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Bitcoin Takes a Beating

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The webpage is Libertarian news, with a picture of Murray Rothbard on the bannerhead.
And they let an article sneak in called “The Economics Of Bitcoin – How Bitcoins Act As Money.”

The article goes on to explain how bitcoins are as good as gold. Both gold and bitcoins are scarce, are fungible [one piece of gold is the same as another], are divisible into smaller pieces, and are recognizable. Plus bitcoin has all kinds of advantages gold doesn’t, which we won’t go into here.

Gold, the article tells us, has only one insignificant little detail of an advantage over bitcoin, hardly worth mentioning really. You can make jewelry out of gold. But so what, right? Let’s quote the article in full, emphasis mine:

It is important to note that anything which meets the criteria I just listed can act as a money.  People do not care in the slightest that gold can be turned into artistic jewelry pieces in their decision making process about why they are holding gold as a store of value.
The fact that gold can be turned into artistic pieces simply provides a reassuring alternative use for gold if people decided that gold is no longer of monetary value.  So this way I know that if people stop buying gold as a store of wealth, I’ll still be able to sell my gold to a jewelry shop at a tiny fraction of its current value if it came down to it.  But this reassurance that gold will always have some tiny fraction of value to jewelers in no way influences the reasons why people use gold as a money and why gold has a market determined value of nearly 1600 dollars today.
Because Bitcoins have no other use besides acting as trade facilitators, they have no such reassurances of minimal value – but this fact is totally irrelevant from a monetary perspective, just as it is totally irrelevant from the perspective of gold.
All that matters as far as the money market in Bitcoins is concerned is that they have all of the aforementioned properties that make gold a money – which they do.  Thus, Bitcoins can act in exactly the same capacity as a store of wealth as gold. 

Sounds very convincing no? After all, does anyone really think all that gold in Fort  Knox, if it is still there, will ever be turned into jewelry? The thought is ludicrous, right? So just because gold might be worth a few pennies as a trinket doesn’t really give it an advantage over bitcoins. Gold is valuable because it is money, not because it makes a good nose ring. That’s the article’s argument.

What woman would want this? Really.

But alas, dear reader, the article is either misinformed or trying to dupe you.
To understand why, let’s sit for a while at the feet of the master, Ludwig von Mises, with my snarky comments to make it palatable. This is from Human Action, Chapter 17.

As soon as an economic good is demanded not only by those who want to use it for consumption or production, but also by people who want to keep it as a medium of exchange and to give it away at need in a later act of exchange, the demand for it increases. A new employment for this good has emerged and creates an additional demand for it. As with every other economic good, such an additional demand brings about a rise in its value in exchange, i.e., in the quantity of other goods which are offered for its acquisition. The amount of other goods which can be obtained in giving away a medium of exchange, its “price” as expressed in terms of various goods and services, is in part determined by the demand of those who want to acquire it as a medium of exchange. If people stop using the good in question as a medium of exchange, this additional specific demand disappears and the “price” drops concomitantly.

We’ll use gold as an example of what he means. The caveman liked gold because it made pretty trinkets. This didn’t mean much, really, and he certainly would not pay $1,600 an ounce for it. But as time went on, and people started using gold as money, then that very fact that it was money made it more valuable. It’s the law of supply and demand at work. Increase the demand for gold, since more people want it now that it is used as money, and you increase its price.

Thus the demand for a medium of exchange is the composite of two partial demands: the demand displayed by the intention to use it in consumption and production and that displayed by the intention to use it as a medium of exchange.[7] With regard to modern metallic money one speaks of the industrial demand and of the monetary demand. The value in exchange (purchasing power) of a medium of exchange is the resultant of the cumulative effect of both partial demands.

In other words, the reason people want a gold coin, when it is used as money, and what determines what they are willing to give in exchange for a gold coin, is the two uses it has, as jewelry and as money.

Simple enough so far, and totally in agreement with the bitcoin article.

