Ep. 119 Is Bitcoin More Evil Than Krugman?

31 December 2017     |     Tom Woods     |     64

In this episode, Bob once again flies solo, burdening the listeners with his odd sense of humor. But along the way, he tackles Krugman’s objections to Bitcoin, and also discusses the relevance of Mises’ regression theorem to the cryptocurrency.

Krugman Interview

Paul Krugman: Bitcoin Is a More Obvious Bubble than Housing Was,” by Jacqui Frank, Kara Chin and Joe Ciolli (December 15, 2017)

Krugman Column

Bitcoin Is Evil” (December 28, 2013)

Bob on Understanding Bitcoin

Understanding Bitcoin,” by Bob Murphy and Silas Barta

Bob on the Regression Theorem on the Tom Woods Show

Ep. 1035 How Ludwig von Mises Fixed Economics (But Ingrates Won’t Thank Him)

Need More Episodes?

Tom and Bob have their own podcasts! Check out the Tom Woods Show and the Lara-Murphy Report.

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  • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

    Since all the arguing is about whatever intrinsic value Bitcoin may or may not have,… any thoughts or comments on Gold-Backed Cryptocurrencies listed here? Is this just a gimmick without any substantial merit?

    • anarcholibertine

      Your book-length posts (which no on reads, btw) & punchable-face have finally prompted me to block your pathetic loser azz…

      • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

        I have 11 followers on Disqus and 1727 upvotes,… so some people appreciate my thoughts. Just curious,… but what makes my face punchable and not someone else’s? Also curious as to whether or not you can offer any arguments to support your statements,… other than merely being insulting. https://uploads.disquscdn.com/images/ee779b61ba376e7ae4bd1a10c78b3d2b2542818cfdfb4db0221aa9d80872b705.jpg

        • martinbrock

          The guy’s not worth your time, David.

          • https://www.facebook.com/david.rogers.hunt David_Rogers_Hunt

            Perhaps not,… but I am genuinely curious as to what happened to provoke such anger. I am repetitious, somewhat predictable,… maybe even pendantic,… but why get angry over any of that? I would assume that anyone who chooses to be called anarcholibertine would be somewhat sympathic to our message,… so what is gained by putting one of us down?

            Being somewhat autistic I have no understanding of where this ape behaviour, of thinking by knocking someone else down that one is thereby necessarily standing taller, comes from. Social hierarchies have no appeal to me and just make no sense to me at all.

            But thank you martinbrock for your note of support. I do appreciate it.

  • kam phlodius

    Dr. Woods tends to bemoan the workload he has voluntarily assumed. I think it is a way of humble-bragging about his heroic productivity. (Nobody’s perfect.)

    • http://www.TomWoods.com Tom Woods

      Couldn’t know me less if you tried.

      • http://chorusbreviarii.blogspot.com bedwere

        Dr. Jordan Peterson says that people, and especially men, that are very conscientious tend to be workaholic. For example, top lawyers who work 60 hours a week. I surmise this is the case for Dr. Woods. Happy New Year with a healthy balance of the important things in your life, Dr. Woods!

      • kam phlodius

        Whatever you say, Senator Woods.

  • khodge

    Can’t sue Tom because he wasn’t on this episode.

  • http://2vnews.com 2VNews

    Real money is information applied to something that many people will use willingly without force.

  • http://2vnews.com 2VNews

    Bob Murphy’s bonus Christmas song:
    https://youtu.be/MkX5bWoHKMY?t=52m47s

  • NoMoreFed

    While Mises would have been right in a mostly sane world, I do think Bitcoin has disproven him. Ironically, Mises failed to account for human action. In this case, it was the action of obsessed techies determined to have their day in the spotlight by throwing their energy and money (i.e., U.S. dollars) at this new technological novelty.

    This was a really good episode. Tom better hurry up and get back before Bob takes over. I loved the Beavis and Butthead impersonations. The 20 year olds listening to this show probably won’t get it because they weren’t even born yet when the show ended.

