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All About a Medium of Exchange Having to Be in Wide Use.

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Just as bitcoin is taking a serious hit in the real world, it’s being defended anew on the internet with the same old arguments.

Devil’s Advocate: I’ll say it is! That fellow Anarcap Ramblings has shown you are not even an Austrian if you doubt bitcoin.

Smiling Dave: Ah, but he has ignored the fact that bitcoin is not in wide demand.

DA: Ah, but he has shown that it doesn’t have to be.

SD: OK, time to explain the whole thing from first principles.

What is money, according to Austrian Economics?

Ludwig von Mises: Money is the universally used medium of exchange, nothing else.

What’s the point of even having money in an economy? Why did people start using money, and why do they still use it today?

LvM: A man who finds it hard to obtain in direct barter what he wants to acquire renders better his chances of acquiring it in later acts of exchange by the procurement of a more marketable good.

DA: What does that mean in English?

SD: Very simple. It means a medium of exchange has to be more marketable than most things. It has to be in wide demand.

DA: Wait a minute. Mises said more marketable. And you are turning that into wide demand.

SD: What makes something more marketable?

DA: Because more people want it, of course.

SD: What is the technical term for “more people want it”?

DA: It is in wider deman…oh!


  1. Smiling Dave says:

    Is it universally used in Nicaragua? Can you buy anything there with Cordobas? Are all salaries paid in Cordobas? Yes, yes, and yes. I rest my case.

    Universal in this context means universal within a given economy. Mises certainly did not mean that only a currency that is accepted by every last being in the Universe is money.


  2. Greg Simon says:

    [Edited by Dave to omit rudeness and prolixity. This is a summary of a few back and forths between Greg and me].

    Greg Simon: Is the Nicaraguan Cordoba money? It is not universally used as a medium of exchange by 99% of the world’s population.

    Smiling Dave: Depends where. It is money in Nicaragua, not money elsewhere.

    GS: Cool. That is good to read. I did not want to throw away the Cordoba’s in my wallet because 99% of the people on earth don’t use it as a medium of exchange. What if there are two Nicaraguans living in my hometown in North Carolina who agree to use Nicaraguan Cordoba’s as a medium of exchange? Is it money to them as well?

    SD: Do they plan to stay in North Carolina for many years? If yes, is it universally used in North Carolina? Can you buy anything there with Cordobas? Are all salaries paid in Cordobas? No, no, and no. I rest my case.

    Proof: How many stores in North Carolina will accept payment in Cordobas?

    GS: So Nicaraguan Cordoba’s are not money to the two Nicaraguan’s exchanging Cordobas in North Carolina? If it is not money, what is it?

    SD: What do you mean by exchanging Cordobas? If you mean they buy and sell each other beer and such for Cordobas, why would they accept money they cannot spend except with each other?
    At any rate, it’s a coupon or something. Just because we have no name for it, that doesn’t mean it is money, just as it isn’t a pair of shoes.

    As Mises wrote, the whole point of money is to exchange what you have for a more marketable thing. And those Cordobas are not very marketable in NC.

    GS: So if I understand this correctly, regardless of the name you have called it be it money or shoes or whatever, and regardless if the people physically around them use Cordobas or not, the utility of the Cordobas functioning as a medium of exchange for the two people transacting is the same. Is that correct?

    SD: No. A has apples. B pays for them with Cordobas. How has A traded his apples for a more marketable good? The Cordobas are less marketable in NC than the apples. Thus they are not a medium of exchange.

    GS: So then Nicaraguan Cordobas are not money?

    SD: Not outside Nicaragua.

    GS: It depends where? Ok, I am sitting in my house in North Carolina. I log onto Amazon.com. I order a book to be delivered to my NC address. I pay with my Nicaragua bank credit card in Nicaraguan Cordoba. Did I pay Amazon for my book with money or did I pay with non-money?

    SD: You paid with something that is money in Nicaragua. Amazon did you a favor and was willing to accept it, because they can use it in Nicaragua. Probably they will charge you a fee for the favor. But it is not money in the USA.

    If you try and make a purchase using more Cordobas than amazon thinks it will use in the near future, they will probably refuse to accept them.

    All these questions are not related to my article or to Austrian Economics. They are questions that are discussed in mainstream Econ 101 courses.

    GS: Just to confirm what you are saying above, in my transaction with Amazon was or was not Cordoba money?

    It is related to the article above. The problem you are dealing with is apparent in your above comment, “depends where.”

    You attempting to define money by quoting economists who derived their definition of money and died before peer to peer connectivity in the digital age. When Mises wrote the theories you like to memorize and repeat he was existing in a world where geographic proximity of actors in the economy was an important variable in the subjective value of money. Actors in the economy were limited to using as money what the actors in the economy geographically located nearby them were using.

