The "It's Libertarian So It's Bad" Argument Against Bitcoin

A very silly piece from the Business Insider is making the rounds this morning for those who wish to stand athwart the digital future sneering "but it's libertarian." (The article has pretty much no intellectual value for anyone else.) (For an earlier take on people who have a hard time swallowing the libertarian implications and practice of the digital past, present, and future, see this from me earlier this week.)

The article by Jim Edwards posits that "Bitcoin Proves the Libertarian Idea of Paradise Would be Hell on Earth," with a bill of indictments against the surging digital currency that applies in pretty much every respect to any currency at all.

Criminals can use it! It can be stolen! (We all have things that are valuable to us on our hard drives. Bitcoin may end up being the most valuable thing lots of us have on our drives, but—back up, back up, back up. Undoubtedly a trustworthy and robust system of outsiders serving the function of digitally storing your wallets on other than just your harddrives will become common, just like pretty much every other valuable human need gets met by the market. Like every human endeavor, some crooks might get involved as well, naturally.) 

Edwards is right, let's just return to barter…this whole "currency" thing seems toooo risky.

Edwards also gives way too much importance to a supposed bug in the system that might allow colluding miners to cut out other miners (a problem that is probably fixable in the open-source debuggable Bitcoin system and that need not destroy the value of the currency to most users), and then gives even more scary attention to the notion that people can use Bitcoin as a tool to commit crimes, in case you didn't get it the first time and repetition might make it start to scare you.

He also is incensed that due to the nature of how it has rolled out, a small number of people have a lot of Bitcoin. This has little to do with its value as a means of exchange, unless he is imagining a world where suddenly the only thing that has value is Bitcoin and those of us lacking it are screwed. And for someone so worried about centralized power and manipulation of currency, he doesn't seem to have thought a lot about the Federal Reserve's role in the economy, even though circumventing it is one of the libertarian joys of Bitcoin.

Edwards hits on one point that, right this second, makes Bitcoin less than ideal as a currency: its huge day to day fluctuations in value in relation to all other monies and commodities in the world. It seems obvious to me that we are seeing lots of churn in Bitcoin based on people seeking in it not a currency but an investment vehicle, because of its huge zooms in value very recently.

We are still in the beginning of the world understanding how it wants to use digital currencies, and I would expect that in the near future we will see far more stability in Bitcoin's day to day value—though where this level will be in terms of the U.S. dollar is impossible to say.

What seems easy to say is that for anyone who has ever tried to transfer money, nationally or internationally, that the values in ease, speed, and cost of digital currency means that it will have the same leveling effect on industries like banking and finance that depend largely on their middleman function that already we've seen happen in book sales, video rentals, and travel agents.

People who doubt this are letting their ability to write Bitcoin and other digital currencies off as "libertarian" blind them to economic trends of the past 20 years in the digital age. If you can understand the value of, say, PayPal, then you already understand the value of Bitcoin; except Bitcoin doesn't have a middleman skimming.

The Internet has made life very unstable for those who made their living as middlemen skimming--even more unstable than the recent day to day value of Bitcoin.

Yes, it's decentralized, hard to control, hard to tax, arising from the free play of the market rather than government command--it's pretty libertarian stuff. The world can be, at its best, a pretty libertarian place. Don't let that scare you away from the future, libertarian haters. (Or go ahead! See if I care!)

For more on Bitcoin from a libertarian perspective, see this great essay by John Mather defending it from old-school Austrian economists who see it as essentially a non-money, and a Ponzi scheme.

Reason on Bitcoin, and our recent December feature by Jerry Brito on the many uses for the Bitcoin protocol besides a currency.

Comments

[waffles]

It's my argument for Bitcoin too. It's also my argument for guns, hookers, and drugs.

Maybe I'm thinking too libertine. Maybe the rest of the world is too puritanical.

[mad.casual]

This is one of my main arguments against bitcoin.

Guns, drugs, and hookers all have intrinsic value. Fiat currencies have value injected into them by whatever Fiat creates and maintains them. Bitcoin has value because...? I think the best answer is peers, but that's not much more encouraging than Fiat.

Until there's a court somewhere that holds a transaction performed with bitcoins as anything other than a liability (and the system is set up, pretty distinctly to prevent chargebacks), it's the cryptography equivalent of beanie babies.

[Kaptious Kristen]

"If it's liberrrrrtarrrrrian, it's crrrrrap"

[Killaz]

Was he not just the best thing ever in Inglorious Basterds? I use to think that skit was what people were referring to when they mentioned 'No True Scotsman.' The truth disappoints.

[The Late P Brooks]

Yeah, but if you've got a piece of paper with Timmay! Geithner's signature on it, you've some something of substance and intrinsic value!

[Francisco d Anconia]

Backed by the full faith and credit of the U.S. government.

BWAHAHAHAHAHA!

[Hyperion]

Even if some liberals want to agree with libertarians on some issues, they have to be against those things anyway. Because otherwise, their pure angelic righteousness will be tainted by the libertarian infidels, who refuse to worship their one gawd, who is called government.

[Hawk Spitui]

Does it strike anyone else as strange that pretty much every magazine with "Business" in the title turns out to be to the left of Fidel Castro?

[Killaz]

The name Business Insider pretty much says it all, doesn't it? They are striving to be the voice of established interest. So, they fear us like ship wrecked vacationers fear cannibals. The smell of fear on them is palpable. Suddenly, I'm feeling a little hungry.

[John]

It is funny to watch people act like Bitcoin is some kind of new and radical thing. Alternative currencies have existed forever. They used to be called green stamps. Now they are often called credit card points. Think about it, the benefit points you get from your credit card are nothing but an alternative currency. They are just a more limited one than what Bitcoin is providing.

There is nothing magic about "currency". It is just a medium for exchange. Indeed, there are some forms of alternative currency liberals love. Ask them what they think about carbon credits sometime. If someone set up an exchange were you could spend carbon indulgences to buy other items, liberals would eat it up. They only hate bitcoin because bitcoin makes it harder to control people, which is pretty much the only thing liberals actually believe in these days.

[sarcasmic]

Think about it, the benefit points you get from your credit card are nothing but an alternative currency.

If you can't take those benefit points and use them to buy hookers and blow, then they are not currency.

[John]

You take those benefits and use them wherever they are accepted. That is the same as the dollar. I can't buy hookers and blow in Europe using my dollar. No currency is accepted everywhere for everything. The difference between the dollar and your credit card points is one of degree. The dollar is much bigger and more widely accepted.

[sarcasmic]

I can't buy hookers and blow in Europe using my dollar.

Goalposts go WHOOSH!

[John]

No. You miss the point. I can't buy everything with any form of currency. The person I am buying it from has to accept my currency. I would imagine few if any hookers accept bitcoin. But it is still a currency. A currency is just a medium of exchange. There nothing that says currencies must be issued by a government.

If anything went over anyone's head, it was that point going over yours.

[sarcasmic]

When you use your points, your credit card company pays with dollars. You're not paying with points. You're indirectly paying with dollars. Dollars are the currency, not the points.