    • Tasos Obscure

      Mises could never conceive of the internet, let alone distributed ledger systems and blockchains, it’s unfair to say that he was disproven. I find bitcoin and altcoins to have amazing intrinsic value as currencies that have trustless safety, are not in the hands of the government and cannot be regulated. Anyone that heard of the basic arguments for cryptocurrencies would invest in them early on.

      • Slayer

        You see, here you prove you are a moron again. Value is not intrinsic. Value is subjective! You don’t even know basic economics.

  • Slayer

    Bitcoin is not a medium of exchange. Show me a single price quoted in Bitcoin. Even when I sold bitcoin I was exchanging euros in bitcoin against euros. No one cares how many bitcoins you send him. If you want to pay for something using bitcoin you get a quote in dollars or in another currency and you send the equivalent amount of bitcoin according to the exchange rate in that moment. And then the person who receives the bitcoin immediately converts it back to that currency unless he wants to speculate on appreciation. This is not a medium of exchange, but a payment system. A vehicle for transferring money. For those few who really use it. Others just speculate with it. Just because people buy something doesn’t mean it is a medium of exchange. Nor it does become a medium of exchange just because it has a word “coin” in its name.

    • Tasos Obscure

      “Just because people buy something doesn’t mean it is a medium of exchange.”
      Really?

      • Slayer

        Really.

        • Tasos Obscure

          That’s the definition of “medium of exchange”, make up your own phrase this one is taken. Now you can make distinctions and talk about differences between them.

          Prices were quoted in soviet ruble in association with foreign prices of commodities and other exchange rates, does that mean the soviet ruble wasn’t a medium of exchange?

          • Slayer

            The definition of medium of exchange is NOT “Anything that people buy” you moron.

            Prices were quoted in soviet ruble, and it was a medium of exchange of sort, however no prices are quoted in bitcoin, and it is not a medium of exchange.

          • Tasos Obscure

            The definition of medium of exchange is anything that people buy WITH. All sorts of prices are quoted in bitcoin, until recently even steam games. You dont seem to be interested in the topic or know about the bitcoin ecosystem. Why pretend?

          • Slayer

            You won’t find the word WITH in the sentence I wrote. One word can change the meaning of a whole sentence you know? Send me a link to some prices quoted in bitcoin. No one charges you half a bitcoin or 0.2 of bitcoin for something. It is always dollars at the current exchange rate. Bitcoin is only used as a vehicle to transfer money. You can’t keep your rent money in it because you don’t know what it is going to be worth at the time when you are going to pay the rent.

            “All sorts of prices are quoted in bitcoin, until recently even steam games.”

            Isn’t this a funny sentence? You say all sort of prices are quoted in bitcoin but mention only “steam games” (wtf are steam games?), and only till recently? Wow! That is convincing. I mean imagine if you could have said even price of bread is quoted in bitcoin in my local supermarket. How much better it would sound than steam games till recently!

            You seem to be an idiot. Why do you pretend you are not? Actually, you don’t.

          • Tasos Obscure

            I won’t find the word WITH in your comment because it’s a misrepresentation of what I said.

            “You can’t keep your rent money in it because you don’t know what it is going to be worth at the time when you are going to pay the rent.”
            That’s also the case for every currency, bitcoin and altcoins are simply too new for stability to be there. Also people who traded with them more often than not find themselves with more money because of the appreciation. There are criticisms of bitcoin as a currency, but this is not it.

            Since a search engine seems way beyond your capacity there you go:
            https://www.coindesk.com/14-weirdest-things-can-buy-bitcoin/
            https://www.cnet.com/pictures/25-things-you-didnt-know-you-could-buy-with-bitcoins/
            Also bitcoin has been a major currency in venezuela lately. People have literally been farming gold in games and selling it for bitcoins to put bread on the table.

          • Slayer

            Ok, so you are one of these lying bitcoin clowns who are just as honest as the commies who returned from the USSR in the thirties saying there was no famine in the Ukraine.

            You started the debate by misrepresenting what I said. Now you accuse me of misrepresenting you?

