Money is a Claim on Labor

[bitinlet]

I'm tired of hearing attacks on Bitcoin because there's nothing "behind" it. Ideologues across separate aisles (like Schiff and Krugman) fail to understand this. So, I figured a thread to discuss this in more depth may be considered apt.

To me...

Money can, and has been defined, as a claim on human labor.


Let's break this down into two sections.

First, Gold....

For the Shiffs of the world - why is gold valued at all? The typical first answer is it's scarce. OK. But, so is Bitcoin. The second answer typically is there's a demand for it. There's also a demand for a digital currency with low transaction costs. A third answer is it's a product that is mined and is tangible. Bitcoin is "created". It's value is in part derived from cryptology and mining. That act, in and of itself, presents the labor involved and it's inherent value. This, here, the cryptology is always left out when discussing Bitcoin as money.

Admittedly, however, the one area that really separates Bitcoin from gold is tangibility (and usefulness there-within). You can't necessarily touch Bitcoin. But, arguing that there's no value to Bitcoin because you can't necessarily touch it is similar to arguing against the value of the internet, social media, or... numbers in any monetary account because you can't touch them.

That brings us to dollars (or fiat)....


The Krugman's of the world believe the dollar (fiat) has value mainly because of it's reserve status and store of value. Reserve status is obviously something that can change over time, so there's no need to debate that aspect. It's important to point out that the Krugman's of the world, most likely, would not offer scarcity as the triumphant characteristic of money (as they vouch for increases in the money supply). Instead, as Krugman has stated in his blog, he probably would vouch for the Fed itself (or central banks) and it's role in controlling the value of the dollar. The irony is, of course, that Krugman's of the world are arguing that The Fed is providing stability (through human labor, or in his mind, their intellect)... yet, Bitcoin as a claim on human labor (via cryptology, mining) is not as functional. So, at the end of the day, the argument for dollar superiority as a form of money comes down to store of value. And the thought is, it's stored value well, which is laughable considering the Fed has done this...

http://pmc.do.am/720px-Components_of_US_Money_supply.svg.png

...to the US money supply since the 1970s. The truth is, the dollar has acted as a horrid store of value. I mean, look at Bitcoin's price. That is a reflection of how poor the dollar is as a store of value.


*******************************************************

After all of the above, I don't see how one can deny that Bitcoin has the main feature of money. It's a claim on human labor. Now, if we want to get into text book definitions,...


I'd argue...

1. Unit of account - Bitcoin = dollar > Gold (not divisible)
2. Store of value - Gold (more tested) > Bitcoin > dollar (dollar has not remained stable)
3. Medium of exchange - Dollar > Bitcoin (could surpass dollar with time) > Gold (difficult to use for transactions)

Thoughts?

[KJO]

I'm tired of hearing attacks on Bitcoin because there's nothing "behind" it. Ideologues across separate aisles (like Schiff and Krugman) fail to understand this. So, I figured a thread to discuss this in more depth may be considered apt.

To me...

Money can, and has been defined, as a claim on human labor.


Let's break this down into two sections.

First, Gold....

For the Shiffs of the world - why is gold valued at all? The typical first answer is it's scarce. OK. But, so is Bitcoin. The second answer typically is there's a demand for it. There's also a demand for a digital currency with low transaction costs. A third answer is it's a product that is mined and is tangible. Bitcoin is "created". It's value is in part derived from cryptology and mining. That act, in and of itself, presents the labor involved and it's inherent value. This, here, the cryptology is always left out when discussing Bitcoin as money.

Admittedly, however, the one area that really separates Bitcoin from gold is tangibility (and usefulness there-within). You can't necessarily touch Bitcoin. But, arguing that there's no value to Bitcoin because you can't necessarily touch it is similar to arguing against the value of the internet, social media, or... numbers in any monetary account because you can't touch them.

That brings us to dollars (or fiat)....


The Krugman's of the world believe the dollar (fiat) has value mainly because of it's reserve status and store of value. Reserve status is obviously something that can change over time, so there's no need to debate that aspect. It's important to point out that the Krugman's of the world, most likely, would not offer scarcity as the triumphant characteristic of money (as they vouch for increases in the money supply). Instead, as Krugman has stated in his blog, he probably would vouch for the Fed itself (or central banks) and it's role in controlling the value of the dollar. The irony is, of course, that Krugman's of the world are arguing that The Fed is providing stability (through human labor, or in his mind, their intellect)... yet, Bitcoin as a claim on human labor (via cryptology, mining) is not as functional. So, at the end of the day, the argument for dollar superiority as a form of money comes down to store of value. And the thought is, it's stored value well, which is laughable considering the Fed has done this...

http://pmc.do.am/720px-Components_of_US_Money_supply.svg.png

...to the US money supply since the 1970s. The truth is, the dollar has acted as a horrid store of value. I mean, look at Bitcoin's price. That is a reflection of how poor the dollar is as a store of value.


