Regression theorem & Bitcoin revisited

[Longmarch]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

I agree with this.  I can't see how the term intrinsic value even makes any sense in this conversation.

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[notme]

You definitely have to define bitcoin as money. It has all the required features, and it is used in exchanges.

That's not a good reason to classify bitcoin as money. Bitcoin has additional features that money lacks. We don't have a word for it yet but what ever Bitcoin is, money is a subset of that.

Exactly.  Bitcoin is more than any other money ever was.  What other money can move from here to the other side of the world faster than I can make dinner?

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value.

I thought the regression theorem came from economists who do not believe in intrinsic value and believe that all value is subjective.  I think you may be mixing and matching incompatible economic concepts.

I agree with this.  I can't see how the term intrinsic value even makes any sense in this conversation.

There is confusion of what intrinsic value is. It is value that is not exchange value. Subjective if you like, the value is decided by the value scales of the actors on the market. It is used with commodities that come to be used as money. The moneyness of the commodity makes for additional value, compared to only the use value of the commodity outside of its moneyness. If apples are not money, they can be eaten, and may be have the same value as oranges. If apples are money, it will have additional value as medium of exchange. It is really not difficult, but the word intrinsic has a meaning outside the realm of money, therefore confusion.

[painlord2k]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."

You just refuted the regression theorem here. I don't disagree.

And where did I accomplish this mighty task?
Writing that I did it is not proving I did it.

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

[xxjs]

But the regression theorem requires that the money have value each prior day, even when you get all the way back to the day before the moneystuff became money. Hence the need for an intrinsic value. According to the regression theorem, the pizza maker must have some idea of bitcoin worth, and with no prior exchanges it must have been the intrinsic value. Thats why it seems the regression theorem does not work for bitcoins. You either have to use fantasy and invent some intrinsic value, or you have to modernize the regression theorem.

"People today expect money to have a certain purchasing power tomorrow, because of their memory of its purchasing power yesterday."

You just refuted the regression theorem here. I don't disagree.

And where did I accomplish this mighty task?
Writing that I did it is not proving I did it.

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

It is infinite for money, that is, it has go go backwards to a point in time there was no money, only barter. You said it again in the quote just here. fiat -> gold backed money -> gold -> gold first time it was used in indirect exchange --> ...then you missed the necessary precondition for the regression theorem: gold exchanged in barter for its intrinsic value*). It is the only way (according to the regression theorem) there could be a previous gold value for the first indirect exchange.

*) There were probably other commodities before gold, but that is not the point here.

[Anon136]

Did I get any of the facts wrong? Is my reasoning flawed?

you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it.

This is called the labor theory of value and it was subscribed to by early economists like adam smith. Today very few economists mainstream or otherwise accept the labor theory of value. It is generally understood by economists today that the value of an object is determined by the relative subjective valuations of consumers. Bitcoin was valuable early on not because of the labor required to make it nor the precident of value but rather the foresight of some clever speculators who recognized the utility as a medium of exchange that it could have in the future and were willing to take an extremely high risk/high reward gamble.

[painlord2k]

The regression theorem state tomorrow expected purchasing power of money is dependent on the known yesterday's purchasing power of money.
The regression is not infinite because there must be a starting point.
For fiat money is when the fiat money was backed by gold; for gold is when it was for the first time exchanged to be used for an indirect exchange (the reason money exist is indirect exchange); for bitcoin was when two pizzas were exchange for 10K btc.
Why gold was exchanged for paper, goats for gold and pizza for Bitcoin is unimportant as praxeology deal not with the reasons of actions but with the consequences of actions.

It is infinite for money, that is, it has go go backwards to a point in time there was no money, only barter. You said it again in the quote just here. fiat -> gold backed money -> gold -> gold first time it was used in indirect exchange --> ...then you missed the necessary precondition for the regression theorem: gold exchanged in barter for its intrinsic value*). It is the only way (according to the regression theorem) there could be a previous gold value for the first indirect exchange.

*) There were probably other commodities before gold, but that is not the point here.

It is not infinite for money. We don't know how many exchange happened between the first use of gold as an indirect mean of exchange (aka money) and the moment fiat money was introduced (backed by gold) and then how many exchange happened between the time fiat money were backed by gold and when the backing stopped.
But it is not infinite time. Also a transaction require time, so we have a finite time divided by a finite period of time. It must give a finite number last time I checked math.
So there must be a finite number of transactions in human history where gold is involved.
So the regression can not go on infinity. It must have a starting point.
In case of gold is when gold was first acquire with barter to be used later for an indirect exchange. The reason it was exchanged and what was the value exchanged for it is irrelevant (because value is subjective to the two humans involved in the exchange and we can not know it). What is not subjective was the price (we can know it). Once there is a price, the market forces will move it up and down in consequence of supply and demand.

In the case of bitcoin the subjective values of 10k BTC could be zero for the guy paying with them two pizzas (from his point of view he was giving nothing for something). And the value of the two pizzas sold by the pizza maker could be zero (because he had two already cooked no one wanted - and even in this case he could have given something he valued nothing for something with an unknown value). But the exchange established a price level market forces could move up and down.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

[painlord2k]

Did I get any of the facts wrong? Is my reasoning flawed?

you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it.

This is called the labor theory of value and it was subscribed to by early economists like adam smith. Today very few economists mainstream or otherwise accept the labor theory of value. It is generally understood by economists today that the value of an object is determined by the relative subjective valuations of consumers. Bitcoin was valuable early on not because of the labor required to make it nor the precedent of value but rather the foresight of some clever speculators who recognized the utility as a medium of exchange that it could have in the future and were willing to take an extremely high risk/high reward gamble.