            I asked you to send me a link to a store or a seller who quotes his prices in bitcoin, and you sent me a link to some articles!! No you moron, send me a link to a store that has prices set in bitcoin. If you can’t find it just admit it instead of sending me a link to an article talking about someone buying a pizza for 6 bitcoins 7 years ago. It is ridiculous! And don’t ask me to google out your arguments because I am debating you and not myself.

          • Lysander Spooner

            Slayer, I agree with your arguments. But you have given in to frustration and called Tasos Obscure nasty names. The needless rudeness detracts from your points and I urge you to strive to be polite in future.

          • Slayer

            “That’s also the case for every currency, bitcoin and altcoins are simply too new for stability to be there.”

            No it is not. No currency ever originated like this. Every currency evolved from a useful commodity that was valued for its own use value before becoming a medium of exchange. And people wouldn’t use as a medium of exchange a commodity whose purchasing power wildly fluctuates. So you are daydreaming if you think that bitcoin will stabilize some day.

          • Tasos Obscure

            “No it is not. No currency ever originated like this. Every currency evolved from a useful commodity that was valued for its own use value before becoming a medium of exchange.”
            You seem to know all the history that ever happened,a very believable claim, what you don’t realize is the specific assumptions from which menger and mises come up with that. Because what if I told you that literally word of mouth can be a medium of exchange in small communities. We know that’s happened since many families do exactly that.

            “And people wouldn’t use as a medium of exchange a commodity whose purchasing power wildly fluctuates. So you are daydreaming if you think that bitcoin will stabilize some day.”
            Of course, because the spaniards weren’t using gold and silver as a means of exchange in minted coins even though there was huge importation from the new world that severely altered the price. Oh wait that’s exactly what happened and it severely crippled many economic processes.

            ” If you can’t find it just admit it instead of sending me a link to an article talking about someone buying a pizza for 6 bitcoins 7 years ago. It is ridiculous! And don’t ask me to google out your arguments because I am debating you and not myself.”
            I gave you the example of venezuela and mentioned that people literally buy food with bitcoin. What else do you want.

          • Slayer

            You know Mises and Menger by name only. You have apparently never anything from Mises that is why the lack of understanding money. A small community like a family doesn’t need a medium of exchange. It is right there in the theory of money and credit if you bothered to read it. A word of mouth is not a medium of exchange. You simply don’t understand what a medium of exchange is.

          • Tasos Obscure

            Do you know spanish to read venezuelan websites?I don’t.
            https://www.bloomberg.com/news/articles/2017-06-15/venezuelans-are-seeking-a-haven-in-crypto-coins-as-crisis-rages

            “What they do in Venezuela is that they mine bitcoins, then sell them for money, and then buy food. And even if they bought the food directly with it, they still price it in dollars or another currency. It is like a debit card. You pay with it but it is not a medium of exchange.”
            So your claim is that they sell bitcoin for a big stack of cash that needs 10 minutes to count and then buy food with it and make the other person count them all over again instead of sending some bitcoin through bluetooth. Makes absolute sense. Also that means that they make 10 or 20 dollar transactions with bitcoin. That’s not happening trust me, they certainly use altcoins that are quoted in bitcoin for that.

            “Imagine how would bitcoin work if there were no currencies in the world. It couldn’t because you would have no point of reference as to how much anything should cost.”
            That’s exactly the point of the regression theorem, you remove the currencies that bitcoin is quoted against is to remove the prior information stored in their prices and how it came to be. You literally try to imagine a world where bitcoin couldn’t have come to be in the same way it did. You remove commodities (since they were currencies) and the romans would not have minted coins because there would be no derived value.

            “So if all monies disappeared tomorrow, it wouldn’t be bitcoin that would take its place.”
            No, because the information that those monies would still exist in people’s memories. Bitcoin would be implicitly quoted against the non-existent money called the dollar because the information still exists.