Now the extent of that part of the demand for a medium of exchange which is displayed on account of its service as a medium of exchange depends on its value in exchange. This fact raises difficulties which many economists considered insoluble so that they abstained from following farther along this line of reasoning. It is illogical, they said, to explain the purchasing power of money by reference to the demand for money, and the demand for money by reference to its purchasing power.

Translated into English, he is asking a simple question. Let’s put aside the jewelry aspect of gold, and concentrate only on its value as money. People want gold because it has purchasing power, and it has purchasing power because people want it. In a Logic classroom, that kind of thinking would get an F. It’s called circular reasoning, like the guy who drinks too much to forget his problems, and the problem he’s trying to forget is that he drinks too much.

So bottom line, if we knock off a dime for its value as jewelry, how on Earth did a gold coin ever get to have the ability to buy $1,600 worth of groceries? Because people want it so badly? Well, why do they want it so badly? Because it can buy $1,600 worth of groceries? Circular reasoning.

Mises did not originate the question, but he did come up with the answer.
Before we see what he says, let us take note that right here is where the bitcoin people want to end the discussion.

They will say, “Great question, Ludwig. Just have to chalk it up as one of life’s mysteries. But whatever the answer, that answer probably applies to bitcoins as much as to gold. Maybe both bitcoins and gold have no answer to that highly theoretical parlor game quiz, but who cares? Bottom line, gold works in the real world despite some ivory tower paradox, and bitcoins can, too.”

On to the answer. Mises leads us through the intricate looking reasoning step by step:
The difficulty is, however, merely apparent. The purchasing power [p. 409] which we explain by referring to the extent of specific demand is not the same purchasing power the height of which determines this specific demand. The problem is to conceive the determination of the purchasing power of the immediate future, of the impending moment. For the solution of this problem we refer to the purchasing power of the immediate past, of the moment just passed. These are two distinct magnitudes. It is erroneous to object to our theorem, which may be called the regression theorem, that it moves in a vicious circle.[8]

In English, people are willing to accept gold coins and give in exchange $1,600 worth of groceries today, because they saw that yesterday they could get $1,600 worth of goodies with a gold coin. People want gold today because yesterday they saw they can buy a lot of stuff with it.

This would apply to bitcoins as well, of course. People will pay $17 for a bitcoin today because they saw that yesterday they could spend it and get $17 worth of stuff.

But, say the critics, this is tantamount to merely pushing back the problem. For now one must still explain the determination of yesterday’s purchasing power. If one explains this in the same way by referring to the purchasing power of the day before yesterday and so on, one slips into a regressus in infinitum. This reasoning, they assert, is certainly not a complete and logically satisfactory solution of the problem involved. 

In other words, it’s worth $1.600 today because that’s what you could get with it yesterday. But what about yesterday? You can’t go back and back to the beginning of time, right?

What these critics fail to see is that the regression does not go back endlessly. It reaches a point at which the explanation is completed and no further question remains unanswered. If we trace the purchasing power of money back step by step, we finally arrive at the point at which the service of the good concerned as a medium of exchange begins. At this point yesterday’s exchange value is exclusively determined by the nonmonetary –industrial–demand which is displayed only by those who want to use this good for other employments than that of a medium of exchange.

In other words, if you go back far enough, you get to the day when gold was useful as jewellery only, worth say a dime. Until someone realized people are happy to take gold coins valued at a dime apiece. What have they got to lose? That’s what the gold is worth for jewellery, anyway. And from there, as gold coins became more popular as money, they started becoming worth more than a dime.

And this is where bitcoins achieve their fail. Unlike gold, no matter how far back you go, bitcoins were never worth anything intrinsically. There was never a reason for bitcoins to suddenly become worth a dime, or any other price. They are totally useless as jewellery, or anything else. So that there is no reason people should accept them as being worth a dime, much less $33.

One may ask, then how come they were traded on certain websites at $33 a bitcoin? P.T. Barnum provided the answer. There’s a sucker born every minute. A small handful of people decided to speculate in bitcoins and bought them at whatever silly price they thought was worth it. But bitcoins were never generally accepted at any price but zero. They have no reason to be.

