Bitcoin adoption

[jts]

This is part of the problem - the people who are pushing bitcoin have never really seemed clear on whether it is meant primarily to be an liquid store of value (part of the monetary base, like a twenty dollar bill), a payment mechanism (like the electronic transfer systems currently used by all the major banks and payment companies), or a speculative asset (like a condo or a ton of copper).

Bitcoin is all three (with the third being a temporary attribute).

Bitcoin payments are like exchanging gold coins, not like having your bank promise to pay their bank.

Anyway, past my bedtime.

By and large, you want people to be able to pay each other with promises rather than little bits of the monetary base. Replacing transactional credit with an alternate form of money would be a step backwards. (Like, a huge step backwards. Some historians think there was transactional credit long before there was money.) Even when money meant coins minted out of 22k gold, most gold-denominated transactions were done on credit of one form or another.

The monetary base, a system of payments, and a speculative investment are three different things. They have different purposes. I mean, it is true that I have given friends liquor to repay debts; and some people buy liquor and age it as an investment; and there have been societies that found liquor to be the most liquid store of value, and used it as their money. But the fact that booze can be used for all three purposes doesn't mean that it is good for all them; indeed, there's no reason to think that those three functions could be performed well by any one object.

So yes, I understand that bitcoin is trying to play all three roles right now. And it's doing none of them well, as best I can tell, which is why I suggested that bitcoin's backers don't really know what they're up to.

Sorry if I seem fanatical about the monetary questions that bitcoin raises. But it's disturbing how little time people devote to understanding money and monetary policy, compared to other totally trivial aspects of the economy, so I try to do my part to clear things up on the rare occasions when people want to discuss it.

[Tryss]

Look at bitcoin bubble in june 2011 :

http://bitcoincharts.com/charts/mtgoxUS ... 1g10zm2g25

Actually, the value is stable.... for how long?

[Mike Novack]

Money is funny (and little understood)

a) What is exchanged may, but need not, have intrinsic value. Not at all difficult to give examples of various things that are/were used for money that had no intrinsic value.

b) The rules for what money can be used for can be very complex. Even can have multiple sorts of money active in different "markets" and not exchangable between types.

c) Fiat has less to do with it than you might think. What counts most is the willingness of people to use and accept it. Governments, etc. get most of their say when they are on one side of the transaction* but little say when they are not.

d) In societies that have "lending" the amount of money in existence/circulation isn't necessarily the same as the amount of physical money and that is true even if the money is hard (eg: gold). What matters then is the amount the lenders are required to keep in reserve and whether they are willing to lend.


* We will pay you with this sort or we will only accept that sort for taxes, etc. For example, I'm in Western Massacusetts and "Shay's Rebellion" was because they were paying in X (soft) but only accepting Y (hard).

[daniel_the_smith]

By and large, you want people to be able to pay each other with promises rather than little bits of the monetary base.

Yeah, I'm not arguing against that (I give 85% chance it's true). Certainly I trust mainstream economists more than libertarian economists.

(That number is so low because I don't trust economists all that much in general; it's hard to do proper experiments.)

[palapiku]

Not at all difficult to give examples of various things that are/were used for money that had no intrinsic value.

Can you give a few?

[speedchase]

Not at all difficult to give examples of various things that are/were used for money that had no intrinsic value.

Can you give a few?

USD the point that it can be used to pay Us taxes is irrelevant because its value would have to fall to zero before its value to pay taxes = the value that it was valued at.

[jts]

Not at all difficult to give examples of various things that are/were used for money that had no intrinsic value.

Can you give a few?

USD the point that it can be used to pay Us taxes is irrelevant because its value would have to fall to zero before its value to pay taxes = the value that it was valued at.

But what if the value that it was valued at was valued at the value for which the value was valued? Would that be relevant?

[Mike Novack]

Not at all difficult to give examples of various things that are/were used for money that had no intrinsic value.

Can you give a few?

You are serious, aren't you?

I guess one of the most spectacular would be the traditional money of Yap. These are large stone disks, the hole through the middle believed to be to make moving by inserting a log easier (then lots of people on the log). But this money isn't normally moved about. Stays put and people just remember who owns what fraction of which stones.

That part of the world also has one of the more unsual systems for the exchange of goods between islands. Not a "market" as we think of one since the transactions are more like "presents" exchanged by guest and host who have a traditional visiting arrangement. Nevertheless "kula" works to move goods from there plentiful to where scarce.

Seriously -- folks who want to discuss what "money" is or isn't in general should study anthropology where economics and trade are discussed. Sometimes "money" might have as its only/main purpose the equivalent of "revenue stamps" (needed to make something official -- like certain formal announcements that needed "wampam" given) or other ceremonial/symbolic purposes (potlatch "coppers" weren't used in trade).

[palapiku]

I guess one of the most spectacular would be the traditional money of Yap. These are large stone disks, the hole through the middle believed to be to make moving by inserting a log easier (then lots of people on the log). But this money isn't normally moved about. Stays put and people just remember who owns what fraction of which stones.

Wikipedia suggests that the stones were like gold - their intrinsic value was beauty: "Historically the Yapese valued the disks because the material looks like quartz, and these were the shiniest objects around."

It is perhaps not very rational to ascribe value to shiny things but that's just how humans work. This is intrinsic value.

Any other examples?

[speedchase]

But what if the value that it was valued at was valued at the value for which the value was valued? Would that be relevant?

I'm going to assume you are joking, if you are serious, I please ignore the following and explain because I don't really understand.