            “A small community like a family doesn’t need a medium of exchange…You simply don’t understand what a medium of exchange is.”
            It’s ridiculous to define word of mouth as a medium of exchange, the point is that it’s absolutely unreasonable to say “Every currency evolved from a useful commodity that was valued for its own use value before becoming a medium of exchange.” since small communities can always make agreements on what constitutes a viable medium of exchange that holds no use or other value. What you refer to is the spontaneous emergence of currencies.

            What you don’t realize is that monies derive value from everything else, they don’t exist in a vacuum. The distinction between money and every other good is the requirements for fungibility, transferability and the rest which exist for convenience rather than a very fundamental difference between money and anything else. It’s essentially a barter economy that spontaneously or not decided to widely use a “money” in order to minimize the coincidence of wants.

          • Slayer

            Show me a store in Venezuela that has a price of a food item listed in bitcoin.

  • davegrille

    There could be too few participants in Bitcoin or other cryptocurrency ,but that is unlikely.

  • The NAPster

    I have a question for Bob if he’s reading these comments. The USD is “money” even though it has no intrinsic value, and this is consistent with the regression theorem because it derived its original value from being exchanged for gold, which as another “money” is itself consistent with the regression theorem due to gold’s original non-money usage and value. So even if we assume BTC has no intrinsic value, could its potential emergence as a “money” be consistent with the regression theorem because it derived its original value from being exchanged for the USD, which is already a “money” which developed consistent with the regression theorem?

    • Tasos Obscure

      Astute observation, add on that the fact that distributed ledger systems like bitcoin have the ability to make “trustless safety” cheap transactions and it’s supply is limited and I think we get a very good explanation of how bitcoin came to be. Also the fact that it’s not regulatable I bet adds to why people wanted to use it initially.

    • Tyler Folger

      I’m not really a crypto-currency enthusiast, but I’ve had this same contention when it comes to the Regression Theorem folks.

    • Mattheus von Guttenberg

      Thinking in terms of “intrinsic value” is generally a mistake. Bitcoin’s original use-value was novelty. It became a curious novelty, a social status icon among hackers and crypto-anarchists in the early days until it grew and became the medium of exchange we know now.

  • Eric Tee

    I read the pdf file Bob co-wrote. One objection he didn’t discuss was the proliferation of crypto-currencies. I’m told there are over 1000 of them today. That is like a huge inflation.

    I know Peter Schiff is highly negative on bitcoin. I suggest for an upcoming show, a debate between Peter and Bob on this.

    • The NAPster

      I don’t think the proliferation of different currency choices is “inflation” as that term is applied to a money supply. That’s like saying there is inflation because we have USD, AUD, CDN, EUR, etc. Rather, inflation is the expansion of the supply of any particular currency.

      (But, per coinmarketcap, there are 1,385 crypto-currencies today!)

      • Eric Tee

        Well the naked term inflation has been hijacked. I should have said it was like money-inflation (increase of the money supply) and I consider the EUR etc. as just more printed money, so yes I would call that money inflation.

        That the creation of the EURO didn’t cause immediate price inflation I believe is because it replaced a number of fiat currencies and didn’t just add one more.

        But Peter Schiff is much better at explaining this than I am. Would love to hear him and Bob go at it (I’m assuming Bob likes bitcoin from reading his pdf file).

  • martinbrock

    MMT doesn’t claim that taxation puts a floor on prices. Excessive state spending relative to taxation can inflate prices. Warren Mosler makes this point routinely. In a fiat money system, the state is a price setter. U.S. subjects can’t halve prices arbitrarily, because they must compete with the state’s spending. U.S. subjects can’t double prices arbitrarily either, because the state taxes spending and need not recirculate what it collects, so attempts to raise prices without state cooperation deplete the money supply; however, the state can double prices whenever it likes.

    • Tyler Folger

      What’s the mechanism supposed to be for the floor and ceiling, just out of curiosity?

      • martinbrock

        The state puts a floor on prices by spending. Since it creates dollars, it can spend as many dollars as it chooses to spend, so prices are never lower than it chooses to pay for things. Its subjects can’t expect to pay one dollar for a gallon of milk if the state is offering two dollars and can, in principle, buy every gallon at its price.