The Brooklyn Bridge, on sale now.


  1. Anonymous says:

    Thanks for insightful post. Frankly thanks to you I finally understood regression theorem 🙂


  2. Anonymous says:

    Could bitcoins become money if bitcoin represented "promise to deliver some amount of computational resources (hard disk space, cpu or gpu time)" (and this new architecture would have api that could be used to take advantage of this computational resources using for example map/reduce-type algoritm for cpu/gpu time, and some sort cloud for storage) instead of "proof that energy was spent"?


  3. Smiling Dave says:

    I do not know the meaning of many of the words you used. But the rule of thumb is this. To be money, a person has to have a clear answer to the question "What's in it for me if I have this thing, besides maybe passing it off to another sucker?"With a gold coin, the answer is "I have some gold, which I want." With a US dollar, the answer used to be, "I am now able to present this paper at a bank and get a gold coin." Nowadays, the answer is "I can give this paper to the IRS and they won't bother me for a while."If the answer for bitcoin is "You will have the right to use some hard disk space on some cloud computer," that's fine. If the answer is you get a kiss from Lady Gaga, that's OK, too. You are getting something.Then comes the next hurdle. The something has to be so desirable that 90% of the country will want it. Also, 90% of the people will have to trust that having the bitcoin guarentees getting the something; that there is no fraud involved. That's off the top of my head. The books on the subject spell out what other conditions a thing needs to be accepted as money. The point of the blog was to point out that bitcoin lacks the very first essential of money, that having it in your hand means you will get something you want.


  4. bitbutter says:

    "With a gold coin, the answer is "I have some gold, which I want.""Not quite. I don't have any non-trade related use for gold for instance. Only a minority want gold for non-trade related use currently. Similarly, a minority of early bitcoin adopters wanted to hold bitcoin for 'geek cred'–also a non-trade related use. So there's no problem here, by your reasoning.


  5. Smiling Dave says:

    bitbutter said… "With a gold coin, the answer is "I have some gold, which I want."" Not quite. I don't have any non-trade related use for gold for instance. Only a minority want gold for non-trade related use currently.

    You might be right. The question only has to be answered when the thing is first starting to be used as money.
    As I explained many times in the comments on an article here [https://smilingdavesblog.wordpress.com/2011/07/bitcoin-yet-again-in-simple-language.html], a few geeks is not a large enough population to count. Even all the bit coin users alive today is not enough. I'll repost the comment right here for your convenience:

    If you and your kid sister set up a system of paying each other for lollipops with tarot cards, that doesn't make tarot cards money, right? And why not? Because money has to be something accepted

    1. by a whole community

    2. in exchange for anything and everything.

    That's what medium of exchange means. When everything has a price in tarot cards, for a large group of people, not just a few close friends, then they can be legitimately called money.

    Bitcoin is not money yet, because there is no community, even if we call a group of people connected by computers a community, who will buy and sell everything for bitcoins.


  6. itm says:

    Nice post great information, The Fed’s recent campaign to raise interest rates has certainty been supportive of the dollar. But one has to ask at this late stage: How much higher can the Fed raise rates without tipping the U.S. economy into a recession and can our economy handle a recession at this point in our history?We are a nation of debtors who have literally piled up debt in the last few decades, particularly within the last 16 years. You will recall that I address our astronomical debt in almost every newsletter. Again, I remind you that, excluding unfunded liabilities, our debt currently exceeds $40 trillion (corporate, personal, and government), and 65% of that debt has been created since 1990. This has put tremendous pressure on the dollar.us gold coins