*******************************************************

After all of the above, I don't see how one can deny that Bitcoin has the main feature of money. It's a claim on human labor. Now, if we want to get into text book definitions,...


I'd argue...

1. Unit of account - Bitcoin = dollar > Gold (not divisible)
2. Store of value - Gold (more tested) > Bitcoin > dollar (dollar has not remained stable)
3. Medium of exchange - Dollar > Bitcoin (could surpass dollar with time) > Gold (difficult to use for transactions)

Thoughts?

99.999% of the herd has absolutely no idea that money is energy and that energy is money. That everything is energy.

This inability to understand the energy component of both fiat currency and sound money is why they are happy to party at walmart on black fridays and laugh and bury their faces in their iphones when fractional reserve banking is explained to them.

Gold is valuable because of the massive energy labor required in the discovery, extraction, refinement, and distribution of said gold, not just because it is scarce.

Real Money fits all the following criteria:

(1) It must be durable, which is why we don’t use wheat or corn or rice. Bitcoin satisfies this condition.

(2) It must be divisible, which is why we don’t use art work. Bitcoin satisfies this condition.

(3) It must be convenient, which is why we don’t use lead or copper. Bitcoin satisfies this condition.


(4) It must be consistent, which is why we don’t use real estate. Bitcoin satisfies this condition.


(5) It must possess value in itself, which is why we don’t use paper. Bitcoin satisfies this condition.


(6) It must be limited in the quantity that is available, which is why we don’t use aluminum or iron. Bitcoin satisfies this condition.


(7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium. Bitcoin does NOT satisfy this condition........YET.


Only GOLD and SILVER fit all seven characteristics. Bitcoin is a baby. In time, more people will wake up and start asking questions about why they are working harder for a shrinking piece of the fiat pie. Eventually bitcoin will gain consumer confidence. Its happening right now and nobody can stop it.

[benjamindees]

Labor value theory is a hilarious joke.

[Anon136]

I think its best to just think of money as a tool. Like a hammer is a tool that is useful for solving the problem of nails that stick up. Money is a tool that is useful for solving the double incidence of wants problem, the retention of value problem and the economic calculation problem. Anything that is good at solving these problems and is often used to solve these problems is money.

I dont think a claim on labor is a good way to describe it. That would be like if bob issued an iou promising to work for 1 hour and traded that iou for a good or service. That would not make a good money because because bobs labor would be much to limited supply to service the needs of an entire economy, and if we started mixing ious from different people than the money would lose its fungibility. Lack of fungibility prevents the object in question from being useful for solving the economic calculation problem and the double incidence of wants problem.

[bitinlet]

Labor value theory is a hilarious joke.

I really wasn't referring to the labor value theory (LVT). The word claim was important there. In many ways, I was more directly referring to subjective theory of value. I am not a huge fan of theoretical discussions because of the semantical spectrum, but I'll try to explain...

I do understand the confusion. The point in raising LVT is interesting in this case. To me, money is tricky to describe in words and I was trying to show why both sides of the debate (extreme left and even gold bugs) are wrong to claim Bitcoin is not a good form of "money". If you define money as a claim on human labor, I believe my points satisfied the original intent of the thread.

Yet, getting into LVT, from my perspective, stating "moneyis a claim on labor" does not separate itself from the thought that inherent value (of goods or services) are actually derived from the importance a person involved puts on a good or service (for what they want individually). Money simply facilitates an exchange. And, currently, in our society, typically wages are rewarded to forms of labor which are then 'spent' by the earner. Now, I definitely understand capital, land and technology influence production and therefore, can also influence wages/wealth in various ways. But, to me, at the end of the day and outside semantics... a person, an individual, puts in work to obtain capital, to create technology or even to acquire land. That isn't really capable of measuring against another's labor.

I think the subjective theory of value holds because an individual makes up their own mind on the value of goods or services. They then look at that, relative to what they'd, individually, need to give up (in many cases their individualized labor to earn X wage).

[bitinlet]

I think its best to just think of money as a tool. Like a hammer is a tool that is useful for solving the problem of nails that stick up. Money is a tool that is useful for solving the double incidence of wants problem, the retention of value problem and the economic calculation problem. Anything that is good at solving these problems and is often used to solve these problems is money.

Agreed.

