George Selgin advocates Bitcoin AGAIN

[lonelyminer (Peter Šurda)]

Coincidentally I emailed a couple of times with Selgin about Bitcoin, and I made exactly the same argument, that adjusting money supply based on rules like the GDP targeting is unlikely to work because it depends on complex empirical data. So he's aware of the objection.

[dr_nix]

All these massive requirements are built on top of the urban legend that a currency must grow (and shrink) to keep pace with an ill-defined concept of economic growth. What if a revolutionary new product or industry is created that transforms the economic landscape, thus changing the very definition of economic growth?

Can you elaborate on that? I don't get what you mean.

[cypherdoc]

i don't think Selgin understands that what makes Bitcoin popular, at least to me, is the open source democratic nature of the algorithm.  ppl are essentially voting for the type of money supply being offered to them and the fact that Satoshi has designed a fixed supply system is what makes it popular.  the beauty of the system is that anyone is free to fork the chain and introduce any system they want; such as a fixed 2% inflation.  this has already been tried and has failed spectacularly. 

Selgin advocates writing a computer algorithm and then "throwing away the key".  i don't think he understands how biased this approach is.  first of all, whoever writes the program will have an incentive to slant the properties of that algorithm towards their own special interests.  it would be like how the insurance industry has wrote Obamacare and thus it favors their interests.  and their is no such thing as "throwing away the key" in that scenario.  the authors will always be tempted to have a backdoor.

as already said, if he believes such an inflationary money supply is needed, and if he feels a derivative of Bitcoin can be used to achieve it, then he should write such an algorithm.  i believe it would fail miserably b/c i think the ppl have wised up to how the bankers are debasing our currency.

[blablahblah]

All these massive requirements are built on top of the urban legend that a currency must grow (and shrink) to keep pace with an ill-defined concept of economic growth. What if a revolutionary new product or industry is created that transforms the economic landscape, thus changing the very definition of economic growth?

Can you elaborate on that? I don't get what you mean.

Keynesian economists seem to think that the money supply shouldn't just be inflated according to a blind formula without any regard for the size of the economy. As a crude example, if the economy grows by 10%, the money supply should (according to them) be increased as well so that the average price of a basket of goods (CPI) doesn't go down. However, there are a lot of problems which Keynesians seem to brush off as irrelevant. For example, who decides what goods should be eligible for CPI statistics? Similarly, who decides what criteria are allowed for determining the growth of the economy? What if cars (or some other important product group) go out of fashion and start skewing CPI results?

Hence, staying in control of all the information seems very complicated and labour-intensive, and for what? The holy grail of making sure that pizza/milk/shoe prices always stay the same? Prices keep creeping up forever anyway.

[lonelyminer (Peter Šurda)]

By the way, this is what Selgin writes in Less Than Zero (1997):

Getting nominal income to grow at some predetermined rate then becomes a relatively simple matter of having the central bank expand the stock of base money by that rate. As monetarists will be especially quick to see, enforcing this kind of central bank rule does not take a Board of Governors, a Chancellor of the Exchequer, or a caucus of economists. A computer will do, provided it is fed the necessary information regarding changes (or predicted changes) in factor supply. This adds to the beauty of the reform, because a computer, unlike a person or committee, will not change its mind, or go back on its word.

(emphasis added)

[cypherdoc]

i think its more than just writing a computer program and pretending to throw the key away.

its making the computer program enforce the rule of the majority of participants who will respond to the program in a favorable way if it doles out justice in monetary policy.  by allowing participants to contribute their own computing power to the network is the means of voting and making the network secure enough for a financial system.

[hazek]

cypherdoc is right, you need a network behind the rules embedded in the code to make sure those do not change or if they do that they have unanimous consent.

I'm not sure what Selgin is talking about is even possible to invent.

[lonelyminer (Peter Šurda)]

Guys, of course I agree with you that it's not that simple. I'm just pointing out that Selgin is not only aware that the money supply (well, in his case, since he's a fractional reservist, the monetary base) must be immune to political pressure, like the Austrians usually are. He also, unlike many other Austrians, sees that a synthetic source for this immunity can work just as well, if not better, than a naturally occurring source. This is a big step forward, as plenty of other Austrians I emailed with have some mental block against this. Well at least Hoppe is somewhere in the middle, he indirectly admitted (if I got that right) that an invented commodity is hypothetically acceptable.

[cypherdoc]

i think Selgin believes "someone" (who undoubtedly will have a vested interest) can set up a desktop computer, program it for 2% inflation, hardcode the software so that the algorithm can't be changed, and then tie the global financial system to it.  

he doesn't realize that what makes Bitcoin work is the sheer size of the distributed network (which protects it) and open source nature (democracy at work) of the no inflation algorithm that ppl have voted to use and support with their money, time, effort, ingenuity, software, and hardware.

[hazek]

(democracy at work)

UGH. No, no, no and no! 

The only thing at work is voluntary collaboration. There's no majority ruling over a minority and I'm baffled how people somehow keep seeing this. Isn't it true that even if 99% of people switch to a protocol with different rules than the rules in Bitcoin, Bitcoin still exists for the 1% and still has the same rules?!

This is NOT democracy at work.

[blablahblah]

(democracy at work)

UGH. No, no, no and no!  