[John]

That is a fair point. But, when I buy something from another country, they are converting my dollars into the other currency. I am paying them in Euros not dollars. Same thing is going on here. I am using one currency, the points, to buy something priced in another currency, dollars.

[sarcasmic]

We're not talking about buying stuff in another country, Tulpa. We're talking about using points in the States. The points are a gimmick, not a currency.

[Gozer the Gozerian]

There is also the issue of "money" being defined as a widely or commonly accepted medium of exchange...

I'm not trying to be a pedant or a stickler, but that does seem relevant.

[robc]

CC points would be currency if you could transfer them to another individual.

But you cant.

Green stamps WERE a currency.

[Killaz]

I can't buy hookers and blow in Europe using my dollar.

American Eagle coins make great conversation starters with European women. There is something so obnoxiously American about them, Eurobabes find them to be irresistible.

[Smack MacDougal]

"If you can't take those benefit points and use them to buy hookers and blow, then they are not currency."

~ sarcasmic

You have conflated currency with money.

Currency is that which circulates goods. Credit is a kind of currency. A personal bank check is credit. Some sellers of things won't accept personal bank checks.

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

In America, Federal Reserve centralized bank notes act as money because you don't need to prove to your friendly neighborhood liquor store owner that you have right of possession in the $20 bill you turn over to him for your bottle of MD 20/20.

Money acts as currency, but not all things of currency act as money.

[Killaz]

Way to ruin a good joke.

[kinnath]

John, a better example is cell-phone minutes which have become a major medium of exchange in Africa.

[Gozer the Gozerian]

Yes. My thoughts immediately turned to M-Pesa, on reading this article.

[kinnath]

Stealing from Wikipedia:

A much more general use of the word currency is anything that is used in any circumstances, as a medium of exchange. In this use, "currency" is a synonym for the concept of money.

Cell phone minutes are clearly a currency.

Bitcoin is clearly a currency. Whether or not it is a sound currency is an entirely different question.

[SweatingGin]

John, it *is* a new radical thing.

What would it cost to move a million dollars to Hong Kong, say? (cash, or wire transfer, both are important questions)

Who would you have to ask permission from? How much would that permission cost? How long would it take? How much would you pay for guards, trucks, ships, insurance? Is there a risk that a bank handling the transfer gets "bailed in"?

Or, I can send any amount I want, including millions, to anyone in the world, for free or nearly free, in an irreversible, audited transaction.

[Francisco d Anconia]

From the comments:

john1066
Insiders are selected by Business Insider editors based on the quality of their contributions.
(URL) on Dec 10, 9:42 PM said:
The far right wing libertarians in 3....2....1....
This should be very interesting.

Libertarians are nothing more than rabid right wing extremists, dontchaknow.

[John]

What does "far right" even mean? I am sure for Mr. 1066, it means something like "loves religion and hates black people".

[Francisco d Anconia]

1066 is code for a klan member.

See, we can make shit up too.

[Gozer the Gozerian]

These microaggressions against England will not stand, man!

[Francisco d Anconia]

Had to google it. Learned something today, now I can drink.

[robc]

Damn Mormons.

[OldMexican]

For more on Bitcoin from a libertarian perspective, see this great essay by John Mather defending it from old-school [sic] Austrian economists who see it as essentially a non-money, and a Ponzi scheme.

The defense that you allude to received a devastating response from an old-school Austrian economist.

The reason why Bitcoin is not money is not because it is too libertarian but because it did not appear from the market. It is not a product of a slow process of discovery like other currencies. Even in the limited confines of a prison, cigarrettes did not appear as currency because someone said so, but because there are more than a few smokers in prisons that desire cigarrettes enough to trade other goods or services for them. Cigarrettes are thus money within a prison; this money is the result of the process of discovery which is driven by market transactions within the prison. Bitcoin was simply announced as something you could trade with, not something that appeared from market transactions. This is the first argument against Bitcoin as money.

[John]

By that logic the Euro isn't a currency. The market didn't produce the Euro, government action did. In fact, I don't think there is a single state sponsored currency in existence that "appeared naturally from the market".

[sarcasmic]

In fact, I don't think there is a single state sponsored currency in existence that "appeared naturally from the market".

I gotta agree with that. When the state sponsors a currency, it usually comes with laws requiring that that currency be the only legal means of exchange. This monopoly allows the government to rob society by devaluing the currency.

[John]

Before state sponsored currency, currency was real bank notes, as in a note from a bank guaranteeing the payment of a certain sum of something, usually gold or silver. Those arose directly from the market as a response to both the need for a medium of exchange and the impracticality of carrying around real gold.

[Juice]

Nuh uh, they were "announced" as something to be traded as currency. Hence, it's not a "real" currency. /sarc

[Francisco d Anconia]

This monopoly allows the government to rob society by devaluing the currency.

Rob is such a cruel word.

It's a penaltax.

[OldMexican]

Re: John,

By that logic the Euro isn't a currency.

You're not following the logic. The Euro is nothing more than a replacement of already-existing mediums of exchange, of other currencies used by the markets within the participating nations. It wasn't a new currency competing with the others, but a complete substitute of something that already existed that people were already using. It was a change from one medium of exchange to an equivalent medium of exchange controlled by an ever bigger central bank than the other lesser central banks in each participating country. Not the same with Bitcoin. Bitcoin was simply conjured into existence as a competing digital medium by some unknown person.

[Juice]

Bitcoin was simply conjured into existence as a competing digital medium by some unknown person.

And people use it as money, therefore it is money.

[OldMexican]

Re: Juice,

And people use it as money, therefore it is money.

Who is using Bitcoin as money, Juice? So far, what people do is turn money (dollars, yen, euros, pesos) into Bitcoin, not unlike buying coupons from Groupon. Some sellers accept Bitcoin, but only a few; you cannot yet use Bitcoin to trade with most sellers, so Bitcoin is right now only a vehicle for mediums of exchange, not a medium.

The other problem is the volatility. You buy Bitcoin today and it raises in price, let's say. Why would you then spend your Bitcoin? Say the price of Bitcoin crashes. What happened to your purchasing power? It crashes as well. Bitcoin is right now too volatile to be money.

[Juice]

Who is using Bitcoin as money, Juice?

Everyone who uses the black market sites and the white market ones. Everyone who buys things in Bitcoin. Yes, people do buy things, not just drugs, with them. People take donations in it. People do actually use it as money.

http://www.spendbitcoins.com/places/

[OldMexican]

Re: Juice,

Everyone who uses the black market sites and the white market ones.

The black market and white market sites that accept Bitcoin are simply too few to make trading with Bitcoin something less exotic and more practical for more people. Most people do not trade with black-market sellers - that is a fact.

Besides this, the volatility of Bitcoin makes is much less practical for normal purchases precisely because it gains value quickly (wonderful for speculators and gamblers, much less so for sellers) or loses value quickly (terrible for buyers, wonderful for sellers). It is simply NOT a vehicle for maintaining purchasing power, compared to real currencies, even the fiat ones.