  7. Anonymous says:

    Our theories of money and economics have been changing and will continue to do so. The continued existence of Bitcoin, along with hundreds of other currencies that violate the theory you explain above should be evidence that reality may not agree with Mises' theory. The value accomplished through a medium of exchange is the ability to account for the production of value of individual people, along with the subsequent ability to exchange that value. There are time bank currencies that trade units of work valued in hours, the "unit" is no more than a means of record keeping. Obviously you cant take your "unit" of hours and turn back the clock in your kitchen. But you can use it as an abstraction and exchange it for someone else's time. There is a new currency in Greece called TEM which is literally nothing more than an accounting ledger of things that have been traded, and the number of TEM (based on a limited supply) either parties willingly agreed to exchange them for. As long as the ledger is secure, accurate, and consistent it can perform the operations as a medium of exchange indefinitely. In fact its working far better than the Euro where it's being used. What Mises' theory suggests is that without first having use in some physical sense it cant have use as a medium of exchange. So its value as a medium of exchange can only be achieved through a 2 step process of believing it has value somewhere else first… but seeing the currency value before some other use is somehow impossible…Sounds like a logical contradiction to me. That would imply that the value attributed to it as a medium of exchange isn't real, unless it has a tiny prerequisite value for some other less useful purpose. The purpose of money is to account for value produced and then to trade that value as accurately as possible. This can be done with a pen and a sheet of paper. Societies throughout history have used thousands of different methods successfully. The brilliance of gold and silver was that they were INDEPENDENT mediums. You didn't have to trust anyone else because you had a physical abstraction of the value you produced that was widely accepted, accurate, and secure. Money only needs to operate as an abstraction of value. Nothing more and nothing less. I can point to countless currencies that operate exactly this way, time bank currencies, airline miles, Linden dollars, WOW gold, TEM, barter ledgers, the US dollar, the Euro, and so on and so forth. Not all of these currencies work spectacularly and many are being manipulated and/or destroyed by the institutions that control them, but the system of money as an abstraction is not only successful, but already far more dominant then any system trading a medium with any physically useful properties. Either you have misrepresented Mises' Theory in this blog post, or it is simply incorrect. An independent and secure accounting for value is all that's necessary to create "money." Society proved this long before Bitcoin came around.


  8. Anonymous says:

    Hi, thanks for explaining, I did not see it that way previously. It is very well written.Just one Idea that i would like your opinion on. It can be difficult to take your gold and give it to someone else. Its heavy, its visible, someone else can intercept the delivery, government can come and take it from you, bla bla…Now I am definitely not smart enough to even express myself properly, but would it possible to see the value in Bitcoin in the way its protected in your wallet? What about the way how all nodes work together to deliver Bitcoin as securely as possible? I am just asking because I already saw people using they're "wealth" in Bitcoin in "jevelry" like style. For instance I saw a subscription like div (what u see on forums when person make a comment – under line is his subscription) that looked kinda nice and had automatically updated the value, how much of Bitcoins he has in related wallet.


  9. Smiling Dave says:

    1. Have you actually read the articles?2. Do you think the law of gravity has been changing and will continue to do so? 3. Bitcoin is not a currency. It is not generally accepted. The US dollar does not violate the regression theorem. Read Mises [in the link provided in the first article] for his discussion of fiat currency. Those hundreds of currencies that you think violate the theorem either are not generally accepted [= you cannot go into your local shopping mall and buy everything there with bitcoin or whatever] or someone has legally bound himself to exchange those things on demand for dollars, which nobody has done for bitcoins.4. Please lay out the contradiction in the form of a syllogism so we can see what you are talking about. Hint: You can't do it. There is no contradiction. The value attributed to it as a medium of exchange is real, if it exists. But the theorem says it will never exist unless it first has intrinsic value. No contradiction there. Read the first article.5."Money only needs to operate as an abstraction of value. Nothing more and nothing less." No. You forgot one critical little thing. It has to be generally accepted. For example, if you start printing Monopoly money and go to the store with it, explaining to the grocer how it is an abstraction of value, and that is all it needs to be, nothing more and nothing less, you won't get very far.


