The quote in the title is from Robert Murphy in a blog post.
He also gives great importance to some poll of “professional economists”, some of whom are actually Austrians, who all think bitcoin is just fine. He goes so far to say that the positive opinion about bitcoin is unanimous, except for maybe some ignorant internet bloggers. But any professional economist worth his salt knows with certainty that bitcoin is marvelous, a triumph, a masterpiece, in short, a medium of exchange.
Let’s quote his key paragraph in full:
So my point is, the certain group of Misesians who keep deriding Bitcoin and saying it will eventually collapse, it’s a passing fad, it will never take off beyond internet geeks, etc. etc., because of Mises’ regression theorem, aren’t making any sense. Mises’ regression theorem wasn’t making an empirical prediction about a medium of exchange never attaining the status of money, unless it started out as a regular commodity. No, Mises is saying we can’t conceive of even a medium of exchange (which is a weaker condition than money) that didn’t start out as a regular commodity. Bitcoin is clearly, unequivocally a medium of exchange right now. There are websites where people trade Bitcoins directly for “real” goods. There are people who will sell a “real” good for Bitcoin, intending only to trade away the Bitcoin in the future for something else “real.” Thus Bitcoin is right now a medium of exchange, no doubt about it.
Let’s look at what Mises actually said, emphases mine:
If the objective exchange-value of money must always be linked with a pre-existing market exchange-ratio between money and other economic goods (since otherwise individuals would not be in a position to estimate the value of the money), it follows that an object cannot be used as money unless, at the moment when its use as money begins, it already possesses an objective exchange-value based on some other use.
There you have it. None of this “we can’t conceive” stuff.
Here’s another one:
Before an economic good begins to function as money it must already possess exchange-value based on some other cause than its monetary function.
That’s right, “must”. Not “we cannot conceive”.
So that’s Mr Murphy’s first unfortunate error, simple reading comprehension.
The economic errors are in the rest of the paragraph. He thinks the current situation of bitcoin is such that is already, as we speak, a medium of exchange.
Here’s why he’s wrong. And I mean clearly, unequivocally wrong. We are not talking little quibbles here.
I sent in a response to his website. It’s “awaiting moderation”. For those who cannot wait, or in case the moderator decides to reject the response, here it is:
Key blunder is this part right here:
“Bitcoin is clearly, unequivocally a medium of exchange right now. There are websites where people trade Bitcoins directly for “real” goods. There are people who will sell a “real” good for Bitcoin, intending only to trade away the Bitcoin in the future for something else “real.” Thus Bitcoin is right now a medium of exchange, no doubt about it.”
So many huge mistakes in so few lines.
First of all, the bitcoin pizza shops and such do not price things in bitcoin. They all price them in local currency, and then translate that price into bitcoin at the current mtgox rate. Think about it. A few months ago bitcoin dropped in a few hours from $266 to less than $100, and to this day has never risen back above $150. Do you think all those stores will give you $266 worth of whatever they sell for $150? Do you think they can survive with such a business model? They make good and sure that every change in bitcoin’s price instantly converts to a change in the price of their wares. If a bitcoin drops 5% in value at 12:00:00 PM, then the price of their wares will not be the same in bitcoins, but will change by 12:00:01 PM to reflect that drop. What will be the constant price of their pizza through all the vagaries of bitcoins wanderings? The dollar price.
Same thing with the customer. If bitcoin rises by 10% today, but the price of the widget in bitcoins does not drop by 10%, do you think he will still buy at the bitcoin store? Or will he go to amazon.com?
So that the bitcoin is not the medium of exchange, the dollar is. Or do you think that credit cards are a medium of exchange, and travelers checks too? If you do, let me correct you. Credit cards, traveler’s checks, and bitcoins are all means of transmission of the real medium of exchange, the dollar. If you send a messenger boy to buy you a coffee, and give him a dollar to pay for the coffee, the medium of exchange is not the messenger boy. It is the dollar. Bitcoins are messenger boys, as we have shown in the previous paragraph.
That poll of so called professional economists, some of whom are Austrians, forgot to poll Frank Shostak, an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies.
Here is what he has to say in his article The Bitcoin Money Myth [=exactly what I am saying]:
“Contrary to the recent hype, we hold that Bitcoin is not money but rather a new way of employing existent money in transactions.”
[As an aside, Peter Schiff, who has schooled Bob in the past about practical economics, forcing Bob to admit Peter was right, also was not polled, because Peter has come out that bitcoin is garbage and always will be, because it violates the regression theorem. No intrinsic value, is how he puts it.
Doug Casey also was not polled, because he too has nothing but contempt for bitcoin, and for the same reason.
Timothy Terrell… but more about him later].
Second big mistake is thinking that those stores that get payment in bitcoins take the bitcoins in order to buy something else. Remember, if A trades his horse for B’s cow, neither the horse nor the cow are media of exchange. Only if B doesn’t really want the horse, but wants to trade it later on for clothing, say, is the horse a medium of exchange. But those stores don’t take bitcoins to buy things. [There is not enough stuff out there to buy if they they are taking in a serious volume of bitcoins. A pizza shop might take payment in bitcoins, but do you think the shop’s supplier of cheese and flour accepts bitcoins? No such place. Bitcoin is for people who deal with customers, not for wholesalers.]
They are accepting bitcoins either to convert them instantly into local currency, or to hoard them, hoping they will go up in price. In either case, they are like a horse or a cow [=to hoard], or a messenger boy [=to instantly convert to dollars], but not media of exchange.
Finally, the third big mistake, is forgetting, or not knowing in the first place, that a medium of exchange, in this context, means something that is widely used. This cannot be emphasized enough, because it is the key blunder all those “professional economists” in the poll Bob mentions are making. I’ve been saying it ever since the bitcoin fad began. But Timothy Terell has been saying it way before bitcoin even existed:
Twelve years ago, in 2001, when bitcoin was just a twinkle in the fraudulent eye of Namashaki or whatever his name is, Timothy Terrell, associate professor of economics at Wofford College in Spartanburg, SC, and an adjunct scholar with the Ludwig von Mises Institute, who was also not polled, anticipated the scam that is bitcoin and explained why it is doomed to fail.
His reason, and I quote: “One of the consequences of the regression theorem is that money must arise from a commodity already in general use. If there is no non monetary use for the good, it will not develop the widespread demand that must precede its use as a medium of exchange.”
[My many bitcoin writings elaborate on why widespread demand is so important. See link at end of this article.]
The Mises website also has an interesting take on bitcoins by Patrik Korda, and by Nikolay Gertchev, who holds a Ph.D. in economics from the University of Paris. The poll forgot him, too.
This whole fiasco is a lesson to us all. Look at the ideas, not at the credentials.
Look at the ideas, not at opinion polls. What a sad, sad way of examining the merit of ideas, taking a poll.
Is this what AE has become? Will all Austrian research be opinion polls from now on? Will the study guide to Human Action, when discussing Mises’s claims that we must look at the ideas, not the credentials of the person stating them, or the popularity of the ideas, contain a little section rejecting Mises, and explaining that the way to go is opinion polls?
Heck, all of Austrian Economics should be burned in a huge pile as ignorant rantings, if we go by opinion polls of “professional economists, some of them Austrians”. You really value their opinion, Bob?
Go to Smiling Dave’s website, do a search for Bitcoin All In One Place, and educate thyself. To make it easy, here’s the link: