Bitcoins have no non-monetary use-value, and why it doesn't matter.

[libertyzeal]

"Bitcoins have no non-monetary use-value.", therefor bitcoins are not money.  I keep seeing this meme everywhere, including from smart people, including Austrian-style thinkers and some libertarians. Now personally, I'm nothing more than an armchair economist at best, but this idea that money has to have some form of significant use-value outside of money seems downright ridiculous.  Do people seriously think that gold trades at nearly $1600/oz because you can fashion jewelry out of it?  I can fashion jewelry out of a lot of things besides gold.

Apparently a lot of otherwise smart people believe this, and I find it somewhat disheartening that this is so widely believed.

If anything, having non-monetary use-value is not a good property for money, because the value/supply of money then becomes tethered to industrial demand. 

I'm not very well read, I'm loosely familiar with Keynes, Hayek, Von Mises, but I've never read any of their works or any other major economic works for that matter.   I started Hazlitt's economics in one lesson, but didn't get very far.  Can somebody please point to some well known scholarly work that frames this argument a bit more elegantly than I can?

[nanotube]

Can somebody please point to some well known scholarly work that frames this argument a bit more elegantly than I can?

no, because that argument is BS. money doesn't have to have non-monetary-use value.

there has been a non-BS argument proposing that things than are money have to /start out/ having some non-monetary-use value in order to get bootstrapped. because before it gets widespread use as money, it helps for it to have non-monetary value.

and historically, that may well have been true. but bitcoins have already soundly disproven that it is a /necessary precondition/ for the creation of money, since bitcoins exist, bitcoins are valuable, and they have not started out having any non-monetary-use value. so even though historically it may have been the case, it is not axiomatically the case for all future cases.

[Grant]

"Bitcoins have no non-monetary use-value.", therefor bitcoins are not money.  I keep seeing this meme everywhere, including from smart people, including Austrian-style thinkers and some libertarians. Now personally, I'm nothing more than an armchair economist at best, but this idea that money has to have some form of significant use-value outside of money seems downright ridiculous.  Do people seriously think that gold trades at nearly $1600/oz because you can fashion jewelry out of it?  I can fashion jewelry out of a lot of things besides gold.

Apparently a lot of otherwise smart people believe this, and I find it somewhat disheartening that this is so widely believed.

If anything, having non-monetary use-value is not a good property for money, because the value/supply of money then becomes tethered to industrial demand. 

I'm not very well read, I'm loosely familiar with Keynes, Hayek, Von Mises, but I've never read any of their works or any other major economic works for that matter.   I started Hazlitt's economics in one lesson, but didn't get very far.  Can somebody please point to some well known scholarly work that frames this argument a bit more elegantly than I can?

If they need a scholarly quote to change their mind, then they're not able to think. They need to realize that having a commodity backing money costs money, it costs to aquire, transport, and store gold.

The utilization of money to create money through economic activity is the intrinsic value of money. They're trying to say "let's sacrifice this intrinsic value to add a minimum value to it", doesn't make any sense.

[newunit16]

gold was not used as currency because it was difficult to obtain. it was used as currency because everyone agreed it was valuable.

why was it valuable?

the answer is not: "because it was hard to get" but rather "because people want it".

but why did people want it? ...the answer at first it was not because it could be used as currency, but because it was highly decorative.

we still have this mentality that gold is valuable. the question is, has the reason for its value shifted from "decorative" to "difficult"?
i dont think so.

[kwhcoin]

Do people seriously think that gold trades at nearly $1600/oz because you can fashion jewelry out of it?

You would be amazed how many things around you contain gold. The amount of gold in a typical cell phone is around 0.001 ounces (http://www.eoearth.org/article/Cell_phone_recycling?topic=49558). At today's prices this is about $1.50 worth of gold. If it made sense to use copper or silver instead of gold they would. I imagine there is a lot of gold contained in Bitcoin mining rigs. Anyway, gold has an incredible number of uses, and if it were cheaper it would be used in lots more things. However, gold is so expensive that it is only used in the rare occasions when it can bring more value than its current $1500 per ounce price tag. Making gold plated jewelry is one very popular way for a very small amount of gold to go a long way covering the surface of a cheap base metal to give it a shiny gold luster with the amazing tarnish and corrosion resistant properties and of gold. There are around 83 million of ounces of gold mined each year and the population of the world is around 6.8 billion so doing the math you realize that each year only around 0.012 ounces of gold are being mined per person per year. I don't mean to be a commercial for gold, but I do want to convey that gold is extremely rare and has many commodity uses even at these high prices. There are reasons people have valued gold for thousands of years and it isn't because they are stupid and under some kind of magical shiny object spell cast on the world by bankers.