In fact, MJGrae define the cost to produce a thing as its value. It is wrong. From this definition a hand made sword would be more valuable (and would cost more to buy) than the same sword produced in a factory at a lower cost. On the market, they are two swords with no detectable difference, so they will be valued the same from the buyers.
If the cheapest (in this case the industrial) producer is able to satisfy the demand enough to push the price to a level where the artisan can not make a profit (but he can), the artisan will exist the market.
Competition with other industrial producers (and other goods and services) will drive the price nearer the production cost.
This is the reason in the end prices approximate production costs.

Anon136 "speculators ... willing to take a...  gamble" is on the point.
A speculator is any and all agents acting on the market, because they act now for a future reward be it a far or near future and be it a small or big reward.
So as the speculators take the gamble, they establish price levels and demand schedules. On these the market forces act moving the prices up and down in relation with supply and demand.

[xxjs]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

[cbeast]

Bitcoin as a protocol, is a tool that functions on computers. Bitcoin rewards are the unit of measure for the tool. They become commodities when they are exchanged for other units of value. The tool itself is as useful as the person finds it just like any other tool, like a paintbrush or a language. Some understand it well and some don't, but we all need to use them from time to time.

[mobodick]

Did I get any of the facts wrong? Is my reasoning flawed?

I don't see any facts that are wrong. In fact if he really wants to argue the idea that there is supposedly nothing backing bitcoins, you can pull the Ace and say that the original value of a bitcoin was equal to the electricity (electrons, copper wire degraded, silicon & chipsets depreciation) that went into the creation of it. On top of that, because of those qualities and the fact that they were packaged into a nice little electronic token gave a slight buffer not to the intrinsic value but to the perceived value which, again, can be traced back to what the perceived value of other commodity currencies were at their own times.

I think you're spot on.

It would only have value for the maker, not afor any potential buyer.
Imagine this guy walks up to you with a hideous photoshop.
He tries to sell it to you for $199,99 but seing the thing makes your stomache turn.
B.t.w. the picture is just data. It is stored somewhere on the internet.
But then he pulls his Ace.
He sais: "But i have worked on it for 3 months! I've put so much time and energy into it that it has to be worth something. Right?"

So, how much would you be willing to spend on the picture for the fact that the man put energy into creating it?


(Hint: If something cost an X ammount of monies that doesn't mean it is valued at the same X ammount of monies)

[mobodick]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Of course they can. The question is, do they?

[xxjs]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

[notme]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

You might not be able to use bitcoins themselves to randomly select heads or tails, but using a specific block hash is agreed to be a good random data source that provides proof that the random number generator is not cheating for the benefit of someone else.

Also, my Casascius coins also counter 5, 6, and 7.  And maybe 3 if you don't mind looking like an idiot.  My bitcoin check I got free with my last order can counter 1 and 2.  All that's left is electrical connectors, and Casacius makes coins that would work well for that too, I just don't have any.

[hazek]

gold exchanged in barter for its intrinsic value*

*) There were probably other commodities before gold, but that is not the point here.

Specifically what was that? It looked pretty in someone's nose?

That is one example yes.

And why can't bitcoins have the same "intrinsic value"?

Bitcoins have no intrinsic value, as
1) You can not use bitcoins as wall covering
2) You can not use bitcoins to wipe your ass
3) You can not use bitcoins as ear-rings
4) You can not use bitcoins to create great electrical connectors
5) You can not use bitcoins as paperweights
6) You can not toss bitcoins to randomly select heads or tails
7) You can not throw bitcoins on somebody when you are angry
and so on.

What _can_ you use bitcoins for, other than exchange?

Really? So why then did the guy trade his two pizzas for 10k bitcoins, that, as you claim, are useless for anything else than exchange? Are you really arguing that he did it because he though they were worth two pizzas and that he could go to someone else and exchange them for something else?


Couldn't it perhaps actually be the case that two pizzas seemed a fair price for him to hold 10k units of this weird digital token that he fancied? Like a shiny rock stuck in someone's nose?

[Walter Rothbard]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

[hazek]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

Your sarcasm aside, what do you propose was the reason for some guy to trade his two pizzas for 10k bitcoins? Entertainment value if the transfer worked? How is that different from a rock stuck in someone's nose? Other reasons?

Hmm actually after reading your post again I now think you aren't being sarcastic and yeah that is precisely the case that I'm trying to make!

[painlord2k]

Before bitcoins had any value on the market, they were sparkly.  They sparkled and sparkled and attracted lots of us by how interesting/sparkly they were.  The original trade for pizzas happened because the bitcoins were sparkly (interesting), and the pizza seller felt he'd rather have 10K bitcoins than the money used to purchase the pizza.  That's how sparkly (valueable) they were!  So I guess that is intrinsic value.

Your sarcasm aside, what do you propose was the reason for some guy to trade his two pizzas for 10k bitcoins? Entertainment value if the transfer worked? How is that different from a rock stuck in someone's nose? Other reasons?

Hmm actually after reading your post again I now think you aren't being sarcastic and yeah that is precisely the case that I'm trying to make!

But anyway, the reasons two pizza were exchange for 10K BTC ido not matter.
What matter is they were exchanged.
And they were exchanged because at the time the pizza guy valued two pizza less than 10K BTC and the BTC miner guy valued 10K BTC less than two pizzas.

At the end of the exchange the two guys were subjectively better.
Then others did the same (exchanged BTC for goods or services). This established a demands for good and services paid with BTC and a demand of BTC to pay goods and services.
 
Here the fact BTC have the features of currency/money in a degree greater than the other currencies/types of money cause a continuous transfer of value from the total of BTC in existence and the total of the other currencies in existence (because BTC are better than other forms of currencies at protecting their purchasing power).