Bitcoin

I’ve been thinking about the arguments for and against Bitcoin for quite a while, and the thing that almost always had put a wrench into my thought was Mises’s *Regression Theorem*.

This brought about the ideas that a medium of exchange must arise as a commodity, as Mises stated to be so. (that bitcoins are already a medium of exchange should be an indication that there is something else going on. My task here is to reconcile the questions that arose in my mind between the theory and reality)

This term “commodity” typically specifies a particular tangible good. But I’ve recently realized that there are also many service-based commodities (those that are intangible). The services of Dr. X or Lawyer Y are certainly commodities, though they aren’t tangible, just as are the services provided by a particular cellphone provider are intangible but able to be commodified.

All of these things require capital, labor, investment, and everything else that is found in economic action. Their limitations are often time-preference, knowledge, relative capitalization, opportunity cost, disutility, and a myriad of other things that have nothing to do with objective scarcity; these considerations are all subjective to the actor offering such services (just as the consumer of such things has his own subjective considerations). Just the same, these considerations are found in all economic actions in a world of scarcity. And because of this realization, I now realize that Bitcoin is indeed commodity, even if an intangible one.

The direct-use value of Bitcoin is that of a service–one that is entirely commodified and homogeneous (by virtue of its creation and contracted exchange), and it is supplied and demanded upon the unhampered market (but probably due the hampered market that exists today); it is scarce–thus it meets all of the requirements of Mises’s RT.

I’ve often said that a great misunderstanding surrounding Bitcoin had to do entirely with the disregard of subjective value; I now realize how much more important that statement was.

*Strange as it may seem, but this post of mine (and my understanding expressed therein) was entirely inspired by Murray Rothbard’s monopoly theory. That’s actually somewhat ironic if you think about it …

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9 Comments on “Bitcoin”

  1. Greg Morin Says:

    In general I agree with what you’re saying here, just a couple of observations: I’m not sure I would necessarily say that services themselves are a commodity in the sense that we think of commodities as being something over which one can claim ownership (with the putative goal of such ownership often being as either a means to and end to either (a) maintain value/wealth/purchasing power into the future or (b) speculation that a greater arbitrage opportunity will exist in the future on said commodity thereby deriving a net profit or increase in value/wealth/purchasing power.)

    So while we can’t per se “own” the physical action of a doctor performing such action that we can can then bank and sell later… we can own an abstraction of the outcome of those actions, i.e. one can own stock/shares of doctor’s private practice or of a hospital employing doctors, etc.

    That’s what bitcoin is. So many are up in a tither trying to figure out what it is and if it is “real” and if satisfies this or that theorem when if we just step back we can see it is really no different than stock ownership. I mean after all what is stock? It is entirely an imaginary abstraction. I’m mean sure you can get a piece of paper that says you own so many shares, but what does that mean? I could sell pieces of paper that say you own 10 shares of me running a 5k. Stock ownership just say you own the abstract concept of people performing some set of actions together and as such you also own the results of those actions, be they losses or gains.

    There is ownership of the tangible (physical commodities, like gold, silver, oil, wheat, etc) in which one can demonstrate ownership by actually holding the good. Then there is ownership of the intangible (commodities such as stock, bonds, fiat currency, and yes, bitcoins) in which one can demonstrate ownership via the social convention of the contract – the contract is a proxy to help us conceptualize owning something intangible in a way that is comparable to owning something tangible (e.g. I can print a paper wallet of my bitcoin addresses, that proves my claim on them if I possess that paper and allow no one else to possess it). The form may be different but they serve the same function.

    People buy stock because they subjectively perceive there to be value in such ownership since by virtue of such ownership they have a claim on future earnings or future growth. The expectation of useful productive output drives the notion of the subjective value for a particular stock. In the same way owning bitcoin is identical to owning a share of stock. Right now bitcoin is a commodity although it is not yet money per se (it is too volatile to usefully serve that purpose). It is a payment network though – and the expectation that people are now gaining that it will become the dominant payment network of the future is what is driving the increase in value right now. It’s no different than if there were an actual BitCoin, Inc that invented this payment network and people thought it would become the dominant player in the future – they would try to buy shares of BitCoin, Inc because there is a speculative assessment that it will gain in value as more people use it. So buying bitcoins is the same as buying shares – but they are even better because people not only buy stock to get a return on the investment but also with the expectation it won’t go down in value as well. Knowing that someone can’t just create a bunch more bitcoins arbitrarily (as a company could do with a popular stock) provides a greater level of confidence in the value being maintained and not being arbitrarily undercut at someone’s whim.