[Smack MacDougal]

You have committed the fallacy of consensus gentium, OldMexican.

Merely that sites are "too few" isn't sufficient condition for claiming Bitcoin is not money.

In Cuba, Cubans have the national peso and the convertible peso. Even though the national peso is not accepted anywhere but in Cuba, it is money for Cubans because it adheres to the only salient qualities that define all money for the entire history of humans:

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

As in the Cuban world, in the Bitcoin virtual world, Bitcoin might be money. Without doubt, Bitcoin has the quality of bearer negotiability.

As in the Cuban world, it lacks relevancy if elsewhere Bitcoin fails to get accepted as money.

[OldMexican]

Re: Smack MacDougal,

Merely that sites are "too few" isn't sufficient condition for claiming Bitcoin is not money.

No, of course not. What makes Bitcoin NOT money is also the high transaction costs, the volatility, the lack of a predictable purchasing power, the lack of tangibility, the very steep learning curve for their use, etc.

In Cuba,

Thanks. Cuba has almost no market economy.

Money is that which settles credit and has bearer negotiability

That only says what money can do, not what it is. It is not a definition because it is too vague - anything can settle or establish credit between two people, as long as the two agree to it.

[Smack MacDougal]

LOL. Now you are reaching @OldMexican.

Transaction costs have nothing to do with money.

That you refuse to accept reality after having been shown what money is says much about your intransigence to defend your irreality.

Money is that INSTRUMENT which settles credit and that INSTRUMENT which has bearer negotiability.

Enjoy your false belief living!

[robc]

high transaction costs

WTF?

btc transaction costs are effectively zero.

[robc]

Nope.

All my bitcoins came from bitcoin only transactions, no money was converted.

Bitcoin is right now too volatile to be money.

Compared to the dollar, sure. But the same can be said for Gold, which is clearly able to be money.

[John]

It wasn't a new currency competing with the others,

Sure it is. It has a value visa-vie other currencies doesn't it?

Bitcoin was simply conjured into existence as a competing digital medium by some unknown person.

As were pretty much every state sponsored currency I can think of. Not that there is anything wrong with that. But I don't see how or why a currency has to "come from the market" anymore than any other product does. BITCOIN is offering people an alternative. If people like it as a medium of exchange, it will be successful. If not, then it will die.

Think of it this way. Suppose BITCOIN becomes really big, that millions of people start using it as a way to do business. If that happens, why would it matter that it was created from nothing as opposed to growing up organically? The end result is the same either way. It seems to me that the article you site is making a distinction without difference.

[Juice]

The thing is, Bitcoin came straight from "the market". Where else did it come from? Is there a magic well in a field in Nebraska called "the market" where new products come from or does a person or group of people invent them and market them?

[John]

Very true Juice. BITCOIN is an attempt to provide people with an alternative currency. It will only be successful if people don't trust the existing currencies enough to want to rely on BITCOIN. So, yes, BITCOIN is the creation of the market.

[OldMexican]

Re: Juice,

The thing is, Bitcoin came straight from "the market".

It came from somewhere, that is for sure, but not out of many previous market transactions and the discovery process. It is simply a construct with certain qualities that a few may find attractive in the beginning. That does not ipso facto turn Bitcoin into money.

[OldMexican]

Re: John,

Sure it [the euro] is. It has a value visa-vie other currencies doesn't it?

You're equivocating, John. The euro replaced the currencies of the participating countries; it wasn't meant to compete with ALL currencies, only those of non-member nations which would be the case anyway for the rest of the substituted currencies anyway.

You're still missing the point. The euro was not conjured out of nothing and then offered as a new currency. It was issued as a ubstitute for already-existing currencies used in the market. Therefore, the euro is NOT like Bitcoin.

[OldMexican]

Re: John,

But I don't see how or why a currency has to "come from the market" anymore than any other product does

Because before something becomes money, John, it has to be accepted by most buyers and sellers as a medium of exchange for indirect trade. Products are offered in a market and are traded, but as long as they're traded for money and not as money, then they are not money. It pains me to say it but, right now, this is the same with gold and silver: these are traded for money but very seldom as money precisely because most people use dollars or yens or euros as their primary medium of exchange.

[OldMexican]

Re: John,

In fact, I don't think there is a single state sponsored currency in existence that "appeared naturally from the market".

You're begging the question, John. Just because fiat currencies are sponsored by a state does not mean they were conjured out of nothing in the beginning. Most currencies used by nations were the result of multiple and slow substitutions from specie-backed currencies to fiat-currencies but substitutions from something they were. The fact that people accept these and transact with these in a multitude of trades (billions of trades, as a matter of fact) should tell you that the market DID accept these currencies for trading precisely because they were not conjured from nothing but because they slowly replaced the specie-based currencies through the same process of discovery and acceptance. This is regardless of the economic problems with fiat currency; we're not talking about the soundness of money but whether Bitcoin is money or not.

[John]

Just because fiat currencies are sponsored by a state does not mean they were conjured out of nothing in the beginning.

So what? That doesn't mean they had to have been. Take the Iraqi Dinar or the Russian Rubble. In 1991 the old Soviet Union effectively had no currency. So, they created a new one out of nothing. Same thing happened in Iraq in 2003. The old Saddam Dinar was worthless. So the new government issued a new one that was based on nothing. It wasn't replacing an existing system. It was a new system created by an entirely new government. But both those were clearly currency.

[OldMexican]

Re: John,

So what? That doesn't mean they had to have been. Take the Iraqi Dinar or the Russian Rubble. In 1991 the old Soviet Union effectively had no currency. So, they created a new one out of nothing.

Are you now in the habit of rewritting economic history, John? The new Russian Ruble (the correct spelling) replaced the older Ruble at a convertibility rate that halved people's savings, but that ruble was not simply conjured into existence to fill a total and complete void. The Iraqi Dinar wasn't actually worthless after the fall of Saddam; people were still using the old Dinar as a medium of exchange, at least for a while, because the American greenback was flooding the market too quickly and the new Dinar was being printed too quickly.

Besides the history, these currencies were issued upon existing assets being held by the Russian and Iraqi banks and government debt, absolutely NOTHING like Bitcoin at all.

[waffles]

Then explain bitcoin's exclusivity on the black market and what could possibly replace it for that use. Without bitcoin would a Silk Road type operation even function? It didn't become the currency by dictate, but rather utility.

[robc]

It didn't become the currency by dictate, but rather utility.

In fact, bitcoin came from the market organically in the way OldMexican is asking for. It just did if quickly.

Necessity is the mother of invention.

[OldMexican]

The second is the tangibility of money. Money is and has to be tangible. Cigarrettes are tangible - you can hold them, count them, feel them. The same with gold and silver. Even greenbacks are tangible, and just because your money is represented temporarily in digital medium in your bank does not mean that your money cannot be converted into something tangible whenever you want. Not so with Bitcoin. It is an entirely digital currency. It is NOT tangible. It is an accounting-based construct, but not a tangible asset like gold, silver, coin or greenbacks.