        The state puts a ceiling on prices by taxing. If it wants its subjects to pay two dollars per gallon of milk but they’re paying three dollars, it taxes milk until the subjects will no longer pay three dollars (plus the tax) for a gallon of milk. If producers will not produce milk at two dollars, it can subsidize the price or lower prices they pay similarly.

        Of course, states rarely target individual prices this way, but the same logic applies to the general price level. States rarely try to lower prices, but they systematically raise prices routinely. The Fed even publishes an inflation target.

        Don’t confuse this fiat monetary system with the credit money described in the fable above. Credit money need not be fiat money. It need not be monopolized by a state issuing it and raising taxes in it.

        • Tyler Folger

          I can see the price floor, given the ability to inflate. But I don’t see how the state can set a price ceiling. That suggestion seems to fly in the face of everything we know about price controls.

          • martinbrock

            If the state imposes a $10/gallon tax on milk, wouldn’t you cut your consumption of milk? If demand falls, doesn’t price fall? A state can do this in theory, but states typically don’t. Typically, states don’t try to cap prices. They only try to cap a rate of inflation.

          • Tyler Folger

            Who is the price supposed to be falling for? The consumer or the state? Because a $10 tax certainly doesn’t make it cheaper for the consumer. And while it might make it cheaper for the state by choking off consumer demand, production would fall off a cliff. The state could, as you suggest, subsidize production, but then it’s not really getting the milk cheaply. It’s merely obscuring the actual cost through this unnecessarily circuitous process – sweeping the added cost into a different budget item or whatever.

            I suppose the state could put a ceiling on the price of all goods by taxing and hoarding/destroying the money to create deflation. Doesn’t seem like targeting specific prices to decrease is feasible though.

          • martinbrock

            The price is what the seller receives. Sales tax is not part of the price. No one ever said that the state is pro-consumer. I’m not discussing real wealth here, only nominal prices.

            Production need not fall off a cliff if the producer’s prices also fall, but again, states don’t typically want prices to fall this way. I’m only saying that a state monopolizing money has this option. Making the good cheaper, in real terms, for consumers is not the point. In a fiat money system, prices are numbers that the state can control, either up or down.

            Yes. A state typically engineers general inflation or deflation, rather than controlling individual prices.

  • martinbrock

    At this point, Bitcoin is a durable commodity with a subjective value rather than a medium of exchange. Anything that can be bought and later sold is not a medium of exchange. Lifetime subscriptions to Liberty Classroom can be bought and later sold, but they aren’t a medium of exchange. A gigabyte of mobile internet access, on a pay-as-you-go plan, can be bought and later sold, but mobile internet access is not a medium of exchange. If all of these things are “exchange media”, the term means nothing more than “durable commodity”.

    • Tyler Folger

      With all of those things you mentioned, they are demanded for consumption. Bitcoin is demanded solely for its ability to be exchanged for other goods, including dollars. Bitcoin may have had consumption value originally as a collectible oddity, but it’s not likely that there’s any significant demand for bitcoin as a novelty today.

      • martinbrock

        Bitcoin is demanded primarily, if not exclusively, for its ability to be exchanged for dollars and other money. It’s like gold or platinum in this regard, but gold and platinum are not money either. Bitcoin will never be money or a standard of value, IMO, because its value will never be stable enough. Whether it can be “digital Gold” in the long run is an open question, but I’m extremely skeptical.

        Gold has been a legal tender and a standard of value for extending credit in the past, but it was never common currency. Even a small gold coin is too valuable to be common currency. Carrying around an ounce of gold is (and always was) like carrying a thousand dollar bill in your wallet. In the early United States, copper coins (pennies and half pennies) were the common currency.

        Even a silver dollar was more money than people commonly carried around. People who believe that only gold and silver are “Constitutional” money in the U.S. simply ignore the fact that the first Coinage Act in 1792 coined copper, and the copper coins were legal tender as much as gold and silver coins.