    So since I think we have both established that bitcoin is now a commodity, then when at some point in the future it does become money (once it passes a certain adoption threshhold that will limit volatility, e.g. the demand of 10 million people buying bitcoin when the market is only 20 million people creates much more volatility than does the demand of 10 million new people buying bitcoin when the market is 1 billion people already holding bitcoin). And when it does become money it will have satisified Mises regression thereom. A product that gained value in the market owing to its “intrinsic” utility (as an efficient means to facillitate trade) became a commodity as people saw value in holding that product as a store of “value” and then when enough people held that commodity it was simply a foregone conclusion that it would become the generally accepted form of final payment.

  2. anarcholibertarian Says:

    Hey buddy, why did you delete the discussion we were having about bitcoin and unfriend me? Just curious.


    • I didn’t unfriend you, nor did I delete the discussion, I blocked you. Don’t feel so special, I blocked you along with 20 other people. Why? For the hell of it.

      • anarcholibertarian Says:

        I show that bitcoin doesn’t adhere to the regression theorem, and do it completely respectfully, and you respond by blocking me without reason. This is a case of butthurt from losing a debate.


      • Nope, not even close. If anything I noticed the Krugman thing, but I can care less about any perceived debate. Like I said, I purged about 20 other people, including somebody that I’ve known since second grade and Jonathan Catalan (who I’ve known for years). None of them did anything at all to get nixed, yet they’re still gone. I don’t get “butthurt” or really hurt at all, I’m a pretty emotionless person. But hey, if that is what you have to tell yourself, then that’s fine with me.

        In all honesty, I didn’t even read the comment that you posted on FB, I only skimmed it and saw the Krugman thing. The simple fact is that I keep my friends list at around 150 people. Sometimes it gets higher than that after a few approvals here and there, so I then have to get rid of people (I was up around 170 when I did my last purge). And when I get rid of people, I don’t unfriend, I make it final, I block them. It doesn’t really matter who you are, I block without a single afterthought. There are really only about 25-30 people that I care about on there, the rest are meaningless to me but are sometimes amusing. Trust me, if you aren’t one of those 25-30 people (and you aren’t) then there is almost nothing that you can say that will get any sort of emotional response from me.

      • anarcholibertarian Says:

        So you purged me because of the Krugman thing. There was nothing wrong with my logic there. Being wrong on economics doesn’t mean one is unintelligent. I’m sorry if you took it that way.


      • This will be my last comment on this topic, it’s already gone on too long.

        I blocked you along with the 20 other people (all of whom I’ve personally known for years) because I have a self-imposed limit of 150 people that I apply to my FB friends list. Every few months I purge whatever number is necessary to get back down to 150 people. The criteria that I use is this: Do I talk to them regularly? Do I hang out with them regularly? Do we visit each other often (if we live in different states)? When we go to events, do we sometimes share a room and split the cost? Do we cook or buy dinner for each other? Do we buy each other gifts? Do we engage in business together? Do we exchange papers, book recommendations, and ideas? Etc and so forth.

        In other words, my self-imposed 150 person limit is there to ensure that I keep only real friends on my list (it’s a personal page where I talk about personal things). While some of these friends were around before FB, many of them I’ve met through FB, which is why I still approve new requests (I’ve never made a single friend request on FB, all of my “friends” sent a request to me). If I didn’t impose a rather low limit, a lot of people would slip through the cracks.

        Your name didn’t meet any of the criteria during this latest purge, that’s why you got nixed. That you’re the same guy that was on some status update about this or that is entirely irrelevant; I didn’t even make the connection until you started whining about it here on my blog. Now go have a life … please.

      • anarcholibertarian Says:

        I wasn’t whining. Your timing was veeerrrrrrry curious.

  3. Smiling Dave Says:

    You have shown that bitcoin can be a commodity, if we extend the definition of that word.

    But that’s irrelevant, because the regression theorem proves a medium of exchange must start off as much more than a commodity. It has to be a commodity valued for a very special type of reason, which excludes bitcoin. See my article

    http://smilingdavesblog.wordpress.com/2011/06/22/bitcoin-takes-a-beating/

    As for what confuses you, that reality seems to show us that bitcoin is right now, as we speak, a medium of exchange, here’s the solution to the riddle. To qualify as a medium of exchange, a thing must be in incredibly wide use, which bitcoin is not. See my humble articles that proves this from logic and from Mises;

    http://smilingdavesblog.wordpress.com/2014/03/11/all-about-a-medium-of-exchange-having-to-be-in-wide-use/

    and

    http://smilingdavesblog.wordpress.com/2013/10/15/about-a-medium-of-exchange-having-to-be-in-wide-use/


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