The third reason why Bitcoin is not money is because of its volatility. The raison d'etre of having a medium of exchange is to enjoy predictable purchasing power. If the medium of exchange stops having a predictable purchasing power (for instance, during bouts of hyperinflation) people will stop using that currency for something less volatile, as history has shown many times. Bitcoin's volatility make it the perfect vehicle for glamblers and speculators, but not buyers and sellers. Thus, Bitcoin is not money. Not yet.

[Juice]

Money is and has to be tangible.

Says you.

Even greenbacks are tangible, and just because your money is represented temporarily in digital medium in your bank does not mean that your money cannot be converted into something tangible whenever you want. Not so with Bitcoin.

http://www.google.com/search?q=physical+bitcoin

[OldMexican]

Re: Juice,

Says you.

Says Mises.

http://www.google.com/search?q=physical+bitcoin

Those are pretty tokens. Expensive, but pretty. Just because you can buy tokens or certificates that purport to represent Bitcoin does not mean you're getting money; you're getting tokens or certificates.

[Cytotoxic]

Mises was wrong.

[Smack MacDougal]

The wannabe economist, but always a sociologist Mises suffered from a slew of fallacies that should make all reject Mises' claims about economics.

Misean-Rothbardian foolery of time preference makes Mises' economic theory collapse since Mises built it on false belief.

Interest is a kind of income, the same as rent and as such acts in accordance to the exact same economic law. Interest is not a standalone, extra-specie phenomenon of economics that Mises, Rothbard and B?hm-Bawerk foolishly believed.

Mises had to invent foolish extra explanation ? "time preference" ? as if interest is somehow different. Mises made the illogical same mistake as Keynesians and Monetarists do when it comes to money.

Indirect speculators (money capitalists) do not get induced by lowering interest rates to switch from hoarding for a future or spending on consumer goods now.

It's that others who are working for others rather than themselves must get induced to switch their work preferences by lowering interest rates to switch their preference from what they are doing now to become direct speculators (material capitalists).

[OldMexican]

Re: Smack MacDougal,

Interest is a kind of income,

Your definition is quite vague. A "kind" of income?

Interest is not a standalone, extra-specie phenomenon of economics that Mises, Rothbard and B?hm-Bawerk foolishly believed.Mises had to invent foolish extra explanation ? "time preference" ? as if interest is somehow different.

Your statement makes no sense. In the first place, it was Bohm-Bawerk who established time preference as an economic phenomenon, which perfectly explains not only the interest rate but also wages. So it wasn't a Misesian invention. This argument that time prefence does not exist is a new one for me. It would tell me that for you, present consumption is exactly the same as future consumption and has the exact same value, basically making you a totally apathic being, unconcerned with time.

[Smack MacDougal]

LOL. Your lack of reading comprehension and inability to understand economics has led you to the false belief that what you have read "makes no sense." @OldMexican

First, I have not rendered definition. I have stated a claim about Mises, Rothbard and B?hm-Bawerk with respect to their false beliefs about income.

Yes, Mises borrowed from Bohm-Bawerk.

"The time will come when people will realize that B?hm-Bawerk's theory is one of the greatest errors ever committed."

~ Carl Menger, founder of the Austrian School of Neoclassical Economics

The father of the Austrian school said B?hm-Bawerk was wrong.

Show us exactly how B?hm-Bawerk's false theory explains wages.

"It would tell me that for you, present consumption is exactly the same as future consumption and has the exact same value"

?ldMexican.

Things don't have value. To claim so is to believe in intrinsic worth. Nothing has intrinsic worth.

Things makes value. Value results from the expression of a ratio of importance between two commodities. When one of two things in exchange is money, we give value another name ? price.

[Smack MacDougal]

For as de Fontenay adroitly stated, "The theory of revenue must be the same for all classes of human production."

Interest has nothing to do with "time preference." The whole "time preference" theory of Mises amounts to foolery. The belief that others must be paid a high rate of interest for use of their funds to induce them to "give up present consumption" is false.

Nothing is being given up. Consumption is happening in the now. Money capitalists are buying rights of actions in the now from material capitalists.

Interest is like any income ? rent, futures, annuities, wages, copyrights. Interest arises from the recurring purchase and sale of capital in exchange for rights of action. Interest has nothing to do with being compensated for putting off future consumption.

[Smack MacDougal]

In free markets, the interest rate falls because money capitalists must induce others to switch from what they are doing now and become material capitalists. In short, money capitalists are betting that the addition of material capitalists can discover the right combo of material capital to produce goods-yielding products such that the effect of the Law of Prices allows for sales to exceed costs, that is for profits to arise, and from profit, that interest (rent) can get paid. For without profit, no rent, and hence, no interest can get paid.

Material capitalists use material capital (products that yield intermediate goods) to produce what are products that either are material capital to another or products of final goods.

Money capital arises because earning rent on money capital, that is earning interest, obviates the need for money capitalists (bankers, lenders) to guess what material capital producers need and thus efficiently reduces the need for them to be Nostradamus.

Those who become money capitalists do so because it is their preference to not become material capitalists. Time has nothing to do with it.

[Smack MacDougal]

In short, money capitalists have swapped producing material capital (differentiated capital) for producing money capital (undifferentiated capital). No longer do money capitalists need to guess what material capital material capitalists demand. Nor do money capitalists need to take raw material, convert such into production goods and then produce final capital (products) themselves; and thus, money capitalists need not guess what goods yielding material products get demanded as the expressed preferences of consumers.

[Smack MacDougal]

Money lent at interest (money capital) is done so because that is the product the money capitalist sells.

The money capitalist concludes that rather than buy material capital and attempt to make something for which demand might be insufficient to yield profit and thus fail to earn so-called (material) capital interest, often said the natural rate of interest on (material) capital; the money capitalists decides to sell money capital and buy a right of action from another material capitalist.

It's that simple. No one needs an elaborate theory of time preference like something from Jean-Claude Van Damme in Time Cop.

The money capitalist buys the right to claim a part of the profits, if any exist, from the material capitalist. The material capitalist engages in production of things in hopes of earning sales that exceed the Cost of Production suitably sufficient to distribute a share of profit to the money capitalist, that is, to to pay rent (interest) on money capital.

When Sally Secretary does the above by buying shares of APPL for her 401-k rather than rolling up her sleeves and going into the smart phone manufacturing business herself, we think nothing of it. Yet, when foolish neoclassical economists, in this case, the Austrians think on this matter, they devise an elaborate time preference theory.

[OldMexican]

Re: Cytotoxic,

Mises was wrong.

Care to elaborate?

[John]

The second is the tangibility of money. Money is and has to be tangible.

That is just completely untrue. The vast majority of the money supply is in the form of intangible bank credits. The actual supply of money greatly exceeds the amount of paper currency. There is nothing tangible about my 401K account. It is just a number held by a bank.

[OldMexican]

Re: John,

That is just completely untrue. The vast majority of the money supply is in the form of intangible bank credits.