  10. Glader says:

    Dave: Could the inherent properties of BitCoins (anonymous, global) themselves not be considered to be useful enough to get the ball rolling? Scarcity and transferability are excellent characteristics of money and from what I have read BitCoins seem to do quite well on the black market because of their (perceived) anonymity in addition to being easily transferable and (realistically) impossible to forge. I also have a gripe with your application of the term "Generally accepted". Money only has to be accepted by the parties involved or interested in it; it is why one currency is worthless in another country.Concrete example of my point: Let's say I want a smartphone, and I have pesos in my pocket. It does not matter that smartphones are produced in a country which does not trade in pesos, since there are stores which will happily exchange pesos for smartphones. This process can be extended and applied infinitely to more localized or obscure currencies, until, finally, you get get classic trading with goods; I may not even have pesos but know someone who does. I can work for him in exchange for a smartphone and thus never even have to touch fiat currency although several kinds of it are probably used in the chain between me and the factory workers and owners who produced it.I admit I am not an economist nor have I read your entire series of posts yet, but I wanted to make these arguments and get your input on it. Thanks for making these posts btw, it's an interesting phenomenon =)


  11. Smiling Dave says:

    Yw Glader. All your q's are answered in the other articles.


  12. chrisjbillington says:

    There doesn’t seem to me to be a problem. You can argue that there wasn’t a good reason for the ball to get rolling for bitcoins at the price it did, but the fact remains that the ball did, in fact, get rolling.

    Now that it’s rolling, people only care about yesterday’s price. Just like people don’t care about gold’s beginnings, they don’t care about bitcoins’. How gold got it’s initial price makes sense. However, there is a perfectly good explanation for how bitcoins got their initial price too: The first buyer just made up a number, small enough for them to not care whether they lost the money or not. There’s no mystery about it.


  13. Smiling Dave says:

    Thank you for your comment.

    The ball may be rolling, but it is a ball the size of a snowflake, not the size of a snowman. By which I mean that very very few people have even heard of bitcoin, much less actually use it.

    Second, any money that got started without a good reason has always collapsed afterward. Just like any other fad, the collapse is on the way. In my humble article, Bitcoin and the Numbers Game, Part Two, [https://smilingdavesblog.wordpress.com/2012/10/07/bitcoin-and-the-numbers-game-part-2-in-which-we-shew-that-bitcoin-has-never-not-even-once-been-used-as-a-medium-of-exchange ],
    I give many historical examples of phony moneys like just like Bitcoin that had brief their heyday, then died.

    Finally, just making up a number doesn’t cut it. The reason it worked at first, and still does, is because you can get a small group of people to do anything. But that small group is not enough to make Bitcoin money.

    I suggest you read my article Bitcoin All in One Place, which expands on these points: https://smilingdavesblog.wordpress.com/2012/08/03/bitcoin-all-in-one-place/


  14. […] Dave’s Blog is a proponent of the regression theorem and is a critic of Bitcoin. In his article, Bitcoin Takes a Beating he […]


  15. st434u says:

    This is clearly enough to show why bitcoins are nothing but a pyramidal investment scheme. There is no way to predict accurately when such as scheme will collapse, or how high it will go. But what’s certain is that it must eventually collapse back down to zero, as investors (those who hold bitcoins for any period of time whatsoever) realize the impending doom, they start getting rid of their bitcoins at a faster pace (money velocity increases, demand for holding bitcoin decreases). With this, the purchasing power of bitcoin decreases, which causes more people to realize the problem and what follows is a depreciation spiral, until finally the purchasing power of bitcoin is back to zero.

    With gold, you don’t have this problem, because as the purchasing power of gold decreases, two things happen: first, producers who use gold in productive activities (jewelry, computer chips, cellphones, satellites, dentistry, alcoholic beverages with gold flakes suspended in it, etc), as well as consumers who want these products, all increase their demand for gold. Second, those who are still using gold as a medium of exchange, because they know of the counterbalance provided by the increased demand for gold’s non-monetary uses and thus don’t expect a depreciation spiral, will tend to increase their demand for gold, as they require more gold to settle the same transactions that used to require less amount of gold to settle.


  16. Smiling Dave says:

    TY for the comment, st4.

    Of course, the discussion about gold is theoretical now, because nobody uses gold as money nowadays. Govts have made all transactions in gold taxable, do that puts a huge cost on using gold as money.