    You need to update your theories. We now live in a digital age. Actors are no longer limited to use as money what other actors in the economy geographically located nearby them are using. Why? Because we have peer to peer connectivity.

    Amazon will take my Cordoba payment in exchange for a book because they can access people digitally around the world who value that as money, as can I. Peer to peer connectivity removes the requirement of geographical location of the actors in the economy. Dave, it is time you stop repeating theories of dead economists that lived before the internet and begin to think for yourself in present day.

    By the way, today I flew on an airplane, rented a car and checked into a hotel room using bitcoin. Why did they take bitcoin? Because geographically dispersed actors in the economy subjectively value bitcoin as money.

    SD: It all starts with a set of people you define for a given discussion as “the economy”. If you wish to discuss everyone on earth as “the economy”, then neither Cordobas nor bitcoins are money in that economy. And why? Because most people will reject both as payment for anything. If you sell something, will you accept payment in rubles? Pesos? Cordobas? Pounds? Yen? Lira? Most people will only accept payment in the currency of their geographical area.

    Yes, it is all relevant to my articles, just as 2+2=4 would be relevant to my articles if I used that fact to prove something. But the place to argue about 2+2 being 4 or 5 is not here in these comments. It is with a math teacher. Same thing with your q’s about Cordobas. Go to a mainstream or an Austrian Econ Professor, your choice, and ask him to set you straight. See what he says about Cordobas in the digital age being money in the United States because amazon may let you pay in Cordobas, or because two buddies in NC use them for something or other.


  3. mross12 says:

    “LvM: A man who finds it hard to obtain in direct barter what he wants to acquire renders better his chances of acquiring it in later acts of exchange by the procurement of a more marketable good.

    DA: What does that mean in English?

    SD: Very simple. It means a medium of exchange has to be more marketable than most things. It has to be in wide demand.”

    Dave, where does he say it has to be in wide demand? Or more marketable than “most things”? Also, those two statements are not equivalent: “more marketable than most things” may not mean “in wide demand”.
    But more importantly, he does NOT say that a medium of exchange has to be more marketable than most things. He merely says that trading good x for a good that is more marketable than good x, otherwise known as a medium of exchange, will increase your chances of acquiring desired good y. Nothing at all about being “in wide demand”.

    Relating back to my article, if there are three people in a prison, and one prisoner trades his apple for a cigarette, who then trades that cigarette for another good, what IS the cigarette by definition? A medium of exchange, as it had exchange value to an actor. Not because it is in “wide demand” or “more marketable than most things”, as cigarettes clearly are not in “wide demand” or “more marketable than most things” in regards ALL actors in the world, or the entire economy.

    If you deny that cigarettes in prison aren’t a medium of exchange, then what exactly are they? They obviously hold exchange value, so it is not a barter good, but a good with exchange value, or a medium of exchange. Please elaborate.


  4. Smiling Dave says:

    “more marketable than most things” may not mean “in wide demand”.
    So why is it more marketable?

    As for the three prisoners and the cigarette, https://smilingdavesblog.wordpress.com/2012/10/07/bitcoin-and-the-numbers-game/

    Mross12, I have a question. I think you have more intellect and intellectual honesty than most of the bitcoin crowd, who have made up their minds, such as they have, and nothing can possibly convince them they are wrong. So my q is this. Are you asking me these q’s to arrive at the truth? Does there exist a possibility that, presented with the right evidence and reasoning, you will agree with me about bitcoin?

    Related to this is the q, have you read all my articles about bitcoin? Because the search for truth means effort, meaning reading my stuff.

    Are you the one who wrote that my quotes from Mises do not show anything at all about media of exchange having to be in wide demand? If so, I can only say, read what he wrote in context. Read it many times, with an open mind.

    My apologies for the tone. I’m suffering bitcoin fatigue from writing the same stuff over and over and not being read carefully enough for what I say to be grasped. My tone is light hearted in the articles, but the ideas are subtle and deep and part of a long chain of reasoning. They are not Twitters or Youtube comments or television ads.


  5. hanktheblog says:

    “Money is the universally used medium of exchange, nothing else.”

    Mises should have said MOST universally. There is no good which is universally used in totality. Menger defined it as the most “saleable” good currently in the economy.

    In the past, gold attained value by virtue of its use as money. If it did not have this use, there would be a much lower demand for gold, and consequently much less purchasing power. The demand for Bitcoin is also fueled also for this “money aspect”. However, it will not be “money” until it passes a threshold that is arbitrarily determined by any economist. There is no scientific way, praxeological way, to determine this threshold. Personally, when I can go to my local grocery store and buy my food with Bitcoins, then I will consider it money. The government will most likely try to prevent this from happening, as everyone knows.