So? Book keeping does not ispo facto turn a tangible asset into an untangible asset. Your bank account can say you have $3,000.00 and as far as you know, that is what it has. However, that does not mean you cannot turn those $3,000.00 into greenbacks and spend it like cash - the moment you and others can't, there WILL be a panic. This fact is what maintains the marginal value of money in the minds of people. Bitcoin has yet to reach this point, which is the reason for its extraordinary volatility.

[Killaz]

North has plenty of essays in his past where he doesn't bother to make this distinction on the subjects of the M1, M2, etc. classification system used by the Fed to measure money in circulation. Most of which is every bit as virtual as Bitcoin. I've been wondering for years why the regression theorem doesn't come up in, say, his typical essay on deflation, the velocity of money, and the Feds measure of those factors against the Ms. He's a good analyst who got way too much shit over Y2K as if he were the only one to take that seriously, and the newsletters that came out a decade after his employment with Paul. I read him a lot still, but I don't think the question of whether Bitcoin is money or not matters much in the long run. I call it an American Express Black Card for Everyman. That was my job with AE years back (I have been through a lot of jobs over the years, current gig is my longest) to service those customers. Telling it straight, Bitcoin is a better deal.

[OldMexican]

Re: Killaz,

North has plenty of essays in his past where he doesn't bother to make this distinction on the subjects of the M1, M2, etc. classification system used by the Fed to measure money in circulation.

M1 and M2 are necessary measures to understant the true ratio of inflation. I fail to see how any of this helps the arugment that Bitcoin is money. I place this factoid of yours squarely in the category "red herring."

Most of which is every bit as virtual as Bitcoin.

You still don't understand the point. You can still convert what the accounting in your banks says belongs to you into greenbacks (the arbitrary restrictions on cash holdings imposed by the goverment notwithstanding.) Not so with Bitcoin; you still need a middleman to convert Bitcoin into money, with no guarantee that whatever you think you possess as Bitcoin is still there to convert. The transaction costs of Bitcoin are still much higher than those for greenbacks or even other currencies. This fact alone makes Bitcoin too impractical for most folks, which ultimately means, for the market.

[Killaz]

M1 and M2 are necessary measures to understant the true ratio of inflation.

Yes, inflation. Inflation of the money supply. A supply of commodities, many of which do not pass the regression theorem smell test. Its natural to wonder why North doesn't tend to make a point of this in his discussions of it.

You can still convert what the accounting in your banks says belongs to you into greenbacks

You can convert sex into greenbacks, sex isn't money either. You just turned what North actually said on its head, because that is the very reason he gives for rejecting Bitcoin as money because its (supposed) need for convertibility into the greenbacks.

[OldMexican]

Re: Killaz,

Yes, inflation. Inflation of the money supply. A supply of commodities, many of which do not pass the regression theorem smell test.

You're confusing concepts. The supply of money has nothing to do with the concept of the origin of money.

You can convert sex into greenbacks, sex isn't money either.

You trade sex for greenbacks. This has nothing to do with asking your bank to deliver what is YOURS. You're equivocating only to win the argument.

because that is the very reason he gives for rejecting Bitcoin as money because its (supposed) need for convertibility into the greenbacks.

But convertibility is an entirely distinct and different concept; it means turning one thing into another thing. The accounting mechanism of a bank does not turn your money into something else, it is just accounting, a symbollic representation of your money, like an inventory sheet is just a symbolic representation of the physical inventory in your warehouse - you STILL have a warehouse full of inventory, the same way you have your money in the bank. Instead, Bitcoin is supposed to be a distinct and different commodity, a digital one at that but a commodity nonetheless. You trade money for Bitcoin and then hold Bitcoin, not money.

[Killaz]

You trade sex for greenbacks. This has nothing to do with asking your bank to deliver what is YOURS.

If prostitution isn't a negotiable order of withdrawal I don't know what is.

M1 is the component of the money supply that fits the regression theorem, so pretty much meets any sound definition. However, M2 includes money market mutual funds and timed deposits, items less liquid than Bitcoin. This is the point of the joke. They are more like items of trade than money.

[OldMexican]

Re: Killaz,

If prostitution isn't a negotiable order of withdrawal I don't know what is.

It's not an order of withdrawal, but a service. When you ask for sex and offer money, the sex is not yours yet and the money is not the prostitute's yet until the exchange of title axtually happens. Instead, the money in the bank is yours, always. You do not engage in an exchange when asking the bank to give you your money except for service fees. That has NOTHING to do with the nature of money, the definition of money or give credence to the notion that Bitcoin is money.

Again, you're equivocating just to win the argument.

M1 is the component of the money supply that fits the regression theorem[...] M2 includes money market mutual funds and timed deposits.

So? What does this have to do with anything? None of this gives credence to the notion that Bitcoin is money.

[Smack MacDougal]

It is an accounting-based construct, but not a tangible asset like gold, silver, coin or greenbacks.

~ OldMexican

Asset is a legal (accounting) construct. Asset means enough, having enough if sold at market prices to settle debts.

Tangible merely means that which can handled, touched, held. It is an aspect of experience.

The third reason why Bitcoin is not money is because of its volatility. The raison d'etre of having a medium of exchange is to enjoy predictable purchasing power.

~ OldMexican

If that were so, then in the days of specie money, such couldn't be money according to your belief. Gold strikes caused the buying power of extant gold to fall.

[Juice]

The reason why Bitcoin is not money is not because it is too libertarian but because it did not appear from the market.

In what way did it not?

It is not a product of a slow process of discovery like other currencies.

Define slow. It took about 2 years to gain any value at all. And why "slow process of discovery" in any way a requirement for something to be a "real" currency? If something is being traded like a currency, it's a currency.

[OldMexican]

Re: Juice,

In what way did it not?

They were conjured into existence by some individual who swears by the limited number of Bitcoin, and not as part of a slow process of discovery and trades from which all currencies actually arise, be it gold, silver, or (in the case of prisons) cigarrettes.

[Juice]

It's open source code. Anyone with programming knowledge can look at the code and determine its soundness. It's completely decentralized.

I still don't see how a "slow process of discovery" is a requirement for something to be money. To me, the only requirement is that lots of people treat it like money and trade it like money.

[OldMexican]

Re: Juice,

It's open source code. Anyone with programming knowledge can look at the code and determine its soundness

Is that supposed to make Bitcoin more ubiquitous? How many people do you know that can read source-code?

I still don't see how a "slow process of discovery" is a requirement for something to be money.

Because the market is made of PEOPLE, Juice.

People are fickle, suspicious, not easily swayed. It is only through several successful trades that a person learns the marginal value of things. A person does NOT have to be in love with gold to learn, after a few trades, that gold is the most desirable of commodities; but before a commodity gets to that point, it has to participate in many, many trades with a large host of people (remember that a market grows as division of labor grows). Bitcoin is still very far from that point.

