Right.  In retrospect I regret referring to the labor theory of value at all, as I don't believe that 'value' is an appropriate term to use in this context.  I had only meant to discuss price.

Yes but I'm trying to discuss the importance of how inflation occurs and posit the theory that it does matter how the money supply is increased.

One of my economics professors suggested that the Fed could just as easily throw new money out the window rather than use new money to buy securities.  So when I decided to write a rebuttal to this article http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a-good-idea and specifically the "Seeding Initial Wealth" section of the article I initially approached the article with my professor's allusion to the idea that the method of increasing the money supply might not matter.

So in order to write a rebuttal to the quora article, which was so obviously erroneous in a number of places (and correct in others) I really had to do some thinking and I was reminded of this video, from one of my favorite old movies: http://www.youtube.com/watch?v=boUD5eG9Bf4 .

In the video the old miner character explains that gold is valuable because it takes so much work to mine it and that when you buy an ounce of gold you're paying for the hours and hours of labor that went into acquiring it.  At the time I originally saw this movie I'd already taken microeconomics at Uni and received a very high grade so I had an understanding of how a price is decided upon that apparently ran contrary to the common-sense explanation of miner.  So at the time when I originally saw the movie, "The Treasure of the Sierra Madre" I was a little perplexed by the apparent contradiction.

Fortunately, however, at the time of writing this article I'd also taken some higher level economics courses and had a more enlightened viewpoint which caused me to look at money as a good and understand that money, or gold even, was subject to the same supply and demand valuation.

So the controversial part of my writing is that the method of expanding the money supply affects inflation and that ultimately dumping money out the window (or, for instance, buying worthless mortgages) will result in a different rate of inflation than using new money to buy valuable securities. Or as we're seeing happen with bitcoin, as the difficulty of mining increases so does the value of the good (i.e. bitcoins).

If there was a email field I would use it to sage, but since there isn't... and we're all here anyways.  I'll take the opportunity to announce that I was able to login to my mtgox account today and everything's just as I left it.  I had a small number of coins and like $1 cash in there and it's all intact.

[edit] - I'd just like to clarify that I responded to this thread because I feel that every thread deserves an answer/resolution.  I know that often times I am searching for a thread on a topic and find someone with the same question as myself, only to see that the thread went unanswered because the question is too common.  In that case, it's likely I'll utfse and continue to find bunches of unanswered threads on the same question...  Eh, it's easier just to answer questions.

Actually this thread is composed of a greater than normal amount of people who actually have at least the foggiest idea of what currency is.

Most internet rhetoric you see about bitcoin takes a very pop-culture POV - the same people who have no idea what really makes bitcoin useful and what makes it command a high price in terms of goods and services or even fiat currencies like USD, are the ones who thought US real estate was a good investment in 2005.  These people do not understand what they're talking about.

I've seen at least two posts in this thread that explicitly show that the authors understand what currency is and have at least a marginal idea of why bitcoin is what it is today.

Is there really no suitable market for Europe to trade in?  The issue, as you may know, is the rather curious [to me, at least] fact that international trade is fraught with dragons.  I recently had to cancel an ebay sale because I accidentally listed it as biddable by international buyers- a girl from Bulgaria instantly snapped up the item but unfortunately I couldn't go through with it because the only irrevocable [safe] method of payment is a bank transfer.  In the US we at least have Dwolla to serve this purpose, and thank goodness for that.  I'm sure it's just a matter of time before a number of good international trading venues pop up; there's obviously a good bit of coin to be made from it.

Speaking of which, it will be interesting to see what happens tomorrow.  I might expect to see a dip right away as it will take buyers a few hours to get funds from dwolla into their accounts..   And given how silly the btc trading market can be this could result in an exaggerated caused by morons who decide to sell because they see the dip and think the sky is falling.  Unfortunately I don't think I'll be able to get funds into the market in time to make any buys during the possible dip....

