Mises regression theorem is inconsistent

[marcus_of_augustus]

Except owning it for fun, which is a very weak argument.

You are undervaluing fun by a long, long way.

The regression theorem in its essence just says that if you can bootstrap a tradeable commodity it will become money.

Geek fun is as good way as any to bootstrap, or pizzas, or alpaca socks ..... value is pretty agnostic on origins once the ball is set in motion.

[1714165432]

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[manuelgar]

Except owning it for fun, which is a very weak argument.

You are undervaluing fun by a long, long way.

The regression theorem in its essence just says that if you can bootstrap a tradeable commodity it will become money.

Geek fun is as good way as any to bootstrap, or pizzas, or alpaca socks ..... value is pretty agnostic on origins once the ball is set in motion.

@rahl & @mother of another

It is very weak because with arguments like that everything would comply with the regression theorem.  Mises developed the regression theorem b1ecause of his rejection to fiat and credit currencies oposed to what he believed to be "sound money".    But in the real world we use credit as currency like it or not, and we use it because of its monetary utility, not becuase of the law, taxes or any value set by decree.

In fact most credit or fiat currencies are very weak as store of value, and appart from that, the market will set the value of the currency, regardless of what value the issuer tries to set at the begining or during the life of the currency.

[Mashuri]

I think you're not regressing far enough.  Bitcoin is a utilization of existing computing power.  Digital bits are the tradable commodity that has been bootstrapped to become a medium of exchange.

[2_Thumbs_Up]

@rahl & @mother of another

It is very weak because with arguments like that everything would comply with the regression theorem.  Mises developed the regression theorem b1ecause of his rejection to fiat and credit currencies oposed to what he believed to be "sound money".    But in the real world we use credit as currency like it or not, and we use it because of its monetary utility, not becuase of the law, taxes or any value set by decree.

In fact most credit or fiat currencies are very weak as store of value, and appart from that, the market will set the value of the currency, regardless of what value the issuer tries to set at the begining or during the life of the currency.

In order for something to become money in a free market it also needs the properties of good money. Fiat could never become money because it lacks the neccessary properties. It easily counterfitable (look at the government), and it's not durable for two things. In theory though, if it did had the right properties it probably would evolve into money without government support. Fiat even has some physical commodity value (the use of the paper), unlike bitcoin which only have some mental commodity value.

[manuelgar]

@rahl & @mother of another

It is very weak because with arguments like that everything would comply with the regression theorem.  Mises developed the regression theorem b1ecause of his rejection to fiat and credit currencies oposed to what he believed to be "sound money".    But in the real world we use credit as currency like it or not, and we use it because of its monetary utility, not becuase of the law, taxes or any value set by decree.

In fact most credit or fiat currencies are very weak as store of value, and appart from that, the market will set the value of the currency, regardless of what value the issuer tries to set at the begining or during the life of the currency.

In order for something to become money in a free market it also needs the properties of good money. Fiat could never become money because it lacks the neccessary properties. It easily counterfitable (look at the government), and it's not durable for two things. In theory though, if it did had the right properties it probably would evolve into money without government support. Fiat even has some physical commodity value (the use of the paper), unlike bitcoin which only have some mental commodity value.

I agree, that´s why when I talk about credit or fiat I always use the word currency, because I don´t consider them as money (appliying Carlos Bondone Monetary Theory), but we have to acknowledge they are currency (medium of exchange).

- Currency: Generally accepted medium of exchange.  

- Money: Present good which is accepted as medium of exchange.

Fiat and credit currencies definitely are not present goods, because they are credit (future goods).  But like it or not, they are used as a medium of exchange, so they qualify as credit currencies.

Regarding mental value of bitcoins, I don´t agree that much.  Software is not tangible, the same as bitcoins, but that does not mean that software is just a mental concept.  Software is something real that renders a service.  BitCoins are real and also render a monetary service, and that´s enough to qualify as money (no need of regression theorem).

[billyjoeallen]

Bitcoin had original value as nerd points. The bigger the number you see in your balance, the better you feel about yourself.

Status markers have always been commodities. This was the primary use for gold until somebody invented speaker jacks :-)

[manuelgar]

I don't think owning it for fun is a weak argument in this case. There seem to be plenty of people here which are interested enough in the crypto and p2p technologies to participate in the project as a hobby to satisfy there technological interest.

Regression Theorem requires a previous economic use.  Owning or using something just for fun or hobby (no intention at all to pay for it or to sell it) is not within economics.

Where it would have had value is however as an accounting tool. People could trade goods in one place and USD in another and it would be impossible to identify who traded what goods yet the system still keep track of the rewards for sales and transfer them to the USD marketplace. That is not what a currency is for and not a requirement anyone have made on a sound money...