        Liberty Classroom subscriptions could be a medium of exchange, but they aren’t, because no one exchanges them for anything other than dollars. Even if Tom accepts payment in Bitcoin, he prices the subscriptions in dollars, and most retailers “accepting payment in Bitcoin” don’t actually price goods in Bitcoin or even accept Bitcoin. They use a service exchanging Bitcoin for dollars or another currency. Even this practice is now rare, because Bitcoin transactions are too expensive.

        A lifetime Liberty Classroom subscription is “consumed”, but the consumption is unusual, because consuming a subscription doesn’t “use it up” in the usual sense. If I sell you my lifetime subscription, you have a full lifetime subscription, as valuable as a new subscription, even though I’ve already consumed it.

        I’m assuming that Tom permits this title transfer, but he can’t effectively prevent it anyway. I give you my password. You log in and change the password. You pay me. Maybe a “lifetime” subscription expires after a century or something. I don’t own one and haven’t read the fine print.

  • martinbrock

    Here’s the counter-Mengerian fable on the origins of money, which I’ll attribute to David Graeber. Bob effectively denies the regression theorem in this podcast, despite his love for Mises, but Bitcoin can’t become money by the credit theory either, because its value is not stable enough for a standard of value.

    One farmer approaches another saying, “Friend, I have a dozen eggs here and need a pound of flour. Can we trade?”

    His friend replies, “You won’t find much flour today. My wheat will not be ready for threshing and grinding for a week or two, and other crops are no closer to maturity.”

    The first farmer adds, “These eggs won’t last another week. If I leave them with you today, may I collect the flour when you have it?”

    “Of course, my friend, your trust is my treasure.”

    Two weeks later, the first farmer returns. “Is your wheat ready?”

    “It is, fresh off a new grindstone. I’ll fetch you a pound.”

    “You have a new grindstone? Your last one seemed serviceable last I saw it.”

    “You know me. I’m a grindstone geek, must always have the latest model.”

    “I could use a grindstone myself. Do you still have the old one?”

    “I have it here. It’s worn but has a few years left in it.”

    “Would you take a dozen eggs for it?”

    “I’d need a gross to trade for a new stone. How about three dozen?”

    “Done. I’ll return with another two dozen tomorrow.”

    “Can I now refuse my trust? Take the grindstone and owe me the eggs.”

    At this point, the two men stare at each other. The second farmer asks, “Your hens have chicks?”

    After a pause, his friend replies, “Two for a dozen?”

    “Four chicks and a pound of flour it is!”

    “Let’s just call it ‘three dozen’.”

    “Understood!”

    Thereafter, the farmers valued every exchange in terms of their valuation of eggs, even when neither farmer needs eggs or has eggs to trade.

    Countless men had this conversation in antiquity, and each time, money was born.

    • Tyler Folger

      So in this version, money begins not as a medium of exchange but as a unit of account based on a kind of hypothetical direct consumption. And after the two farmers have this exchange, farmer 1 can go to farmer 3 with his eggs and have an idea of what he would be giving up in terms of wheat for a given number of eggs. And Farmer 2 can similarly go to farmer 3 with his wheat and have an idea of what he would be giving up in terms of eggs for a given amount of wheat. But what is the mechanism that is supposed to lead to a common unit of account between more than just these two farmers? And how does this process address any of the limitations of barter? In this example we’re assuming the easy case that Farmer 1 has what Farmer 2 wants and vice versa.

      • martinbrock

        Yes. Credit money requires a standard of value, a yardstick for comparing (subjectively) the value of different things. In the fable, the farmers agree that a pound of flour is worth a dozen eggs, a chick is worth half a dozen, and a used grindstone is worth three dozen. That eggs are highly perishable and cannot themselves store value is irrelevant. That they aren’t divisible is irrelevant. That they aren’t particularly portable, being very fragile, is irrelevant. Eggs themselves need not have any of the usual characteristics of money.

        In the fable, only a dozen eggs ever change hands. The first farmer exchanges a dozen eggs and four chicks for a grindstone. The negotiation values all of these goods in terms of the value of eggs, but eggs are not the money. IOUs for eggs are the money.