It's all fine, though.  My primarily interest lies in what goods and services I can buy using btc.  USD is the last thing I'm interested in buying anytime soon.

This thread completely left the realm of my consciousness for a day or two.  Thanks so much for your great reply.

I actually agree with you for the most part.  But to really get into an economics oriented frame of mind regarding the issue let's take a look at the housing market, which The Script mentioned.

The housing market is a great model to work with because, obviously, houses cost so much and are very difficult to build.  Now let's imagine a world where there's essentially an infinite amount of houses (and land to put them on, I suppose) available and it costs nothing to make one, you just think of a house and BAM, it appears.  The supply and demand graph for houses would look like this:



With P (price) equal to $0 in this case. 

But realistically of course houses don't magically appear when you make one and there are many costs that go into making a house, so the supply and demand graph looks more like this:



with P equal to thousands of bitcoins (or dollars, if you must..).

You can see in the above graph that the Supply curve (which.. in this case isn't curved but is a straight line) slopes up.  That means that in order to increase Q(quantity), you gotta pay more P (price, money... gotta pay more to get more), so the higher cost of creating a house results in a higher price, in this case.  [Notice that I don't use the word 'value' anywhere in my writing; it's a tricky word to use in legit economics.]

Alright, so let's move on from the housing example and see how that relates to the specific topic at hand, which is currency.

The way the US government has been distributing USD lately is much more like the first scenario than the second.  In fact, with the Secretary of the Treasury being a Goldman Sach's expatriate and the head of the Fed harboring the belief that liquidity solves everything [you know it's true] it's very much like these guys just fantasize about a 10 foot high stack of sheets of newly printed bills and they just appear as if from nowhere.  The current scenario for USD is very similar to the first graph/housing scenario in this post.  And what happened to the price of housing in that scenario? That situation resulted in a price of $0 or 0 BTC for housing, and therefore you see the value of USD (in terms of goods or other currencies, like BTC for instance) trending towards 0.

Bitcoin, however.. takes some work to generate.  It costs something for each newly minted BTC.  I don't mine personally, but I understand you have to have a pretty nice GPU, some good technical know-how, and it takes a little bit of time and attention, as well as electricity.  The creation of a bitcoin is more like the second graph, which results in a higher price for bitcoin and is a major reason why bitcoin works as currency.

I have full confidence that MTGox will be restored and I'll be able to access the small # of btc that I had stored there.  I've submitted a request to have my account confirmed, and will proceed with mailing the physical confirmation tomorrow.  I'm sure they have a lot to work to do, with ~60k accounts needing confirmation, but they seem determined to get through it.  My password was not very secure, but fortunately my other important accounts (email, banking, etc..) used unique passwords so were unaffected by this recent hiccup.  Has anyone here had their account confirmed yet?

Is this in order of when you registered?  I'm ~14k mtgox.  I feel like emailing some of these motherfuckers and making new friends.  Who's with me?

I thought the same thing at first, but imagine if somebody hacked an online real estate trading site and sold a house that wasn't theirs and tried to run off with the money... Or somebody hacked an etrade account that had 100 billion Yuan...  Similar measures would be enacted. 

I didn't really take the sell off seriously, personally, everyone seemed to be aware that it was stolen BTC being sold off.  I was surprised when they announced the 'rollback' (unfortunate wording, I would say... I would have called it a 'reversal').  Before this I thought only Wal-Mart did rollbacks.  However, at this point, I'm pleased that a reversal is possible.

Also, in case anybody is still wondering what this has with the Labor Theory of Value, I'll clarify.

My understanding, though brief, of the labor theory of value is that value is created based upon how much work goes into it. 

The thesis of this article, which I should modify to state upfront, is this:  The labor theory of value is correct inasmuch as the amount of labor it takes to create a unit of a good affects the supply curve; a good which takes more labor to create will have a steeper supply curve than a good that takes less labor to create.