  17. […] Mises’ regression theorem. Examples of arguments of this type include those by Shostak and “Smiling Dave” among many others. This topic is by far the most significant of the lot, as those libertarians […]


  18. Anonymous says:

    Back in the day, some people valued gold only as jewelry.
    Back in the day, some people valued bitcoin only as an interesting math experiment.

    The first is physical and more tangible. The latter, where someone bought bitcoins for a penny each, found “use” in bitcoin because he found the mathematics behind it exciting.

    It is not the business of the economist to differ between the two “use values”. Economists understand that value originates in the human mind.

    Thus, it is a total myth that bitcoin violates the regression theorem.


  19. Smiling Dave says:

    But it is the business of the economist to know what he is talking about.
    And in this case, that means knowing that one or two guys liking something does not cut it.
    Search my humble blog for “bitcoin”, or “wide demand”, and thou shalt find enlightenment.


  20. Anonymous says:

    Thanks for the reply.

    The whole point of the regression theorem is to explain the purchasing power of money today with respect to its purchasing power yesterday, and finally – to resolve the apparent circular logic – to keep going back to the point it became money for the first time. It successfully does so in the case of bitcoin, even if only one or two guys valued it for its own sake at the beginning.

    When Mises and Rothbard alluded to “wide demand,” they obviously had in mind precious metals. But their logic works fine with bitcoin too.

    I have not seen you actually refute this anywhere.


  21. Smiling Dave says:

    That is indeed the point. But the theorem has corollaries. Let me spell it out.

    Theorem. To be a money today, a thing had to have been in wide demand for its non money uses.
    Corollary: If a thing never had wide demand for its non money uses, it cannot be a money today.

    Now we apply these ideas to bitcoin. Did it ever have a wide demand for non monetary use? No. Therefore, according to the corollary, can it ever be a money? No.

    You seem to think the wide demand thing is just a historical fact about gold, not an essential feature of the regression theorem. Not so. Do a search for “wide demand” on this humble website.

    That you have not seen me actually refute this anywhere is odd, because I have refuted it many times. Search engine is your friend.


  22. Anonymous says:

    So that is indeed the point. The theorem is the theorem, and it can successfully trace bitcoin’s value back to the “two guys” that valued it for its own sake.

    At which point exactly in this logic, and how, does this other “wide demand” theorem arrive? I searched your site in vain for sound explanations.

    A vague concept like “wide demand” cannot possibly be an essential feature of the regression theorem. That’s not how praxeological theorems work. I have not seen you precisely define “wide demand” anywhere.

    Praxeology provides us with apodictically true statements. Whether something is “wide” enough or not must be data that is different from case to case. Nowhere have I seen Mises mention “wide demand” in reference to the actual praxeological theorem.


  23. Smiling Dave says:

    How would you reply to this attack on Human Action Chapter 17 someone made recently?
    Mises writes there:

    “A medium of exchange which is commonly used as such is
    called money. The notion of money is vague, as its definition
    refers to the vague term “commonly used.” There are
    borderline cases in which it cannot be decided whether a
    medium of exchange is or is not “commonly” used and should
    be called money.”

    To which the critic criticized:

    A vague concept like “money” cannot possibly be an essential feature of economics. That’s not how praxeology works. I have not seen you, Professor Mises, precisely define “money” anywhere. In fact you explicitly admit it’s a vague term. Sorry, Mises, that doesn’t cut it.

    Praxeology provides us with apodictically true statements. Whether something is “commonly used” enough or not must be data that is different from case to case.

    How would you defend Mises from the critic?


  24. Anonymous says:

    The critic you cite is missing the point. He does not seem to understand the difference between theorems of praxeological categories – in this case the praxeological category of money – and what may or may not be called “money” in the real world (which may differ from case to case). What Mises is talking about in that quote does not refer to any praxeological theorem at all. In addition, he is talking about money after it has already been formed.