I dont think a claim on labor is a good way to describe it. That would be like if bob issued an iou promising to work for 1 hour and traded that iou for a good or service. That would not make a good money because because bobs labor would be much to limited supply to service the needs of an entire economy, and if we started mixing ious from different people than the money would lose its fungibility. Lack of fungibility prevents the object in question from being useful for solving the economic calculation problem and the double incidence of wants problem.

I think the semantics is in the way because I think I agree with your take, but your assessment isn't what was really implied (or at least what I meant).

The terms might not be quite right, but what's meant is that labor from Bob is involved for Bob to purchase something (good or service) from anyone. He earns money for his labor. Then uses money to purchase goods and services. Because Bob earns money for labor, money could be thought of as a reward for his labor, and therefore, I used a claim on labor. Although, I admit, it may be too simplistic of a definition.

In terms of what I did mention, this is how money does function though. I do understand the hesitation with claiming Bob's 1 unit of labor is equivalent to Dave or Jim's... or anyone else's for that matter. To me - it's not equivalent, it's independent. It's his own (heterogeneous). Yet, he performs labor and is rewarded via a wage, which he can use to spend using their own preferences/rankings.

[Anon136]

I think its best to just think of money as a tool. Like a hammer is a tool that is useful for solving the problem of nails that stick up. Money is a tool that is useful for solving the double incidence of wants problem, the retention of value problem and the economic calculation problem. Anything that is good at solving these problems and is often used to solve these problems is money.

Agreed.

I dont think a claim on labor is a good way to describe it. That would be like if bob issued an iou promising to work for 1 hour and traded that iou for a good or service. That would not make a good money because because bobs labor would be much to limited supply to service the needs of an entire economy, and if we started mixing ious from different people than the money would lose its fungibility. Lack of fungibility prevents the object in question from being useful for solving the economic calculation problem and the double incidence of wants problem.

I think the semantics is in the way because I think I agree with your take, but your assessment isn't what was really implied (or at least what I meant).

The terms might not be quite right, but what's meant is that labor from Bob is involved for Bob to purchase something (good or service) from anyone. He earns money for his labor. Then uses money to purchase goods and services. Because Bob earns money for labor, money could be thought of as a reward for his labor, and therefore, I used a claim on labor. Although, I admit, it may be too simplistic of a definition.

In terms of what I did mention, this is how money does function though. I do understand the hesitation with claiming Bob's 1 unit of labor is equivalent to Dave or Jim's... or anyone else's for that matter. To me - it's not equivalent, it's independent. It's his own (heterogeneous). Yet, he performs labor and is rewarded via a wage, which he can use to spend using their own preferences/rankings.

its nothing personal. i often hear economists that i respect very much say the same things you are. im just not sure that its right. and yea i fully admit its sort of a semantic thing. i also think that people sometimes undervalue the importance of semantic study.

So here is the definition of claim: a demand or request for something considered one's due.

I just don't think that money is a claim on anything. When you contract with someone inorder that you exchange your labor for his money, he has a claim on your labor, and after that contract is fulfilled you have a claim on his money, but the money its self never has a claim on anything.

[pungopete468]

People are only interested in trading for goods or services.

If you're a lawyer by trade who needs a root canal you wouldn't want to be forced to wait for your dentist to require legal help before you can trade your services...

Money is just a tool intended to make bartering easier for a diverse set of users.

[BigJohn]

After all of the above, I don't see how one can deny that Bitcoin has the main feature of money.

I don't believe anyone (anyone significant anyway) has made that claim. People often attribute that line of thinking to Schiff, but that's not what he's claiming. People who are bearish on Bitcoin, like Schiff and myself, simply say that the current price is highly inflated for the reasons you listed. It just seems that the Bitcoin die-hards translate any knock on Bitcoin, in this case its current price, as an attack against Bitcoin itself. But this is not true. The criticism is that the current price is indicative of a bubble, not that Bitcoin itself is a bubble.

The point that Schiff makes about Bitcoin's lack of physical tangibility or inherent usefulness, is to highlight a potential (but not yet actual) void that an alternative competitor could fill. And that it's possible that the competitor might be the state itself. They have already been making moves in that direction.

As to your point about the usability of the Bitcoins themselves compared to gold, I think Bitcoin ends even lower than you give it credit for. The mining system, while it does buy security, is incredibly wasteful and there is no value in its product (gigahashes/sec). At least with metal-mining you're talking equipment, engineering, manpower, and you end up with a metal that has some use. Silver for electronics and jewelry for example. With Bitcoin all you get is ASICS for hashing. And again, already you're seeing competitors filling that void with things like Proof-of-Stake, finding useful Proof-of-Work, etc.