        In the first transaction, the farmer exchanges a dozen eggs for a dozen egg IOUs, understanding that the second farmer values a pound of flour less than these IOUs and intending then to exchange these IOUs for a pound of flour later. The second farmer issues these IOUs.

        In the second transaction, the second farmer exchanges a grindstone for three dozen egg IOUs, including the dozen IOUs that he gave the first farmer in the first transaction. When the second farm accepts his own IOUs, these IOUs effectively leave circulation, but another two dozen IOUs issued by the first farmer enter circulation.

        In the third transaction, the first farmer exchanges four chicks for two dozen IOUs. Since he issued these IOUs himself, they leave circulation. After the third transaction, no IOUs circulate.

        Again, the IOUs are the money, not the eggs. Egg IOUs could circulate through a network of any number of farmers, with very few IOUs ever being exchanged for eggs.

        https://archipelago.liberty.me/money-credit-and-usury/

        • Tyler Folger

          That doesn’t seem to actually overcome the double-coincident of wants though. If we suppose that farmer 3 has no interest in eggs, then egg IOU’s have no value to him unless we assume that they’re already a medium of exchange, and it’s not clear why we should assume that. Why would farmer 3 give up valuable stuff for egg IOU’s when he has no idea if he can turn around and exchange them, especially if he doesn’t even know farmer 1 whose egg production is supposed to be the basis for the value of the IOU?

          And it’s still not clear to me what the mechanism is for arriving at a unified money. Why do we end up using a handful of precious metals globally, rather than thousands of different IOU’s for every manner of good or service that someone produces?

          • martinbrock

            Most people want eggs, but egg IOUs can be a medium of exchange even if most people don’t want eggs, as long as people have a sense of the value of eggs relative to other things. Hardly anyone actually wants gold for their own consumption, but gold and notes promising gold can be a medium of exchange regardless.

            In the fable, these two farmers agree to use egg IOUs as their money. If they explain their system to other farmers who also agree, egg IOUs become money more generally. We don’t use thousands of different IOUs for different things, because a common unit of account is valuable to everyone in the market.

          • Tyler Folger

            This really isn’t an alternate fable then. It’s still the case that these IOU’s wouldn’t become the money until people are accepting them not for redemption, and consumption, but to exchange them with someone else. We still go through the same Misesian process of observing what goods, egg IOUs among them, are the most marketable, and deciding to obtain them in order to exchange them for something else. This is more like a prequel to the Misesian process by which a good becomes a medium of exchange. But I don’t see why uncertain, trust-based, egg IOUs or any other IOU would be a more marketable good than real commodities.

          • martinbrock

            Yes. IOUs become money only when people use them as a general medium of exchange. If you want to say that an egg IOU is a commodity competing for most liquid commodity, in the sense of the classical fable, then you’re right, but according to David Graber, credit economies (without a standard unit of account) are the earliest, most primitive economies, so the historical progression was more like primitive credit economy (my neighbor does me a favor and I owe him a favor without quantitative accounting) followed by symbolic tokens of credit (I do my neighbor a favor, so he honors me with an eagle feather that I may return to honor him later or bestow on someone else) followed by more quantitative tokens (like tally sticks). If precious metals were used this way at all, they were honorary tokens signifying some esteemed deed, not goods consumed otherwise.

            Apparently, barter economies are mythical. There’s no historical or anthropological evidence for them. In primitive societies today, people don’t assemble in markets only to barter. Markets exist only after money exists. If barter economies never existed at all, there was never a time when gold or something similar was increasingly bartered before becoming money.

          • Tyler Folger

            A barter economy never having existed sounds pretty absurd to me. My nephew was bartering his toys with me before he could even talk. Unless you just mean that there was no organized area where people gathered just to barter goods….like a ye ole strip mall. I can buy that that never existed. But if historians can’t find evidence of people trading a rooster for 2 hens, I think they just need to look harder. Especially if they can’t find evidence for that, but can somehow find evidence of promises.