Besides, you're fogetting the most important aspect of money which I already mentioned above: desirability. The DEMAND of money is directly connected to its desirability, which is what made precious metals the ultimate choice for money for thousands of years.

[Smack MacDougal]

"They [Bitcoins] were conjured into existence by some individual...

?ldMexican

Gold was conjured into existence by someone who first mined it.

That one convinced another to accept gold in exchange and then that second one convinced yet a third is what has happened exactly with Bitcoin.

That you are wedded to Gary North's fantasy amuses. Do yourself a favor, abandon Gary North's silliness. North doesn't understand what money is.

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

The speed of adoption of that which can become money lacks relevancy.

[OldMexican]

Re: Smack MacDougal,

Gold was conjured [sic] into existence by someone who first mined it.

That doesn't mean gold was born being money, if one accepts your overly simplistic scenario. By the way, you also have a problem with logic: If something was mined, then it already existed before it was mined, so you cannot say it was conjured into existence.

Money is that which settles credit and has bearer negotiability

This definition only explains what money can do, not what it is. Money can be used to settle debts. So can anything else the debtor and the lender agree, even the debtor's house, or his wife. That does not turn the house or the wife into money.

Here's the definition of what money is: Money is the most desirable of commodities, universally accepted by most people in the market as a medium of exchange. That is what it is.

[Smack MacDougal]

"That doesn't mean gold was born being money, if one accepts your
overly simplistic scenario."

?ldMexican

Your clumsily handled attempts at ad hominem by innuedo amuses.

You don't get what logic means. Logic means the art of ascertaining truth or falsity. It does not mean sequence of events as you imply.

To help you disabuse yourself from your slew of false beliefs about money, and though my rendered truth about what money is has escaped your mental grasp, here it is again.

Money is that INSTRUMENT which EXTINGUISHES credit and has bearer negotiability.

While one debt instrument can be used to settle debt (postpone), never can one debt instrument extinguish debt outstanding.

Only money can do that.

[OldMexican]

Re: Juice,

Define slow. It took about 2 years to gain any value at all.

Can be decades, can be hundreds of years, depends on the number of trades and the reach. A currency used by a tribe of people may take a couple of generations to figure out but decades or even hundreds of years for a whole continent.

Just because Bitcoin gained value in 2 years does not turn it into money, it only turns it into a speculative mania.

[Juice]

Right, the rate at which it gained value has nothing to do with whether it's money or not. The one that that determines if something is money is if people use it as such.

[OldMexican]

Re: Juice,

Right, the rate at which it gained value has nothing to do with whether it's money or not.

Of course not. Otherwise, houses would have been called "money" during the bubble years.

Read Mises: http://wiki.mises.org/wiki/His.....nd_banking

The one that that determines if something is money is if people use it as such.

If people use it as a medium of exchange for most of their trades, not just a few. Just because I buy Chuck E Cheese's tokens which I can use to play their games does not turn their tokens into money.

[Cytotoxic]

These arguments against BTC absolutely suck as bad as statist arguments against BTC and make Austrians look like old foggies who can't understand newfangled tech.

"It wasn't discovered"-except by the increasing numbers of people using it and other alt currencies based on the protocol.

"Not tangible" -doesn't matter.

"Muh metals"-have use but metals are precious and useful for currency because they are scarce. BTC is scarce too and so much more portable.

[OldMexican]

Re: Cytotoxic,

These arguments against BTC absolutely suck as bad as statist arguments against BTC and make Austrians look like old foggies who can't understand newfangled tech.

That's a specious argument. We're talking economic science here, not technobabble. Whether we're talking about electronic bytes or unicorn farts, the fact is that those things cannot be turned into money only because we wish it.

"Not tangible" -doesn't matter.

Why not?

"Muh metals"-have use but metals are precious and useful for currency because they are scarce.

ALL economic goods are necessarily scarce. Precious metals have other qualities that made them ideal as a medium of exchange for millenia. Bitcoin just don't possess those same qualities, most of all universal desirability; not yet, at least.

[Smack MacDougal]

Saying "Bitcoin is not money ...because ... it did not appear from the market, is like saying the car or anything else is not a product because it did not appear from the market.

For the first car was nothing but an invented thing. Demand for possession by another turned it into a product.

Bitcoin most without doubt is an invention and a product. Demand for possession by others has turned Bitcoin something.

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

If Bitcoin can be used to settle credit obligation and if no one need prove he or she is the rightful possessor of Bitcoin to exchange with Bitcoin, then at least in the "Bitcoin economy" (those who accept Bitcoin in exchange), Bitcoin acts as money.

It is well known that Gary North earned his Ph.D. in history and not economics. North believes that "starting point for all economic analysis" lies in the fact that "God cursed the earth" (quotes his).

[OldMexican]

Re: Smack MacDougal,

Saying "Bitcoin is not money ...because ... it did not appear from the market, is like saying the car or anything else is not a product because it did not appear from the market.

As a rhetorical vehicle, Smack, equivocation is not that useful. A product is born from transformation, not from the market. What the market does is turn the product into a good after people trade for it. Since cars are traded all the time, then it is silly to say that I am saying something different.

Money is the most desirable of commodities being used for indirect trade. Which commodity becomes money is something that the market sorts out through the discovery process driven by trade. That is the concept of money.

If Bitcoin can be used to settle credit obligation and if no one need prove he or she is the rightful possessor of Bitcoin to exchange with Bitcoin, then at least in the "Bitcoin economy" (those who accept Bitcoin in exchange), Bitcoin acts as money.

And if Bitcoin can't be used to settle debts, then it is not money. Right?

One can settle any sort of debt using barter, Smack. That does not turn the bartered good into money. Only when Bitcoin becomes one of the universally-accepted methods of repayment of debt and for indirect trades can you then call Bitcoin "money". Right now, you can't.

[Smack MacDougal]

@OldMexican

Not only do people trade for goods,
they trade with goods.

Exchange requires two goods, one thing for another. When one thing gets accepted for another, that thing instantly becomes wealth, for in the moment of trade it has buying power.

Money is the most desirable of commodities being used for indirect trade.

~ OldMexican

There isn't any "indirect trade." When money is one of two things in exchange, the one who has money to trade SELLS MONEY and BUYS the other thing of the exchange.

A product is born from transformation, not from the market.

~ OldMexican

All products arise from production in effort to attempt to secure buying power for exchange.

If a man live alone on an island and fashions a fishing net from the fibers of a plant, he has not made a product. He has made a tool. If that man fashions a second net, he has but two tools.

If that man rows over to a nearby island and desires spears they have fashioned and offers his second net in exchange for spears, his second net becomes a product and in the moment of exchange, if one should happen, becomes wealth.

After exchange, the product ceases to be wealth, if in future, it can not yet again be exchanged.

Exchangeability is the source of wealth. Socrates agrees with this.

[Smack MacDougal]

@OldMexican

As to what money is, I have shown you already in above comments directed to you:

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

Gary North is wrong, clearly so. Bitcoins arose from the market for the want to possess and exchange with Bitcoins.