Ah, I see what you're saying.  I was referring to the flow of money from the Fed's point of view whereas I think you're speaking from the point of view of the bank.  In other words, banks lend out money and then sort of expect the Fed to buy some securities in order to maintain their desired excess reserves. 

Obviously you aren't saying that banks create new money and then are reimbursed by the Fed.   

Yeah, I definitely agree with you.  In fact that was the first, and easiest article I wrote for coinchan.  This article, which I might need to refine, as much as I hate doing 2nd and 3rd drafts, was intended to be based on the importance of HOW the money is distributed.  It was supposed to beg the question, 'does it matter that we're printing money and giving it to people who don't deserve it?'  I think it does matter, based on simple supply and demand microeconomic theory.



Ah, I'm really grateful if you can elaborate on the labor theory of value.  I simply picked up on the term because I really like The Treasure of the Sierra Madre (the link to the clip has been fixed since you posted... there's a good chance you missed it), and then did about 30 minutes worth of research on the labor theory of value, just until I saw how I could relate it to microeconomics (which I'm actually quite familiar with).

Notice on the graph I included (and made in mspaint ), there are no $ or quantity markings/units, that's because it's meant to be a relative measure.  Value, as I see it, is a function of the Supply curve and the Demand curve.  The idea I had when writing this article is that, independent of the Demand curve, the supply curve will change based upon how easy to come by the good in question is.  To put it simply, if something is easy to come by, then you'll be willing to provide a lot of it for a low price whereas if something is hard to come by then one will only be inclined to supply it for a higher price.

Right, we're saying the same thing but have different word preferences here.  By 'control', I mean, 'maintain a target rate of inflation'.  The whole concept of using inflation to increase aggregate supply (in common terms, they try to make people work harder by making people think think they're getting paid more, when they're being paid with newly printed money that the government has created out of nothing) is headache inducing, but that's another article to be written someday.

[/quote]
I may been unclear.  I meant to say that traditionally the Fed buys securities from a bank, and then the bank will use the cash they've received from the Fed to make a loan. 

Thanks for your reply, and, also, I really appreciate you taking the time to read what I wrote.  I think that's really cool.

Edit: Much of this article/thread references this short video clip, check it out, it's pretty cool: http://www.youtube.com/watch?v=boUD5eG9Bf4

Preface: I didn't take Labor Economics at University.  This article is mostly based on courses I've had in Microeconomics, and Money & Banking.  It was inspired as a rebuttal this article: http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a-good-idea, specifically, it's composed as a response to the distribution, or "Seeding Initial Wealth", section of the article.  However, I'm used to writing essays for my Economics professors, so the article comes off as a general analysis of the current model of new money distribution in the US.  

I was really pleased that, in writing this article, I was able to reference and further analyze this bit of dialogue from a classic film I enjoy: http://www.youtube.com/watch?v=boUD5eG9Bf4 which I'd always found unsettling, based on what I already knew about Economics.  This article allowed me to reconcile what I'd been taught with the appeal of the dialogue. /preface

__How Does the Federal Reserve Disbribute Money?__
The US Treasury prints money and the Federal Reserve (commonly referred to as "the Fed") distributes the money printed by the US Treasury.

The Fed does this in order to control, or manipulate the US money supply and therefore control inflation, the amount of money being lent out, and the amount of interest being paid on money that is lent out. The ultimate goal being to maintain or increase Aggregate Supply (the amount of goods and services being produced domestically).

The money has traditionally been distributed by buying bonds and securities from banks using newly-printed money. However, in recent years, the Fed has decided to increase the money supply by giving near-zero interest loans and buying near-worthless assets.
How Do Banks Distribute Money from the Fed?

Traditionally Banks have lended out the money they receive from the Fed, as this money has been the result of normal market transactions (the Fed paid fair market price for the bonds and securities purchased with newly printed money).

