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Bitcoin, Yet Again.

A new and interesting website has an article about bitcoin, citing me by name as claiming that bitcoins violate Mises’ Regression Theorem. And yes, I do indeed make that claim, in many articles on this humble blog and in the mises.org forums.

Aristippus, the author of the article, thinks he has saved bitcoins from contradicting the Regression Theorem, or saved the Regression Theorem from being contradicted by bitcoins, by making a few egregious errors. Here they are. As always, all quotes from anyone get the italicized font, and I the standard font.

1. He writes:

The most important thing to take from the Regression Theorem for our purposes, however, is the fact that in order for goods to become money – generally accepted media of exchange – they must have been demanded for their non-exchange value, whatever that might be. 

Correct. But then he makes a mistake, misunderstanding gold certificates:

That non-exchange value does not have to be direct consumption use, but might for example be a good’s ability to facilitate the exchange of true money, as in the case of the use of gold certificates that represent gold but are only paper, and from which we can explain the origin of modern fiat currency.

Gold certificates did not have the non exchange value of facilitating the exchange of true money. Their non exchange value was that they were redeemable for gold, and you knew exactly how much gold you would get for that thing today, tomorrow, and five years from now.

Let’s quote Mises on this point in Theory of Money and Credit:


This link with a preexisting exchange value is necessary not only for commodity money, but equally for credit money and fiat money. [5] No fiat money could ever come into existence if it did not satisfy this condition. Let us suppose that, among those ancient and modern kinds of money about which it may be doubtful whether they should be reckoned as credit money or fiat money, there have actually been representatives of pure fiat money. Such money must have come into existence in one of two ways. It may have come into existence because money substitutes already in circulation, that is, claims payable in money on demand, were deprived of their character as claims, and yet still used in commerce as media of exchange. In this case, the starting point for their valuation lay in the objective exchange value that they had at the moment when they were deprived of their character as claims. The other possible case is that in which coins that once circulated as commodity money are transformed into fiat money by cessation of free coinage (either because there was no further minting at all or because minting was continued only on behalf of the Treasury), no obligation of conversion being de jure or de facto assumed by anybody, and nobody having any grounds for hoping that such an obligation ever would be assumed by anybody. Here the starting point for the valuation lies in the objective exchange value of the coins at the time of the cessation of free coinage.

Before an economic good begins to function as money it must already possess exchange value based on some other cause than its monetary function. But money that already functions as such may remain valuable even when the original source of its exchange value has ceased to exist. Its value then is based entirely on its function as common medium of exchange.

You see where I’m going with this quote. No mention at all is made about Aristipuss’s notion of “facilitating exchange”. What counts is only one thing. You can exchange that fiat money [or at least used to be able to exchange it] for good old gold.

Now, this may sound like a highly technical point, and it is. But nevertheless, it is important. Because Aristippus is going to say something like this later on in the article: Gold certificates facilitate exchange, which is what made them money [=Aristipuss mistake right here]. So do bitcoins facilitate exchange. So just as gold certs. are money, so is bitcoin.

But A. is wrong. Because when the grocer was offered a gold certificate in exchange for his wares, he did not look at and say, “I’ll take it because it facilitates the exchange of true money. Rather, he thought, “I’ll take it because I can get gold with it anytime I want. As opposed to those stupid bitcoins, which I will never accept, because tomorrow they may drop in value. Nobody is promising me that tomorrow they won’t dive by ten percent, or even 90 percent, so to heck with them.”

It’s all laid out very clearly in Human Action, Chapter 17, right after the statement and defense of the regression theorem. Here’s the relevant quote, in italics:

The purchasing power of money is determined by demand and supply, as
is the case with the prices of all vendible goods and services. As action
always aims at a more satisfactory arrangement of future conditions, he who considers acquiring or giving away money is, of course, first of all interested
in its future purchasing power and the future structure of prices.

In other words, if you do not know what it is going to be worth tomorrow, you won’t touch it. Now with real money, as opposed to bitcoin, you can get an inkling of its future value from its past value. But with a fad like bitcoin, which has a history of wild fluctuations, and no reason whatsoever to assume stability, you have no idea at all of its future value. As opposed to those gold certificates, which are always redeemable in solid, lovely, Rumplestiltskin gold.

2. Aristippus then talks about bitcoin having intrinsic value as a speculative gamble:

One theory attempting to explain this argues that it is the demand created by speculation on the future price of Bitcoin which allows for Bitcoin’s exchange demand.  According to this theory, speculators, believing that the advantages of Bitcoin are such that its price would greatly rise were it to come into wider use, are effectively demanding Bitcoins without the aim of directly offloading them.  Thus the demand created by their activities has resulted in an environment of reliable exchange between Bitcoins and national fiat currencies, e.g. USD.  This demand acts like the initial demand for direct use in the Regression Theorem, which allows a reliable exchange between the most marketable good and all other goods.  In the same way, the speculators’ non-exchange demand has allowed for Bitcoin to gain an exchange demand by facilitating the use of fiat currencies which already exist as money in certain contexts.

In other words, the general public, your grocer and your butcher, will accept bitcoins for their hard earned work because they are good gambles. Would you accept a paycheck not in dollars, but in shares of some stock the buyer is promising you is a good gamble? Are you interested in feeding your family not by working at a steady job, but by steady gambling?

And of course, a good 50% of the population thinks it’s a terrible speculation. Because for every person accepting a bitcoin, there is a person unloading that very same bitcoin. And why is he dumping that excellent gamble? Obviously, because he thinks it’s a stupid gamble.

3. Which leads right in to the third mistake in that article. A. thinks that bitcoin is right now, as we speak, a generally accepted medium of exchange:

The fact of the matter, however, is that there is indeed demand for Bitcoin…

If there is demand for it, why that means it’s a generally accepted medium of exchange. right? Wrong. A market exists for bananas, too, but they are not a medium of exchange.

Although it cannot be foreseen whether Bitcoin will rise in popularity and become an even more generally accepted medium of exchange…

In other words, A. thinks that right now bitcoin is already a generally accepted med. of ex. The only question is if it will become even more accepted, or perhaps die. But as of right now it is indeed a gen. acc. med. of ex. And as such, we have to look for reasons why it is, when the regression theorem says it cannot be.

All this is a mistake. And we have written about it at great length. Bitcoin is not generally accepted now, and is not a medium of exchange now. Here are two articles [with enlightening comments] that explain why:



BTW, for everything you want to know about bitcoin, there’s this:




  1. RnoA says:

    I’m curious as to whether you consider stock (i.e. shares representing partial ownership of a company’s equity) as a currency. Like bitcoin, 1. its absolute value is debatable (company could issue more stock, demand could change, management could buy the company into debt, devaluing the remaining equity) 2. it is a gamble 3. Most people don’t trade in stock.

    However, I would argue that stocks are a perfectly reasonable form of currency and are used in a variety of business transactions.


  2. sdavesblog says:

    It all depends on your definition of currency. I’m going with the accepted standard one in the economics community, a thing everyone in the economy will take as payment.

    With that definition, stocks are not a currency. You can’t buy milk at the supermarket with a share of stock.


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