Had no one exchanged anything for Bitcoins, Bitcoins would have been but an academic exercise, but not a product.

You are not teaching me anything here, OldMexcian.

[Smack MacDougal]

@OldMexican

"As a rhetorical vehicle, Smack, equivocation is not that useful.

Thus, as shown above, your claim of the fallacy of equivocation is false.

You, OldMexican, have conflated the idea of a product with that of a tool.

However, you have been shown the light above.

[OldMexican]

Re: Smack MacDougal,

There isn't any "indirect trade."

Don't pretend to argue with me on economic concepts, Smark. Indirect trade means using an intermediate good (i.e. money) to trade for different goods without having to trade those goods directly as in a bartering system. Production and trading are means to an end, Smark. If a person wants a suit, but can only offer wheat, he uses money to get to the suit but the money is NOT the final end of the trade, only one of the means. That is why it is called "INDIRECT trade."

All products arise from production in effort to attempt to secure buying power for exchange.

And? How does this dovetail with your fallacious analogy? My argument that Bitcoin is not money because it is not the result of market exchanges is NOT the same as saying that a car is not a product. A car IS a product, I just said that. What it is not is an economic good, not until someone else desires it. I still fail to see how one contention means what you alledge it means; it does not, it is simply equivocation from your part.

[kinnath]

Off topic, but SadBeard decides the feds should spend money to banish the long term unemployed to the frozen hell hole known as Iowa.

http://www.slate.com/blogs/mon....._doom.html

[Spoonman.]

Maybe somebody should use their unemployment money to buy a bus ticket to Midland.

[John]

Notice it never occurs to the little freak that the economy improving might change the long term unemployed's prospects. Expect a lot of this kind of crap going forward. To admit that the economy could be better and that would help is to admit that Obama is a failure. And a hack like Sad Beard can't do that. So he will tell us how the long term unemployed are doomed and nothing can be done.

[Francisco d Anconia]

might include some extra money to extend unemployment insurance benefits for the long-term unemployed. But Republicans didn't like the idea, and Democrats didn't want to bust up the deal over it, so now folks who've been jobless for an extended period of time are going to lose their benefits at the end of the year.

Cry me a fucking river SadBeard. Two years on the dole and they can't find a job?

[Gozer the Gozerian]

In their defense, there is a lot of labour law (pick your poison) that prevents low-skilled people from working, especially during economic "recoveries" like this one. There are also very strong disincentives to work that make sense for the individual, but are collectively debilitating.

(Full disclosure: I am completely opposed to unemployment insurance as a government-sponsored or government-regulated enterprise.)

[Killaz]

That tells me he is a secret comic book collector. He got that idea from Fear Itself where Asgard falls on the plains of the Mid West and Tony Stark funds a public works project to rebuild it.

[WC Varones]

Business Insider has a long history of posting obnoxiously stupid opinions in order to get a reaction and drive links to its site.

Don't fall for it.

[kinnath]

"Money" is nothing more than a commodity with nearly universal appeal but with a constrained supply (it can't grow on trees). Many things have functioned as "money" in the past including salt and precious metals (or cigarettes in the slammer).

Virtual commodities are starting to be used as "money" (cell phone minutes in Africa) that are tied to services which have universal appeal and certain physical constraints (bandwidth limitations on cellular infrastructures).

Bitcoin is a truly virtual commodity which uses anonymity to create appeal and mathematics to impose constraints. It's getting pretty fucking close to being "money".

[OldMexican]

Re: kinnath,

It's getting pretty fucking close to being "money".

Not close. Still too far away. The fact that is a purely digital currency still subject to the whims of central banks (which can allow or disallow convertibility). Unlike gold or silver or other commodities which can still be traded with cash, Bitcoin still requires the online conversion of money held in banks to Bitcoin.

Let's see what happens when you can buy Bitcoin with cash, and then it will only serve (sans the volatility) as a vehicle, like PayPal, to purchase goods. The money will still be whatever you hold in your wallet, and I don't mean the pictures of your dog.

[Marc F Cheney]

Unlike gold or silver or other commodities which can still be traded with cash, Bitcoin still requires the online conversion of money held in banks to Bitcoin.

I can't trade gold for Bitcoin? Really?

In any case, the question isn't whether Bitcoin falls under Mises' definition of money. It's why anyone should care.

[OldMexican]

Re: Marc F Cheney,

I can't trade gold for Bitcoin? Really?

Who said you can't? I only said that you cannot buy Bitcoin with cash, only through the use of an electronic intermediary.

the question isn't whether Bitcoin falls under Mises' definition of money. It's why anyone should care.

That's a silly retort. Instead of addressing the definition, you simply dismiss it as if any other definition that strikes your fancy would be just as valid.

[Marc F Cheney]

No, it's not a silly retort, and I neither said, not implied, that any other definition that strikes my fancy would be just as valid.

Whether Mises' definition of money is a valid one or not is one question, and I believe there is an answer one way or another.

Whether Bitcoin is money by that definition is another question, and I believe there is an answer one way or another.

I just don't care about either question. Why should whether Bitcoin is money or not according to Mises' definition? This is an honest question.

[Marc F Cheney]

*Why should I care

[OldMexican]

Re: Marc F Chenney,

No, it's not a silly retort, and I neither said, not implied, that any other definition that strikes my fancy would be just as valid.

But it is implied, Marc. The reason we can communicate is because words have meaning. Words serve to define ideas in a way that can be easily communicated. Ergo, the defintions are important - everybody should care and does care. That is why I say it is a silly retorn. Mises did not set to define something that didn't exist previously, i.e. money. No, he defined something that already exists. Money (the phenomenon) has certain characteristics not shared by any other good. It is important to know and realize what those characteristics are, in order to avoid confusion.

Now, I was making an argument that what John Mather did was not a good defense of Bitcoin as money and I presented the case as to why that is the case. The definition of money is important in this case, a reason why, if YOU pretend to defend the idea that Bitcoin is money, you need to care.

[Marc F Cheney]

Who said you can't? I only said that you cannot buy Bitcoin with cash, only through the use of an electronic intermediary.

No, you said more specifically "Bitcoin still requires the online conversion of money held in banks to Bitcoin."

I don't understand what you mean.

I can exchange gold for Bitcoin. I can sell services for Bitcoin. I can hand somebody cash for Bitcoin, which is to say that I can buy Bitcoin with cash. All I have to do is find somebody that has Bitcoins, and give them cash, and they transfer some Bitcoins to me.

I can do all this without a bank, or "money held in banks" being involved.

So did I misunderstand?

[OldMexican]

Re: Marc F Cheney,

I can exchange gold for Bitcoin.

Only if your Bitcoin vendor accepts gold, but the issue is still with delivery: You still have to send the gold to get the Bitcoin.

I can hand somebody cash for Bitcoin, which is to say that I can buy Bitcoin with cash.

Where? Not through one of the brokers. Show me where I can buy Bitcoin with cash. I can certainly go to a pawn shop and buy GOLD with cash; where are the Bitcoin brick-and-mortar places?