    Therefore, I never understood what the debate was on precisely.


  6. Smiling Dave says:

    I agree, you do not understand. You truly have no clue whatsoever.

    Such humility on your part is refreshing, and indeed is your only chance to ever find out what all the fuss is about. A humble man like yourself does not think he knows it all already, but is seeking the truth. An arrogant person, who postures and poses as if he is so much smarter and well informed, places huge blinders on himself.

    To get a grip on what is going on, I suggest you read my articles. First have a look at Bitcoin Takes a Beating, then at Bitcoin All in One Place.


  7. hanktheblog says:

    Thanks Dave, I know you were being sarcastic. You are really good at that haha. I have to admit this was funny to read.


  8. Greg Simon says:

    [Edited by Dave to omit rudeness]
    Do you explain how quoting theories from dead economists who wrote their theories before the internet facilitated direct peer to peer connectivity was possible is a waste of time? I am looking forward to you sharing that with me.


  9. Greg Simon says:

    [Edited by Dave to omit rudeness]
    Despite five years of data showing a consistently growing user base of geographically dispersed actors in the global economy who subjectively value bitcoin as money, not agreeing with Dave on bitcoin = intellectual dishonesty.


  10. Greg Simon says:

    “nothing can possibly convince them they are wrong”

    Mises wrote in Human Action, “Value is not intrinsic. It is not in things.” He is correct. The value of bitcoin is not bitcoin. The value is in the subjective observation of value on the part of geographically dispersed actors in the global economy, including myself. We are not “wrong” because it is subjective. You may not agree with our subjective valuation, but that does not make our subjective valuation of bitcoin any more or less wrong than yours. To tell me I am wrong in the things I place value in is a violation of my individual liberty. It exposes you not as an Austrian but something else, something that feels the need to impose upon the rest of us intellectually challenged humans your position of intellectually superiority. Like what I like, or you are wrong or you are lying.


  11. Smiling Dave says:

    I’ve written about intrinsic value many times. Do a search. Ultra short answer: It has a different meaning when we talk about money. Also Mises himslef used the phrase w.r.t. money, and I quoted him. Search, seeker of truth, search.

    As for geographically dispersed, see my article The Kickstart Fallacy.


  12. Smiling Dave says:

    Bitcoin is not nearly close enough to be considered “widely used”, a prerequisite for being a medium of exchange or a money. See my humble article The Kickstart Fallacy.


  13. Smiling Dave says:

    So the Pythagorean Theorem no longer applies, because Pythagoras is dead and we have computers now?

    I refuted that argument in https://smilingdavesblog.wordpress.com/2012/08/07/why-so-many-do-not-understand-ae/


  14. Kyle Reese says:

    The Mises Institute seems to agree with Greg. It is now accepting Bitcoin as a medium of exchange. Aren’t those guys Austrians too?


  15. Smiling Dave says:

    1. Some of them are believers in bitcoin, poor things. Austrians in error. Plenty of Austrians, respected ones who have published papers over at mises.org on the subject, say they are mistaken. Fred Shostak, Timothy Terrell, and a few others. Mises himself, too, scoffs at bitcoin, as I quoted at length in my articles. Gary North and Peter Schiff, Austrians both, think bitcoin is doomed. So when the experts disagree, one has to think for oneself and reach a conclusion without falling for the fallacy of appeal to authority, because the “authorities” disagree.

    2. They are accepting payment in bitcoin, but that is not the same as accepting it as a medium of exchange. See my article Bitcoin All In One Place. In particular link 10 there is relevant:


    In which we talk about the history of currencies similar to bitcoin, which were all flops eventually, but in some cases lasted almost 20 years before dying. We also explain why bitcoin has never been used as a medium of exchange, not even once, despite the existence of mtgox and all the other bitcoin hangouts.


  16. Kyle Reese says:

    Is gold money or a medium of exchange? I am not sure if it is widely accepted anywhere near me.


  17. Smiling Dave says:

    Right now it’s neither. In the past it was both. There are now tax laws and legal tender laws in US that prevent it from being either.


  18. Kyle Reese says:

    Ok. If I don’t want to use government/central bank fiat as a medium of exchange in my life what would you recommend to me SD? I do not want to use government fiat that finances war and terrorism.


  19. Smiling Dave says:

    I suggest you use Monopoly money, or some other board game’s money. Maybe World of Warcraft money. Because bitcoin is on the same level as they are.

    We live in an unfree world. The laws right now make it impossible to use anything but dollars.


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