Michael:
Firstly, thanks for starting this thread. It was extremely easy to find via google search with the key words “Bitcoin Mises Regression Theorem”. Secondly, I know I’m a bit late to the party. But here I am, nonetheless.
After reading this article and thread, I wonder if bitcoin can be made to satisfy Mises’ Regression Theorem by taking a different tack? See below.
“This is patently wrong. Consider that as soon as the market perceives a need for money, it wouldn’t matter if gold had a pre-existing value in ornamental use or not, because it would suddenly have value as a trade intermediary as soon as the need for a trade intermediary entered the public consciousness.”
I agree with your final conclusions, that pre-existing use is not necessary for a good to become a money. That once the market recognizes the value of a potential money product for its own sake, people will be willing to trade goods and services for it. This is the case for Bitcoin.
However, gold is different. Gold was used ornamentally long before it was used as money. The Egyptians began smelting gold around 3600 BC which allowed for much greater use as jewelry. For example, the “Gold of Troy” treasure hoard, excavated in Turkey and dating to the era 2450-2600 BC, shows a range of gold-work from delicate jewelry to larger gold objects. This was a time when gold was highly valued, but had not yet become money itself. Rather, it was owned by the powerful and well-connected, or made into objects of worship, or used to decorate sacred locations.
Gold’s highly malleable, ductile, and aesthetic properties made it attractive for ornamental purposes. And the fact that it was scarce simply increased its desirability. It’s more likely the case that as people traded and bartered, they realized that it was more convenient to employ a non-perishable trade intermediary such as gold, because it was already valued ornamentally - in conjunction with it possessing the qualities of being scarce, fungible, divisible, and easily identifiable, etc. And it wasn’t until about 3000 years after the first smelting of gold by the Egyptians (3600 BC) did we see gold coins being used in commerce.
Now onto attempting to reconcile Bitcoin with Mises’ Regression Theorem.
In a definite way, bitcoins are backed by something: work. It takes work to acquire or mine them. One must invest in special hardware, electricity, software, personal effort, time, etc. And all of these components come together to acquire bitcoins.
Similarly, purchasing shovels, picks, panning gear, travelling to a specific location, and engaging in physical labour are work that allow for the discovery of chunks of yellow metal embedded in rock.
Gold as commodity became such through the exertion of work and effort due to its scarcity, in conjunction with its desirable physical characteristics. Gold served the function of first jewelry and later money. What were gold’s uses in primitive society apart from this? It would appear nil. The ancient Egyptians observed that gold’s value was a function of its pleasing physical characteristics and its scarcity.
So too, bitcoin has become a virtual commodity through the exertion of work and effort in conjunction with some of its desirable virtual characteristics (as money), including being in limited supply, decentralized, anonymous, secure, fungible, divisible, etc.
Therefore, bitcoin can be seen as a commodity, albeit a virtual one. But one that still takes work and effort to produce. Simply put, identifying bitcoins as virtual commodities by virtue of the work required to produce them and the desirable characteristics they possess (as money), allows them to satisfy Mises’ Regression Theorem - extended to the virtual sphere.
One might say that Mises’ Regression Theorem was formulated in a world of physical commodities, where sophisticated computers, cryptography, software, GPUs and ASICs were inconceivable. But that it can be extended in the modern era to include virtual non-physical commodities.
