The latest refuge of the bitcoin crowd is to say that Smiling Dave is just making stuff up. He twists around the definition of “medium of exchange” with new, arbitrary, ad hoc, crazy, qualifications. Then he expects us to slavishly follow his lead. Sorry, Dave, they say. We will go by the book.
In response to my earlier article, someone wrote me the following:
The most serious error I see you making is equivocation. Take for a recent example your response to Bob Murphy. Murphy is defining medium of exchange the standard Austrian way, as “a good which people seek for use in exchange rather than for consumption or use in production”. Clearly bitcoin meets this definition. There is really no way of denying this… other than by changing the definition of “medium of exchange” to something different, which is exactly what you do.
You wrote that “a medium of exchange, in this context, means something that is widely used.” Again, that’s not part of the definition Murphy is using, so it isn’t a blunder. By HIS definition, his statement that bitcoin is a medium of exchange is true, because his definition says nothing about being “widely used”. For your critique of him to have any relevance, you ought to adopt his definitions and critique his argument on it’s own terms, rather than just equivocating on the term and then arguing that his claim is wrong using YOUR definition.
Remember, we are talking about what Mises meant by medium of exchange, not what Murphy means or what I mean. The discussion is about Mises’s Regression Theorem, and so the meaning of words must be the meaning he gives them. Only then can we understand what he is talking about.
Oddly enough, Timothy Terrell, in an article we have linked to many times, seems to make up something Mises never said at all according to Bob. Funny thing to do, no?
Let’s quote from Mr. Terrell’s article:
One of the consequences of the regression theorem is that money must arise from a commodity already in general use. If there is no nonmonetary use for the good, it will not develop the widespread demand that must precede its use as a medium of exchange.
Funny we should both make that same mistake no? But it’s not a mistake at all. Because Mises spells it all out explicitly, in Chapter 17, section 3, of Human Action:
A medium of exchange is a good which people acquire neither for
their own consumption nor for employment in their own production
activities, but with the intention of exchanging it at a later date
against those goods which they want to use either for consumption
or for production….Media of exchange are economic goods. They are scarce; there is
a demand for them…There are on the market people who desire to
acquire them and are ready to exchange goods and services against
them…People make sacrifices for their acquisition…There exists a demand for media of exchange because people want to keep a store of them. Every member of a market society…
1. Exactly what we were saying all along. Mises is talking about so many people wanting the thing that there is “a market” for it. So many people want it that we can say there is “a demand” for the stuff. The demand is so huge that people want oodles and oodles of the media of exchange. They want to keep “a store of them”.
2. Let me add a subtlety for those familiar with the spirit of AE. Mises writes over and over that not just one person wants it, but “people” want it. “They” want it. And those are very odd phrase for Mises to use, “people” and “they”. Because Austrian Economics is all about the individual. You may have heard of the concept of “methodological individualism”, the backbone of Austrian economics. Mises would never talk about “people” when analyzing an economic concept, if he could possibly talk about the proper context for all economic discussion, the individual. Thus, if he talks about “people’ and “they”, he must mean that the object is not a medium of exchange unless “people”, plural, [and a lot of people, enough to form a market and create demand] covet it.
3. One last thing. Mises writes that there is a fine line between money and a medium of exchange. The line is so fine that the theory of money and the theory of media of exchange are one and the same:
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 “com-
monly” used and should be called money. But this vagueness in the
denotation of money in no way affects the exactitude and precision
required by praxeological theory. For all that is to be predicated of
money is valid for every medium of exchange. It is therefore im-
material whether one preserves the traditional term theory of money
or substitutes for it another term. The theory of money was and is
always the theory of indirect exchange and of the media of exchange.
Now money, says Mises, is something everybody wants:
Every member of a market society wants to
have a definite amount of money in his pocket or box, a cash holding
or cash balance of a definite height. Sometimes he wants to keep a
larger cash holding, sometimes a smaller; in exceptional cases he may
even renounce any cash holding. At any rate, the immense majority
of people aim not only to own various vendible goods; they want no
less to hold money.
Now I ask you, dear reader. If by medium of exchange Mises meant something only a few geeks had any use for, would the theory of such a thing be EXACTLY the same as the theory of money, something everyone wants, as Mises wrote? I thought not. That difference, between a geek or two wanting it and everyone wanting it, would have huge theoretical repercussions.
Thus we see, explicitly and many times over, that when Mises was talking about a medium of exchange in his book, he meant something that fits exactly Timothy Terrell’s description, widely used and in great demand.
Now there are two q’s that may immediately occur to the reader. Why isn’t one geek trading one thing with another geek make that thing a medium of exchange? Why do we need widely used and in great demand? Well, dear reader, you can now go back to my articles and reread them with greater interest, because it’s all explained there.
The second thing that will occur to the reader is to say that bitcoins are widely used and in great demand, aren’t they? Once again, go the articles, seeker of knowledge, and quench thy intellectual thirst.