All of this put together means we have regression. It is just not as straightforward as jewelry -> gold -> credit

Again, unit of account or trading are monetary purposes.  If you use physical gold coins you just need a mask to achieve anonimity, Gold coins are not trazable, the only disadvantage oposed to bitcoins is that anonimity is not built-in.   But any bearer-money is more anonymous than nominative money.  That´s why drug-dealers use suitcases full of dollar bills. This is not new, anonimity has been something valuable for currencies very long ago.

I am not sure what you mean by not necessary to justify its condition. Try issuing completely unspecified credit notes and an see how many will accept them. It is very much necessary to tie the initial issuing of credit notes to some established price and create regression...

The issuer may call for an auction, so the market will set the value of the currency.  It´ll always be the market who sets the value of currencies  regardless of the issuer, and that happens everyday when agents exchange currency for goods or services at new prices.

[Mashuri]

Regression Theorem requires a previous economic use.

Please see my post above.  Bits and processing power have many previous as well as current economic uses.

[The Script]

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[manuelgar]

Regression Theorem requires a previous economic use.

Please see my post above.  Bits and processing power have many previous as well as current economic uses.

Processing power is an input for BitCoins, it is a necessary element for creating them, not a previous use.

Information (bits) and processing power of course have many other economic uses.  But if you use them to create BitCoins which you are owning just for fun or hobby with no intention of economic exchange, there is nothing economic about it.

[The Script]

http://forum.bitcoin.org/?topic=583.0

Previous topic on this idea. User "xc" has an excellent anlaysis on the subject.

[Mashuri]

http://forum.bitcoin.org/?topic=583.0

Previous topic on this idea. User "xc" has an excellent anlaysis on the subject.

Very well thought out.  Thanks for the link!

[2_Thumbs_Up]

Regarding mental value of bitcoins, I don´t agree that much.  Software is not tangible, the same as bitcoins, but that does not mean that software is just a mental concept.  Software is something real that renders a service.  BitCoins are real and also render a monetary service, and that´s enough to qualify as money (no need of regression theorem).

There is still need for a regression theorem to explain how bitcoin became (or potentially will become if you don't think it is) money. Without the regression theorem, you have no explanation of the current $30 prices on Mt gox. The regression theorem explains to us that "exchange value" of any commodity or money, need to have a historical reference of past prices. No one would buy a $30 bitcoin if they hadn't seen what others were prepared to pay for them.

I don't think owning it for fun is a weak argument in this case. There seem to be plenty of people here which are interested enough in the crypto and p2p technologies to participate in the project as a hobby to satisfy there technological interest.

Regression Theorem requires a previous economic use.  Owning or using something just for fun or hobby (no intention at all to pay for it or to sell it) is not within economics.

In austrian theory it is. If it's a part of human action, it's economics.

[Anth0n]

Pre-existing demand is necessary for a good to become a medium of exchange, and this demand had to have existed because otherwise no one would be trading electricity for mining coins. I think that theoretically, demand by one person is enough for a medium of exchange to be created. If 0 people demanded coins, then 0 people would have mined them initially. All it takes is one miner to change that. Unfortunately, the Austrian School disagrees. Well, this one guy does, anyway: http://www.lewrockwell.com/blog/lewrw/archives/89471.html

[The Script]

Regarding mental value of bitcoins, I don´t agree that much.  Software is not tangible, the same as bitcoins, but that does not mean that software is just a mental concept.  Software is something real that renders a service.  BitCoins are real and also render a monetary service, and that´s enough to qualify as money (no need of regression theorem).

There is still need for a regression theorem to explain how bitcoin became (or potentially will become if you don't think it is) money. Without the regression theorem, you have no explanation of the current $30 prices on Mt gox. The regression theorem explains to us that "exchange value" of any commodity or money, need to have a historical reference of past prices. No one would buy a $30 bitcoin if they hadn't seen what others were prepared to pay for them.

I don't think owning it for fun is a weak argument in this case. There seem to be plenty of people here which are interested enough in the crypto and p2p technologies to participate in the project as a hobby to satisfy there technological interest.

Regression Theorem requires a previous economic use.  Owning or using something just for fun or hobby (no intention at all to pay for it or to sell it) is not within economics.

In austrian theory it is. If it's a part of human action, it's economics.

Actually, it would not be in economics, but rather praxeology, the general science of human action, of which economics is simply a subset of action.

[Arius]

Cost does not create value. Cost is paid because value is expected.

Yes, but anchoring BC in scarce physical goods like energy and processors did create scarcity and a frame of reference (ie everyone knows there own price in other stuff for the cost they paid for them and it can set a lower limit anyone will be willing to do the initial barter at).

That is just wrong. The ashes of a $20 bill don't have $20 as a lower limit to value.

That's because the $20 bill isn't worth $20, it represents $20.  Don't confuse the symbol for the thing with the thing.  People value the symbol at $20, but the physical representation of the thing, when destroyed, is no longer distinguishable as the symbol.