It's great that you can make a joke about how I expressed my thoughts but that doesn't make you right, I just makes you look like you are not making an effort to understand, and are subscribing to the popular internet culture of "I don't have to make a logical argument as long as I can be sarcastic and rude". I expressed a serious argument and if you can't respond reasonably that means that is it a good argument, not that it is laughable. If perhaps what you meant is "I don't understand", then I'll explain.

The value of the USD is not based off its use for paying taxes, because if it were, then the value of the USD would fall, which would cause the exchange rates to fall, which would mean that you would need more USDs to pay of the same amount of tax on another currency, which would in turn cause the value of the USD to fall, perpetuating the cycle so that the value of the USD would become 0.

Edit:

I guess one of the most spectacular would be the traditional money of Yap. These are large stone disks, the hole through the middle believed to be to make moving by inserting a log easier (then lots of people on the log). But this money isn't normally moved about. Stays put and people just remember who owns what fraction of which stones.

Wikipedia suggests that the stones were like gold - their intrinsic value was beauty: "Historically the Yapese valued the disks because the material looks like quartz, and these were the shiniest objects around."

It is perhaps not very rational to ascribe value to shiny things but that's just how humans work. This is intrinsic value.

Any other examples?

Also, If they weren't moved around, then you could enjoy their beauty regardless of who owned them, so owning then had no inherent value

[Mike Novack]

Sorry -- I suggest you take a look at pictures of Yapese money before believing that they were valued for their aesthetic properties.

I picked that example precisely becau
se not only strange in appearance and how used but "artifact money" (a difficult to construct artifact, difficult even to obtain the raw material -- value because could not be faked/forged and this discussion did begin about artifact money of that sort)

[jts]

The value of the USD is not based off its use for paying taxes, because if it were, then the value of the USD would fall, which would cause the exchange rates to fall, which would mean that you would need more USDs to pay of the same amount of tax on another currency, which would in turn cause the value of the USD to fall, perpetuating the cycle so that the value of the USD would become 0.

Thank you for trying a little harder. I'm sure you understand that it's frustrating when some people are putting a lot of effort into having a discussion, and someone slaps together an contribution with no logic and little grammar. I still don't understand what you're trying to say, but we're getting a little closer to mutual understanding.

Prices of things are set by supply and demand. For example, people want swimming pools for lots of reasons - for pool parties, pool boys, social status, sometimes even in order to swim. The cost of getting a swimming pool is determined largely by the cost of building all the swimming pools that everyone in America wants at a given point in time. If suddenly no one wanted to swim anymore, none of those swimmers would be hiring contractors to build new swimming pools, and all of a sudden the contractors would be desperate for work and would happily build you a new swimming pool, dirt cheap.

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Currently, the governments of the United States takes in something like 1/3 of the income of the United States in taxes. Under normal circumstances, if the states and the feds changed their policy to demand only 1/6 of this income in taxes, then (all else equal) with the demand for dollars dropping, there would be too many dollars and the value of dollars would fall. This is called "inflation". Likewise, if the states an the feds suddenly demand 2/3 of the income of the United States in taxes, the demand for dollars would surge and the value of dollars would rise. This is called "deflation."

The exchange rate has very little to do with it. Relative to our discussion, the USD/RMB exchange rate is kind of like the relative price of swimming pools and ornamental gardens. It's true that these are, to some degree, complements. When the price of swimming pools goes up, some people will decide that they would actually rather buy an ornamental garden instead. When the price of USD goes up, some people decide they would rather convert their money into RMB and buy goods in China instead. But you can't swim in an ornamental garden, and you can't pay US taxes in RMB.

(There are lots of other things you can't pay in RMB, as well. Dollars are legal tender for all debts, public and private. I have an obligation to pay taxes, but I'm also obliged to pay my landlord, and we've already stipulated that the payment will be in USD. If next year I sign a lease denominated in eggs, that will lower the demand for dollars and raise the demand for eggs.)

[Bill Spight]

Prices of things are set by supply and demand. For example, people want swimming pools for lots of reasons - for pool parties, pool boys, social status, sometimes even in order to swim. The cost of getting a swimming pool is determined largely by the cost of building all the swimming pools that everyone in America wants at a given point in time. If suddenly no one wanted to swim anymore, none of those swimmers would be hiring contractors to build new swimming pools, and all of a sudden the contractors would be desperate for work and would happily build you a new swimming pool, dirt cheap.

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Demand is not simply desire. It includes the ability to pay. (Your island story illustrated that aspect of demand. )

[jts]

Got it? Supply and demand. When people demand a lot of something, that supports the price. When they stop wanting it, that causes the price to collapse.

Demand is not simply desire. It includes the ability to pay. (Your island story illustrated that aspect of demand. )

Quite! Or at least we should say, desire is quantified by the willingness to pay, for our present purposes. An important point, especially when we're thinking about money. But I worry that I already sound a bit too much like Chesteron's parody of Shaw:

"The element of religion, as I explain religion, in the Puritan rebellion (which you wholly misunderstand) if hostile to art—that is what I mean by art—may have saved it from some evils (remember my definition of evil) in which the French Revolution—of which I have my own opinion—involved morality, which I will define for you in a minute."

[palapiku]

Sorry -- I suggest you take a look at pictures of Yapese money before believing that they were valued for their aesthetic properties.

Wikipedia says they're made of a shiny material, and shiny materials are universally valuable, so I see no issues there. Note that you can't easily tell that from pictures, which focus on the overall shape and size instead.