Gold can't be used as an example of money that does not need a commodity use to have value because gold has a tremendous number of commodity uses even at the current high prices.

[Bitcoin Swami]

The native americans thought whitey was crazy cause he lusted after the yellow rock.  Maybe we are here to mine gold for some alien race and its engrained in our dna to lust for it.  I own some gold and it just sits in my cabinet.. pretty worthless to me.

[todu]

Do people seriously think that gold trades at nearly $1600/oz because you can fashion jewelry out of it?

You would be amazed how many things around you contain gold. The amount of gold in a typical cell phone is around 0.001 ounces (http://www.eoearth.org/article/Cell_phone_recycling?topic=49558). At today's prices this is about $1.50 worth of gold. If it made sense to use copper or silver instead of gold they would. I imagine there is a lot of gold contained in Bitcoin mining rigs. Anyway, gold has an incredible number of uses, and if it were cheaper it would be used in lots more things. However, gold is so expensive that it is only used in the rare occasions when it can bring more value than its current $1500 per ounce price tag. Making gold plated jewelry is one very popular way for a very small amount of gold to go a long way covering the surface of a cheap base metal to give it a shiny gold luster with the amazing tarnish and corrosion resistant properties and of gold. There are around 83 million of ounces of gold mined each year and the population of the world is around 6.8 billion so doing the math you realize that each year only around 0.012 ounces of gold are being mined per person per year. I don't mean to be a commercial for gold, but I do want to convey that gold is extremely rare and has many commodity uses even at these high prices. There are reasons people have valued gold for thousands of years and it isn't because they are stupid and under some kind of magical shiny object spell cast on the world by bankers.

Gold can't be used as an example of money that does not need a commodity use to have value because gold has a tremendous number of commodity uses even at the current high prices.

What do you think about namecoins? They are supposed to be like bitcoins, but also have a commodity use because they can be used to register .bit domain names (a p2p DNS). They too have a cap of at most 21 million in existance at the same time.

[killer2021]

The native americans thought whitey was crazy cause he lusted after the yellow rock.  Maybe we are here to mine gold for some alien race and its engrained in our dna to lust for it.  I own some gold and it just sits in my cabinet.. pretty worthless to me.

Gold is obsolete money. Will never be used as money again. Gold is only valuable for its utility. I sold all my gold and moved my precious metal holdings into 100% silver. Silver has more utility than gold.

[psyborgue]

Gold is obsolete money. Will never be used as money again. Gold is only valuable for its utility.

Gold is valuable and will continue to be valuable because people remember it to be valuable.  It's part of our culture.  There will always be this.  Utility be damned.  Idiots with disposable income will always exist, as will enterprising individuals willing to sell them worthless(?) shiny shit.

Now if only we could cover Ferraris with bitcoins.

[cbeast]

Bitcoins *do* come from a previous non-monetary use, albeit a contrived one. Bitcoins derive from the solution of a mathematical problem. It's kinda like E=MC^2 only not nearly as important. In the strictest definition, it does fit this Neo-Austrian economic argument.

[libertyzeal]

Do people seriously think that gold trades at nearly $1600/oz because you can fashion jewelry out of it?

