them with no apparent plan (or possibility) to spend it, as a prestige symbol. It’s quite possible that these same people later did trade those coins, even though they may not have initially planned to do so.
And not just one bitcoin, the more they have on their computer forever, the happier they are.
(Perhaps it’s not super relevant to the disagreement, but I think the the law of diminishing marginal utility applies here: At some point the opportunity cost of holding one extra bitcoin will outweigh the expected increase in marginal utility that holding that coin will provide. This limit could be reached after even one bitcoin. So it’s not true that the more coin they store the happier they are, with no limit.
If indeed the people at Alice’s Restaurant will sell you anything you want for bitcoins, and indeed will be able to stock up their store by paying their suppliers exclusively in bitcoin, then bitcoin is a money. Because it is then a commonly accepted medium of exchange.
How are you determining what constitutes commonly accepted? Specifically: How are you determining the relevant population that should be considered? (why are you considering the human population of planet earth, rather than the population of sentient beings in the universe, or of crypto geeks on earth?) Since a proper answer to this is crucial to the success of your case against Bitcoin as money, I’d really like it if you tried to address this.
you’re stacking the deck. In order to be a collector, to hold a good with no plan of trading it, there’s no requirement that you will keep it forever, and never pass it on. At some point in the future, when the conditions of the world have changed, and your value scale has changed, you may well decide to pass it on, if you can satisfy your future preferences better at that moment by doing so.