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Bitcoin and Mises Regression Theorem.

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Link: http://www.libertariannews.org/2011/07/07/the-economics-of-bitcoin-challenging-mises-regression-theorem/

One M. Suede has posted a challenge to Mises Regression Theorem. His purpose is to prove bitcoin is a viable currency, and anyone who disagrees is just stamping his feet in frustration at the facts.

For Smiling Dave’s take on the regression theorem, with lengthy quotes from Mises, see here.

We quote Mike’s words in italicized font, and our commenst will be in normal font. Here’s what Mike has to say:


There is a lot of disdain for Bitcoins by the Austrian gold bugs for a few reasons.  The primary reason is that, well,  they are all holding gold!  It stands to reason that they don’t like potential threats to their investment holdings. 

Ad hominem strikes again! C’mon, Mike, you can do better than that. And to think the existence of 32 million dollars worth of bitoins is going to threaten the price of gold is a good laugher.

I’m going to come right out and say it – Mises was wrong.

But first, he explains to us why, even if Mises was right, bitcoins are great stuff:
The essence of the argument, which he presents by quoting one XC, is that

1. bitcoins started their existence as having a well defined rate of exchange, and…

2. that’s all you need to satisfy the regression theorem, as he quotes Rothard to prove.

I concede 2., but 1. is a big mistake. Let’s quote the man:


The very first businesses in the Bitcoin economy were exchangers (NewLibertyStandard, BitcoinMarket, BitcoinExchange,….).  This is not an accident, but flows from the analysis above.  In order for Bitcoins to serve as a medium of exchange without commodity value for uses besides indirect exchange, there must be a translated knowledge of money prices.  Market exchangers fill this gap and give Bitcoin users access to this knowledge.  Bitcoins may therefore currently serve as a money intermediary for paypal dollars\pecunix\euros.  But why is there demand for Bitcoin over USD??  This is a subjective valuation arising from properties such as anonymity, decentralized system of clearance, cryptographic trust, predetermined and defined rate of growth, built in deflation, divisibility, low transaction fees, etc…. inherent to the Bitcoin system.

Those who read Smiling Dave’s blog all the way down to the comments already know why this is an ignorant blunder. Here’s the argument, reprinted 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 can be bought with tarot cards, from 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. A few geeks is not a large enough population to count. Even all the bit coin users alive today is not enough. And a few slices of pizza and some software is not enough. EVERYTHING has to be buyable in bitcoins.

The defense rests. Now Mike is going to tell us why Mises is wrong, to boot.
Tell you what, I’ll paraphrase, because he is very long winded. You have the link if you want further clarification, or to see if I am summarizing him correctly.

1. He begins by saying that mankind understands the need for money. Having money is so much more convenient than having to barter directly. [Agreed]

2. And then they will realize what makes a good money, fungibility etc, as economists have listed in their works. [Agreed].

3. Finally, they will understand that bitcoin has all the requirements of a good money par excellence, except for that insignificant unimportant detail that it is actually usefull for something or other besides handing over to the next guy. [Agreed]

4. Therefore bitcoin will be accepted as money, and Mises has been shown wrong. [Disagree].

Here’s where Devil’s Advocate protests vehemently.

DA: Dave, you agreed with all the assumptions, so you must agree with the conclusion. He’s got you now, mwahahaha.

SD [=Smiling Dave]: I disagree with one tiny thing in point 3, which destroys his whole argument.

DA [suspiciously]: Oh? And what would that be, pray tell?

SD: Being useful for something besides handing it over to the next guy is not an insignificant unimportant little detail. It’s the very DEFINITION of money.

DA: Says you.

SD: Yes, says me, and I have explained it and proven it at great length in two of my previous posts. One of them was actually a rebuttal of Mike’s earlier writings, where he said the same thing he is saying now.

DA: And where are the links to these so called proofs?

SD: I’m glad you asked. Here ya go:

Short short version, cuts to the chase: http://smilingdavesblog.blogspot.com/2011/07/bitcoin-yet-again-in-simple-language.html

Rebuttal of Mike’s earlier article, and explanation of the regression theorem: https://smilingdavesblog.wordpress.com/2011/06/22/bitcoin-takes-a-beating/

A wonderfull analogy to make it all clear, based on The Emperor’s New Clothes:
http://smilingdavesblog.blogspot.com/2011/06/bitcoin-and-bitclothing.html

Sayonara.

[2/10/13: In response to a comment from M. Suede, I have changed the attribution of the argument proving bitcoin’s supposedly satisfying the regression theorem to XC].


6 Comments

  1. I started like you Dave. You will learn more as you go along.

    The quote you cited is from the contributor named XC, not myself. And in his quote, he is backing up the claim that Bitcoins do not violate Mises’ Regression theorem. So you’re arguing against a guy that shares your same position.

    At least you linked to the article so people can judge it for themselves.

    Like

  2. Smiling Dave says:

    I started like you Dave. You will learn more as you go along.

    Thank you for that. But let’s keep the discussion about the ideas themselves, not about us.

    The quote you cited is from the contributor named XC, not myself.

    I give you the benefit of the doubt and accept that you did not change the article after I wrote mine. I’ve edited my article accordingly, giving the attribution of that part of your article to XC. Thank you for the info.

    What must have happened is that I saw XC’s contribution as the only thing worth discussing in that long article, because what you wrote can be refuted in one line.

    Here’s the one line: Mises’s presents a line of reasoning that purports to prove that all money must initially have non exchange value, meaning value not for its usefulness as money, but value and usefulness unrelated to it being used as money. You have not shown the flaw in his reasoning.

    Quoting Menger is beside the point. It does not matter what Menger thought. What matters is the theorem itself. Is it true or false? The resolution to that question does not lie in asking Menger or anyone else for his opinion. The resolution lies in analyzing the reasoning and logic presented to prove the theorem. Which you did not do.

    To make sure everyone gets what I mean. Say Euler or Gauss or Newton comes out and says that they have proven the prime number theorem. He then presents a proof. How will we know if the proof is flawed? We will not know by asking Menger for his opinion, aka appealing to authority. We will know by someone pointing a finger at the exact line in the proof that contains a mistake.

    You have not done that. Please show us exactly which line in Mises’ proof is flawed.

    BTW, I have discussed another of your articles here: https://smilingdavesblog.wordpress.com/2011/06/22/bitcoin-takes-a-beating/

    Like

  3. Smiling Dave says:

    It’s not a medium of exchange now. Apples have price and some measure of liquidity, but they are not media of exchange.
    Bicoin neither confirms nor denies Mises and Menger.
    The day it collapses into being valueless, like the Ithaca Hour, it will confirm the regression theorem.

    Like

  4. Smiling Dave says:

    You haven’t read my previous comments.

    Like

  5. Smiling Dave says:

    You haven’t read my previous comments.

    Like

  6. Smiling Dave says:

    I’ll write an article soon explaining all about secondary media of exchange. Stay tuned.

    Like

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