[manuelgar]

There is still need for a regression theorem to explain how bitcoin became (or potentially will become if you don't think it is) money. Without the regression theorem, you have no explanation of the current $30 prices on Mt gox. The regression theorem explains to us that "exchange value" of any commodity or money, need to have a historical reference of past prices. No one would buy a $30 bitcoin if they hadn't seen what others were prepared to pay for them.

What the regression theorem says is that for a commodity to become money, it needs a prior non monetary use.  It´s not about historical prices because since the very first moment that a good has an utiltiy and therefore is exchanged, then it has a price.

The issue here is that bitcoins are first exchanged and consequently they have a price because they are seen as useful.  And they are useful because of its monetary utility.  There is no need to find any other prior utility, and besides they do not have any other.

The first time a price is set for something is a normal market task.  Whenever anything is subject to have any utility (no matter if it is monetary or not) then the market will begin to work to set a price for it.  This has happened to all economic goods in history.

[rahl]

I don't think owning it for fun is a weak argument in this case. There seem to be plenty of people here which are interested enough in the crypto and p2p technologies to participate in the project as a hobby to satisfy there technological interest.

Regression Theorem requires a previous economic use.  Owning or using something just for fun or hobby (no intention at all to pay for it or to sell it) is not within economics.

In austrian theory it is. If it's a part of human action, it's economics.

Actually, it would not be in economics, but rather praxeology, the general science of human action, of which economics is simply a subset of action.

It is very much economics. There are material resources involved getting distributed between humans by human action. Having fun is a perfectly valid economic reason for a choice of how to use resources. To not be economics it would have to be 100% immaterial or completely internal to one individual. BitCoin uses plenty of material resources from the general market. Someone buys electricity and computers and network infrastructure from someone to have fun with BitCoin, it is economic activity.

Actually I would say that the ultimate goal of all economic activity is to have fun. Having fun or increasing the capacity for future fun thru collaboration and material factors is what economists mean when they speak of utility or a good...

[rahl]

It is very weak because with arguments like that everything would comply with the regression theorem.

Yes, everything does comply with the regression theorem or it would not exist. That is what regression is...

Mises developed the regression theorem b1ecause of his rejection to fiat and credit currencies oposed to what he believed to be "sound money".    But in the real world we use credit as currency like it or not, and we use it because of its monetary utility, not becuase of the law, taxes or any value set by decree.

In fact most credit or fiat currencies are very weak as store of value, and appart from that, the market will set the value of the currency, regardless of what value the issuer tries to set at the begining or during the life of the currency.

No, I doubt that is why he developed it. The regression theorem explains the emergence of fiat and credit currencies also, or the theorem would be invalidated and useless to make any point.

Since it does apply to every currency that does and ever existed and thus is not invalid it is however useful to explain that the origin of money has to happen in a free environment and that you can not create money by decree without pegging it to something the free-market already established a comparable price on.

Since no one was forced to use BitCoin at a pegged value to something else at gunpoint it must have regression or it would not have value or prove the regression theorem wrong. But it can't prove it wrong because the regression theorem is based on a set of very simple a priori truths.

If it is can actually be disproven by a post priori fact Austrians have far bigger problems then the regression theorem being invalidated. The entire methodology and basic principles of Austrian economics would have be thrown out...

I don't think I can improve much on the explanations on how BitCoin regresses given here already by me and others. They are good enough for me not to throw out Austrian economics and I think I will leave it at that...

[rahl]

What the regression theorem says is that for a commodity to become money, it needs a prior non monetary use.  It´s not about historical prices because since the very first moment that a good has an utiltiy and therefore is exchanged, then it has a price.

The issue here is that bitcoins are first exchanged and consequently they have a price because they are seen as useful.  And they are useful because of its monetary utility.  There is no need to find any other prior utility, and besides they do not have any other.

The first time a price is set for something is a normal market task.  Whenever anything is subject to have any utility (no matter if it is monetary or not) then the market will begin to work to set a price for it.  This has happened to all economic goods in history.

Wrote a very long answer to this that got lost. Anyway a summary. I don't think this is a complete explanation. Monetary utility comes from exchangability. People exchange there goods for money because money have a higher marginal utility being highly exchangable. BitCoin in its very early stage did not meet this criteria, you couldn't buy much of anything with it, also the regression theorem is there to explain where this monetary utility of money comes from in the first place. It states that you should be able to trace the value of money back something value when it was not a medium of exchange.

I really wouldn't call BitCoin in its very early stage a medium of exchange. Maybe a expected future medium of exchange. I think the initial value came from hopes of increased privacy and just plain nerdy fun. The value was minuscule at the time but that doesn't matter and this would satisfy the basics of the regression theorem.
Mises explination of it does however need some work for it to explain BitCoin properly but that is besides the point the theorem holds...