          • martinbrock

            Occasional barter is not sufficient for the classical fable, which requires commodities like gold to be bartered, for their intrinsic utility, before becoming money, but more to the point, while barter economies are not observed in primitive societies, credit economies are observed. We aren’t comparing a just so story with another just so story. We’re comparing a just so story to the historical and anthropological record.

          • Tyler Folger

            I’m not especially impressed by scientists, but because I can’t research everything myself, I usually take their word for it with respect to most things. But in this case, I’m saying that as a layperson, the historical and anthropological record sounds so unreasonable and contrary to common sense and my own observation, that I’m inclined to dismiss it out of hand. Maybe you think it’s a trivial comparison, but I’ve watched money develop from barter on a Minecraft server in the predictable Misesian fashion. I see bartering as an apparently innate tendency in very young children. Everything about it is more intuitive and real and less abstract and less prone to disagreement and conflict than promises and commodity credits and ledger-keeping.

          • Slayer

            Tell me what kind of evidence is there for Graber’s theory.

  • martinbrock

    The miners’ race to create a valid hash for each block does not place a ceiling on the value or the volume of Bitcoin. When a miner is the first to calculate a valid hash, he adds 7.5 bitcoin (currently) to his account in the ledger. The only limit on this addition is a consensus of miners validating the addition.

    Just as enough miners may agree to separate witness signatures from the transaction block (segregated witness), increase the block size to two megabytes (SegWit2X) or to eight megabytes (Bitcoin cash), enough miners may agree to change the formula for increasing the Bitcoin supply, increasing the ultimate volume above 21 million or removing any limit.

    This change seems unlikely to occur on the original Bitcoin chain only because the 21 million limit is so firmly entrenched among Bitcoiners. Increasing the limit would be like removing the resurrection from Christianity. The change has already occurred on related chains like Litecoin.

  • LP

    So, people are thinking about the regression theorem wrong, backwards. Even Murphy’s explanation of it is backwards, it explains the thinking that went in to the theorem, but the causation goes the other way. It is essentially a proof by mathematical induction, which involves both a basis step, to establish a condition is true, and an inductive step, to show that the truth of the condition in one case will cause it to be true in following cases.

    It is not the case that something accepted today must at one time have been desired as a commodity, but it is the case that something desired today as a commodity has the potential to become a medium of exchange, and all commodities in the past had the potential to become a medium of exchange.

    A good’s desirability today gives it value in exchange today. This is the basis step. If it has value in direct exchange today, and there is no reason to expect that value to substantially decrease tomorrow, then it will be accepted today in anticipation of trading it away tomorrow. The next day, it may be traded away at a similar rate (assuming nothing unexpected happened). This is the inductive step, and the core of the theorem, that the price on a day depends on the price prior to that day. From that basis, the goods which worked best for media of exchange would be most widely accepted and eventually become dominant, and those with significant drawbacks would fall away.

    Looking at currency from this point of view, it should be apparent that anything which can satisfy the basis step (be transferable, and be valued) can serve as a medium of exchange. Mises simply gave the most obvious example of a category of things capable of satisfying the basis step: durable physical goods. There are others, probably the best example is the Canadian Tire dollar, which was created by the Canadian Tire company as a loyalty program. The slips of paper the company issued are of severely limited physical utility, yet they could be used to purchase drinks at bars, and were accepted in an interesting variety of places, all because one (fairly large) company said they would accept them into the future.

    • Tyler Folger

      a person might argue that in your example, the Canadian Tire dollar was backed by the commodities that the company offered in exchange for the slips of paper they issued.

      • LP

        Certainly, if it was believed that CT lacked the commodities needed to redeem the notes, it is unlikely the CTD would have circulated, but that is not quite the same as the notes being backed by physical commodities (such as a deposit certificate for some quantity of silver). The amount of goods a CTD would trade for was not fixed, and if the company collapsed, the notes would not be redeemable for anything.

  • davegrille

    Krugman is always trying to justify an economic model in which it is both the desired and existential economy,is an analogue of an ADHD nine-year-old boy playing with an electric train set.