You would be amazed how many things around you contain gold. The amount of gold in a typical cell phone is around 0.001 ounces (http://www.eoearth.org/article/Cell_phone_recycling?topic=49558). At today's prices this is about $1.50 worth of gold. If it made sense to use copper or silver instead of gold they would. I imagine there is a lot of gold contained in Bitcoin mining rigs. Anyway, gold has an incredible number of uses, and if it were cheaper it would be used in lots more things. However, gold is so expensive that it is only used in the rare occasions when it can bring more value than its current $1500 per ounce price tag. Making gold plated jewelry is one very popular way for a very small amount of gold to go a long way covering the surface of a cheap base metal to give it a shiny gold luster with the amazing tarnish and corrosion resistant properties and of gold. There are around 83 million of ounces of gold mined each year and the population of the world is around 6.8 billion so doing the math you realize that each year only around 0.012 ounces of gold are being mined per person per year. I don't mean to be a commercial for gold, but I do want to convey that gold is extremely rare and has many commodity uses even at these high prices. There are reasons people have valued gold for thousands of years and it isn't because they are stupid and under some kind of magical shiny object spell cast on the world by bankers.

Gold can't be used as an example of money that does not need a commodity use to have value because gold has a tremendous number of commodity uses even at the current high prices.

I prefer to look at it in a more relative fashion, because compared to other industrial metals such as  silver, nickel, or copper,  gold has far less industrial/commodity demand.  But this is somewhat orthogonal to my point that the current price of gold is not a function of it's use value as a commodity, it wasn't an increase in commodity demands that drove the price from $300 to $1500 oz in the last decade.  It was monetary demand, primarily fueled by reckless government spending.

Having your money tethered to industrial uses is not a good property for a currency, the price of silver dropped like a stone when the US economic downturn hit, mainly because the demand for it as an industrial metal fell as the auto manufacturing industry suffered.  A good store of value shouldn't have this kind of tight coupling with industrial production, it should function independently, and that's why gold is a better store of value than silver, altho that's not to say silver is not also a store of value, or a great investment vehicle for someone who sees market opportunities.

[FreeMoney]

What do you think about namecoins? They are supposed to be like bitcoins, but also have a commodity use because they can be used to register .bit domain names (a p2p DNS). They too have a cap of at most 21 million in existance at the same time.

Funny thing. I actually use bitcoins to register domains, not namecoins.

[kwhcoin]

Gold is obsolete money. Will never be used as money again. Gold is only valuable for its utility.

Gold is valuable and will continue to be valuable because people remember it to be valuable.  It's part of our culture.  There will always be this.  Utility be damned.  Idiots with disposable income will always exist, as will enterprising individuals willing to sell them worthless(?) shiny shit.

Now if only we could cover Ferraris with bitcoins.

Gold isn't just used by “idiots with disposable income” to cover Ferraris. It is found in things regular people's use every day such as cell phones, computers, televisions, cars, etc.

I prefer to look at it in a more relative fashion, because compared to other industrial metals such as  silver, nickel, or copper,  gold has far less industrial/commodity demand.  But this is somewhat orthogonal to my point that the current price of gold is not a function of it's use value as a commodity, it wasn't an increase in commodity demands that drove the price from $300 to $1500 oz in the last decade.  It was monetary demand, primarily fueled by reckless government spending.

Having your money tethered to industrial uses is not a good property for a currency, the price of silver dropped like a stone when the US economic downturn hit, mainly because the demand for it as an industrial metal fell as the auto manufacturing industry suffered.  A good store of value shouldn't have this kind of tight coupling with industrial production, it should function independently, and that's why gold is a better store of value than silver, altho that's not to say silver is not also a store of value, or a great investment vehicle for someone who sees market opportunities.

I think gold's price does include a meaningful component of its commodity value. It isn't as volatile in the short term as silver because the above ground supply of gold is large compared to its yearly production and consumption. I agree the $300 to $1500 jump isn't a result of increasing commodity demand for gold as it is more a function of the dollar's devaluation and anticipated devaluation of the dollar combined with the historical knowledge that people typically rush to good physical stores of (commodity) value when they notice their money, that is backed by nothing of physical value, being devalued. However, I believe a strong component of both silver and gold is its their value as a commodity. If silver is valued as a commodity and gold isn't then why do the valuations of silver and gold track each other fairly well over the long term. For example, during the decade long $300 to $1500 jump in gold (a five-fold gain), silver went from like $5 to $35  (a seven-fold gain). Silver and gold are both good ways to store commodity value, but silver is just more volatile in the short term.

The main point I want to make on this topic is that if people want to make a case that having commodity value isn't important for a currency, then they should find another example to make their case other than gold.