    This is entirely different from what we were discussing earlier. We were discussing the regression theorem. I showed how the regression theorem explains bitcoin’s subjective value by tracing it back to the “one or two guys”.

    You claim that bitcoin violates the regression theorem, but I have never seen you back up this claim. In other words, I have never seen you explain how bitcoin’s subjective value can *not* be traced back to the “one or two guys”. All you did was interject a new supposed “theorem” about “wide demand”. I asked where this “theorem” actually came from and how it relates to the regression theorem. I still don’t know.


  25. Smiling Dave says:

    If you want to find out, go to my article Bitcoin All in One Place, where I put the links to most of my bitcoin articles, sorted by topic. You will find links to the question of wide demand, why it is an essential part of the regression theorem, where Mises stated it, the vagueness issue, everything.


  26. Hey there, You have done an excellent job. I will certainly digg it and personally suggest to my friends. I’m confident they will be benefited from this site.


  27. timengler says:

    Hey Smiling Dave,

    I know this is a little late but, I had a dream last night about the regression theory in reverse.

    In the dream, a sheep befriended me and magically teleported us to the end of universe. It was dark and empty.

    “Heat death, baaa,” it bleated, “is the end of the universe. Your money is no good here. There is no energy to expend.. nothing can be accomplished no matter how much you want to give. Baaaa….”

    The sheep then looked at a watch it carried in its fur for an instance and snapped it shut. The scene subtly changed, not too much, but just slightly. “A moment before the last. Your money is no good here. In a moment it will be useless… if I take it now, I cannot spend it in the future, therefore it is useless now. Baaaaa.”

    The sheep took out its watch, and again we went back a moment, and it repeated, “Baaaa, in moment your money will be useless. I won’t be able to spend your money in the future, therefore its useless now.”

    And again and again, we did so, going back one moment in time, each time the sheep repeated the line. I was getting dizzy, so I said “Enough!”

    It transported me back to the present, and said “All your kinds of money is useless one moment in the future, therefore it useless now!”

    What do you think of my dream?


  28. Smiling Dave says:

    I think your dream shows creative thinking, the kind that turns an idea around and around in the mind, inspecting it from all angles.

    So let’s see if we can figure things out. Jones has worked hard all day, and it is time to get paid. When asked if he will accept $100 in payment, his first question to himself is, “what can I buy with it?” And he thinks, “Probably I will be able to buy with it today more or less what I saw I was able to buy with it yesterday, say a basket full of my favorite foods. That being the case, I’ll accept the $100.”

    In other words, he values the money today based on what it was able to buy yesterday. And people valued it yesterday based on what it was able to buy the day before. Which is how all the economists understood the situation, including Mises.

    Your dream opens up a new possibility. Maybe the person is willing to accept $100 in payment today based on what he will be able to buy tomorrow, say a basket full of groceries. And people tomorrow will give him a basket of groceries for $100, because they know what they will be able to buy the next day, and so on into the future.

    You see the problems with such an analysis. Nobody sits down and says “I know what I will be able to buy today based on what I will be able to buy tomorrow. That’s saying they get clarity about an uncertain today from something even less certain, tomorrow. And tomorrow gets its clarity from an even less clear time, two days from now.

    But if we go back to the way the economists analyzed it, it makes sense. I know about today based on a certainty, i.e. based on what already happened yesterday and is well known. And yesterday, the day before was know with certainty.


  29. Smiling Dave says:

    Awesome article. Using Google Translate, the author seems to be arguing that yes, it’s all true, bitcoin violates the regression thm. etc, but what if the only alternative to bit coin is even worse? What if your only other choice is almost worthless fiat money that declines in value constantly due to inflation of the money supply? Is it not possible that a significant minority will choose bitcoin, volatility and all, over the inferior government money?

    I have to think it over. In the meantime, well done.


  30. […] in Human Action, or read Bitcoin Takes a Beating  for a popular […]


  31. […] of arguments of this type include those by The Mises Institute’s Frank Shostak and blogger “Smiling Dave” among others. This topic is by far the most significant of the lot, as those libertarians who claim […]


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