All I have to do is find somebody that has Bitcoins, and give them cash, and they transfer some Bitcoins to me.

C'mon, Marc. How is that different from buying designer bags from someone's car trunk? That doesn't mean that I "don't know anything" (your words) about Bitcoin.

[Cytotoxic]

FFS the Chinese government can't even enforce its own capital controls let alone this edict.

[RFID]

Bitcoin still requires the online conversion of money held in banks to Bitcoin.

I'm not thoroughly convinced you know anything about bitcoin...

[OldMexican]

Re: RFID,

I'm not thoroughly convinced you know anything about bitcoin...

I am not required to convice you of anything. I made my arguments against the idea that Bitcoin is money. The onus is on those that say it is to show that it is, and so far I have only seen the following:

a) wishful thinking,
b) equivocation, and
b) economic ignorance.

[RFID]

I am not required to convice you of anything.

So why are you here? You just...enjoy listening to yourself?

I made my arguments against the idea that Bitcoin is money.

You just made the (incorrect) argument that one cannot buy bitcoins with cash. Which isnt true. Although I will admit that one could deduce that you can purchase bitcoins with cash without actually knowing anything about bitcoins.

[Marc F Cheney]

So why are you here? You just...enjoy listening to yourself?

You answered your own question.

[OldMexican]

Re: RFID,

You just made the (incorrect) argument that one cannot buy bitcoins with cash. Which isnt true.

Let's say that that was the case, a wrong assumption from my part (which is not, since Bitcoin brokerage is done through the internet exclusively.) That does not mean I do not know anything about Bitcoin; it would only mean I have one tiny aspect of it, if at all, wrong.

Second, the fact that you can buy Bitcoin with cash does not mean ipso facto Bitcoin is money. Are we clear on that?

[RFID]

Let's say that that was the case, a wrong assumption from my part (which is not, since Bitcoin brokerage is done through the internet exclusively.)

Let's say that that was the case, a wrong assumption from my part (which is not, since Bitcoin brokerage is done through the internet exclusively.)

In order to not be able to buy bitcoins with cash, one of two things must not be true:

1. You cannot transfer cash from one party to another
2. You cannot transfer bitcoins from one party to another

If one person can give cash, and another can give bitcoins, then bitcoins and cash can be exchanged. The fact that you can go to a website that gives links to bitcoin exchanges (a convenient way to exchange bitcoins) does not change this fact.

That does not mean I do not know anything about Bitcoin; it would only mean I have one tiny aspect of it, if at all, wrong.

You apparently were mistaken on the fact that bitcoins can be transferred to other individuals in exchange for goods or services (I'm assuming for the sake of argument you knew this about cash). I consider this "tiny aspect" to be a fairly fundamental misunderstanding.

Second, the fact that you can buy Bitcoin with cash does not mean ipso facto Bitcoin is money. Are we clear on that?

I agree. The main reason that bitcoin is money is that it easily meets all the definitions of money, not because it can or cannot be converted into US dollars.

[Smack MacDougal]

"Money" is nothing more than a commodity with nearly universal appeal but with a constrained supply (it can't grow on trees)

~ kinnath

Supply has nothing to do with what defines money.

Money is that which settles credit and has bearer negotiability. Bearer negotiability means the right of possession goes with the exchange.

For centuries, metals were used as money ? gold, silver and copper in particular. There are more than enough historical examples of supply shocks of big gold strikes that led to a flood of new gold joining in circulation extant gold with the result of rising prices.

Spanish looting of the New World led to massive price rises in Spain in the 1500s. The California gold rush led to price rises in America.

[OldMexican]

Re: John,

Suppose BITCOIN becomes really big, that millions of people start using it as a way to do business. If that happens, why would it matter that it was created from nothing as opposed to growing up organically?

You seem to ignore the cause and effect implied in your own question, John. If millions of people use Bitcoin at a point in the future, then it follows that it grew organically through a period of time by way of market transactions and the discover process. The point is that there is NO other way this can happen; we're talking Economics here, not wishes. The laws of economics are just as unbreakable as those of nature.

The point is that, right now, Bitcoin HAS NOT grown organically through a market process. It is not like millions of people are using Bitcoin to make indirect trades; the volatility of it proves that much. Bitcoin is still being traded for money and not being used to trade with it except in very special and exotic situations (like black-market sites and with a few eccentric vendors.)

[Cytotoxic]

Bitcoin HAS NOT grown organically through a market process.

It's doing that right now.

[OldMexican]

Re: Cytotoxic,

It's doing that right now.

In a very limited, restricted fashion, Cyto. It is still more an exotic curiosity and (worse) a volatile commodity attractive to gamblers and speculators, but not yet money.

[Marc F Cheney]

Bitcoin is still being traded for money and not being used to trade with it except in very special and exotic situations

Gold is still being traded for money and no longer being used to trade with it except in very special and exotic situations.

So, today, gold is not money.

I guess I can buy that, but I suspect it's not the conclusion you were hoping for.

[OldMexican]

Re: Marc F Cheney,

So, today, gold is not money.

That is correct, it is NOT.

Not that it cannot be again, especially because of its high desirability and the coming collapse of the fiat system of currencies, but right now people trade with dollars or yen or euros or Swiss franks, etc.

[Marc F Cheney]

That's fair enough, and kind of interesting.

[PapaSnigz]

I read the article and if you think the article is bad the comments section is a mess. One person compared a libertarian's dream world to China... Saying, literally, "lack of government regulation will cause pollution like there is in China."

[HazelMeade]

I am a bitcoin sceptic for the reason mentioned above - it's volatility.

Does noone find it unsettling that a commodity whose sole value as an investment is based on it's usefullness as a currency is so volatile due to speculaiton that it's not useful as a currency?

The other day I was thinking "Hmm, maybe I should buy some bitcoin- so I can purchase some marijuana off of Silk Road 2.0". And then I thought "But damn it, I don't want to buy any bitcoin NOW, when it's in peak bubble mode!"

In essence the price fluctuations have made me NOT want to actually use it as a currency to make actual purchases that I can only make with bitcoin.

What do you suppose is going to happen to bitcoin's value as an investment as a result?

[OldMexican]

Re: HazelMeade,

I am a bitcoin sceptic for the reason mentioned above - it's volatility.

That is one of the reasons for me, too. It feels too much like a speculative mania to me, and we're not the only ones. Besides Gary North, there's Bob Wenzel, Peter Schiff and others.

The other reasons I am skeptical is because of the easiness with which governments can track the movement of Bitcoins. The fact is that if Bitcoin was the privacy panacea some believe it to be, drug dealers would have stopped trading with cash and use Bitcoin instead.

[Rich Grise]

Currency? We don' need no steenkeeng currency!
http://rich_grise.tripod.com/cgi-bin/stew1.pl

[blist14ant]

bitcoin is stupid.

[Tamfang]

Edwards is right, let's just return to barter...this whole "currency" thing seems toooo risky.

Barter?! Totally lacking in democratic accountability.