However, the Fed's recent injections of funds into banks have been more similar to subsidization. They've essentially donated billions of dollars to giant banks. Much of this money is currently sitting in banks as reserves. However, banks are starting to use it, but not to give out loans. Banks understand that the massive increase in the US money supply will lead to inflation, so banks have instead been buying commodities and therefore driving up the price of those commodities.

I would like to propose a different method of money distribution. I propose that new money distribution might benefit from being based on work.
This video should give you an idea of what I'm talking about: http://www.youtube.com/watch?v=boUD5eG9Bf4

Although the character could be alluding to the labor theory of value, I would like to relate his speech to microeconomics.

The blue line shows the demand for gold. The lower the price of gold the greater the quantity of gold the market wants.

The black line shows the supply of gold, notice it's very steeply upward sloping. In other words, it takes a large increase in price to bring about a small increase in the quantity of gold supplied; this relates to the fact that it takes a lot of work to create a small amount of gold.

The red line is very important in our discussion. The red line shows what would happen if gold was very easy to get (for instance, if we were to give banks hundreds of billions of dollars in newly mined gold in exchange for near-worthless assets). In this situation a small increase in price results in a large increase in quantity supplied.

The situation described by the black line results in a much higher price than the situation described by red line, assuming the same demand curve (the blue line).

So what happens when a good (US Dollars, for instance) becomes much easier to obtain (say, for instance, it's practically given away to US banks)? The price of a dollar (in terms of goods or foreign currencies, in this instance) goes down, possibly way down.

And so ends our lesson on current practices regard the Fed's distribution of new money, and the relevance of the labor theory of value with regards to microeconomics!

What are your comments? What are your criticisms?  How do you see this as related to BTC, if at all?

#1 You'll increase sales
#2 Bitcoins tend to appreciate over time, so it's likely that by the time you cash out your Bitcoins you'll have made a profit just by holding onto them for a while.

Requesting Whitelist:

You can look back at the posts I made before getting blacklisted.  My first post was a decent quantitative analysis of the javascript miner, my 2nd and 3rd posts were selling an iTunes gift card. 

I'm also admin of coinchan.org.  I realized I was blacklisted when trying to post this article on the Economics forum:

http://coinchan.org/distribution.html

You can see on by scrolling down to the bottom of the page that I wrote the article.

Thanks!

teamdren

50% off now @ 0.125 BTC down from .25  THIS ITEM HAS BEEN SOLD

Heck, as long as I'm at it, anything you see here: http://www.amazon.com/gp/browse.html?ie=UTF8&marketplaceID=ATVPDKIKX0DER&me=A3SCS0FSKD444B  can also be had at a reduced price for BTC.  Keep in mind there's ~$4-10shipping (depending on how fast you want it) to be added to these items, but still if you see something that interests you then you can get it at a nice price.

Idk what that translates to even... um.. something like $3 for this gift card.  email me @ jwl26@nau.edu to set it up.  Actually you can just pay me, then email me, then I'll email you back the code along with a picture of the card.  BOOM, done!  My .edu email address should give me a little extra credibility, plus my twitter.  I'm also the admin of a fledgling bitcoin website called coinchan.org (just launched 2 days ago).  Email me and lets make this happen quickly and easily!

teamdren
Beeblebrox Market Solutions

Is the payout on this really 0.00019867 BTC?  I did the math and, based on those figures, I did the following calculation:

(Sorry of these calcuations are wrong, I based it on 0.00019867 BTC per payout and .76 hours per payout (which is what my browser is generating now))

0.00019867 BTC per payout
0.76 hours to earn a payout
1.315789474 Payouts per hour
0.000150989 BTC per hour
3825.43917 Hours to earn 1 BTC
159.3932988 Days to earn 1 BTC
5.313109959 Months to earn 1 BTC

And as long as I'm at it I might as well add

0.006273789 BTC per 24 Hours
956.3597926 People needed on your site 24 hours straight to earn you 6 BTC/Day
8.7136E-05 BTC per 20 mins
68857.90507 People needed on your site for 20mins each, to earn you 6 BTC/Day