Pete, who has commented here once in a while, and quite often over at the mises.org forum, issued a challenge to me. And yes, it’s about those stupid bitcoins again. Why, oh why, am I the go-to guy about this topic?
Truth be told, if it involved being praised to the skies and offered medals and cash rewards, I would never get tired of it. But just the opposite. Humble Smiling Dave is besmirched and ridiculed.
Pete concludes his article with a request from me of the following:
- Explaining why a trade between two non-consumption goods is not indirect exchange, and provide a method for classifying such trades (as according to Mises, the only two options are direct and indirect exchange)
- Providing a clear distinction between a non-money medium of exchange and money, and providing examples of such non-money media of exchange (preferably ones that he considers sustainable)
- Explaining how Bitcoin is to be classified (as according to Mises, the only three options are consumer good, producer good and medium of exchange)
- And last but not least, as a bonus, he can try to describe the process by which Bitcoin will collapse
OK, sure. One at a time.
1. It’s a direct exchange of a peso for a bitcoin [or for a dollar]. It’s not indirect exchange, because the peso was directly exchanged for the bitcoin [or the dollar], with no intermediary.
2. Non money medium of exchange: cigarettes in a prison. You can get pretty much everything the prison community has to offer for cigarettes. If we posit a small group of “cigarette haters”, which we define to mean people who will refuse to accept cigarettes in exchange for anything, then cigarettes are not yet a money in the prison. It’s not yet universally accepted.
Now if we are talking about a prison of a million inmates, and only one cigarette hater, he obviously doesn’t count. If 30% of the inmates are cigarette haters, then cigarettes are not yet money. What exact number is the make or break magic number of haters for cigarettes to be or not to be money? Mises says it’s not clear, meaning not known, meaning debatable.
Now just as there is a dividing line between a medium of exchange and of money, which Mises talked about explicitly, so too there is a dividing line between not being a medium of exchange at all and being a medium of exchange. If one person only in a prison population of a million accepts cigarettes, cigarettes are nothing. If so many people accept them that cigarettes are close to the no man’s land Mises talked about as maybe being money, they certainly are media of exchange. Where is that dividing line between media and non media of exchange? As with the other magic number, it’s not clear. But i have given some guidelines in my various articles.
3. There is a fourth class Mises didn’t bother to mention, because it usually has no influence on an economy. I call this class “Stuff Only Fools and Idiots will Bother With.” No offense. Bitcoin is right in there, at the head of the class.
To make perfectly clear what I mean, I will challenge Pete to answer this question. How would he classify the invisible non existent clothing the Emperor paid good money for in the classic story “The Emperor’s new Clothes”, by H. C. Anderson? Wherever he puts those, bitcoin goes right with them.
[Update 5/5/14: Just saw this in Reisman’s book Capitalism:
Just as the beneficial properties of things can fail to be recognized, it sometimes happens that beneficial properties are ascribed to things which do not in fact possess them, such as the beneficial properties some people ascribe to rabbit’s feet, tarot cards, and so on. We can join with Menger in characterizing such things as “imaginary goods.” It is not necessary, however, for economics to devote any special consideration to such goods beyond acknowledging the fact of their existence. This is both because they constitute unimportant exceptions and because the economic principles that apply to such goods, such as the laws of price determination, are the same as that apply to genuine goods.
So there you have it. Bitcoins are rabbit’s feet and tarot cards and “imaginary goods”. Menger and Reisman were one step ahead of you, Pete.]
4. Bitcoin will collapse the same way the Ithaca Hour and all the other phony moneys through the years collapsed.
Guys, I’m tired of bitcoin. Pete’s other questions will have to find someone else to answer them. I’ve spent too much time on it. I have bigger fish to fry. Marx, Keynes, MMT, the Monetary Disequilibrium crowd, defending Say’s Law, educating myself.