The only thing at work is voluntary collaboration. There's no majority ruling over a minority and I'm baffled how people somehow keep seeing this. Isn't it true that even if 99% of people switch to a protocol with different rules than the rules in Bitcoin, Bitcoin still exists for the 1% and still has the same rules?!

This is NOT democracy at work.

I believe Satoshi's white paper referred to the hashing algorithm as analogous to casting votes, so I guess that's one similarity. And some democracies allow a minority government. E.g.: New Zealand has had a few of those.

But anyway, I don't think it's that important to put a label on it. What if someone came along and said "wow! Bitcoin is great, it's got elements of Marxism and Islam, and Tao te Ching all rolled into one!"? I'd just roll with it.

[hazek]

You are right, just saying the words makes no difference and I should just ignore it even if it's not correct.

But with the word democracy I just can't help myself. It's one of those words that's responsible for so much evil and suffering in world and yet has an immensely positive image which is something that makes me want to throw up every single time I run across it and I'll be damn if I have the chance to object if I'm not going to use it whenever it's being applied to something wonderful and absolutely not evil and despicable unlike a democracy.

[wachtwoord]

You are right, just saying the words makes no difference and I should just ignore it even if it's not correct.

But with the word democracy I just can't help myself. It's one of those words that's responsible for so much evil and suffering in world and yet has an immensely positive image which is something that makes me want to throw up every single time I run across it and I'll be damn if I have the chance to object if I'm not going to use it whenever it's being applied to something wonderful and absolutely not evil and despicable unlike a democracy.

^^ I share this sentiment

[Portnoy]

(democracy at work)

UGH. No, no, no and no!  

The only thing at work is voluntary collaboration. There's no majority ruling over a minority and I'm baffled how people somehow keep seeing this. Isn't it true that even if 99% of people switch to a protocol with different rules than the rules in Bitcoin, Bitcoin still exists for the 1% and still has the same rules?!

This is NOT democracy at work.

What you seem to dislike most about what you see as "democracy" is what is called the tyranny of the majority.
It is usually guarded against, among other measures, by enshrining the rights of individuals and minority groups in
things like constitutions and charters of rights etc. ( Getting elected officials to pay attention to such inconvenient
documents is another matter that we shouldn't blame on the concept of democracy itself. )
 
The tyranny of the majority is something, it seems, that the wealthy few complain about the most, when it looks
like they may have a little of their overwhelming power reigned in slightly.

Don't confuse the concept of democracy with what is claimed to be a shining example of it.  
For example if places like the U.S. and Canada had true democracies, where the majority of its
citizens had a fair say in the setting of policy, then marijuana would be legal. A lot of things
would be different.

What would you see as a better system to have instead of a constitutional democracy?
A benevolent monarch like one might find in fairy tales?
Or perhaps you are an anarchist...  no danger of anything like mob rule with that.

Remember that a key prerequisite to having a good democracy is an informed populace.
In an anarchistic system that would be even more important. And in case you haven't
noticed a lot more money has been going into the military than things like schools... at least
since Eisenhower gave that warning.  With the rise of the neocons the dumbing down of
our Western nations has been taken to new levels.
Is that because of democracy or because of the lack of it?  

Of course no system will be perfect which involves people trying to get along with each other...
what's that famous quote... democracy is the worst form of government, except all the others
that have been tried.

[grondilu]

But with the word democracy I just can't help myself. It's one of those words that's responsible for so much evil and suffering in world and yet has an immensely positive image which is something that makes me want to throw up every single time I run across it and I'll be damn if I have the chance to object if I'm not going to use it whenever it's being applied to something wonderful and absolutely not evil and despicable unlike a democracy.

+1

Please everyone: stop saying bitcoin is democratic.  It is not.

[ribuck]

At least its not the type of equality that is usually present in nation states ... Political scientists get the same one vote as some Arkansas inbred

Damn straight. It's a false dichotomy of course, but if I had to choose I'd prefer the Arkansas inbred to be ruling over me than the political scientist.

[Etlase2]

i think Selgin believes "someone" (who undoubtedly will have a vested interest) can set up a desktop computer, program it for 2% inflation, hardcode the software so that the algorithm can't be changed, and then tie the global financial system to it.  

I think that "cypherdoc" is pretty dumb, but we already know that. Selgin on the other hand is actually educated and doesn't come off as a dipshit every time he speaks, so I'm pretty sure he is aware that the "computer" from Friedman's original idea is just a tongue-in-cheek metaphor for legislation with an algorithm to determine the money supply.

[lonelyminer (Peter Šurda)]

Selgin on the other hand is actually educated and doesn't come off as a dipshit every time he speaks, so I'm pretty sure he is aware that the "computer" from Friedman's original idea is just a tongue-in-cheek metaphor for legislation with an algorithm to determine the money supply.

Actually, in "Quasi commodity money", Selgin argues that inelastic supply can be achieved in different ways than legislating it. As a non-Bitcoin example he mentions printing money and then destroying the plates.

[Etlase2]

Actually, the "computer" fed is not an inelastic supply.
Actually, any change to government-sponsored money is going to require legislation.

[lonelyminer (Peter Šurda)]

Actually, the "computer" fed is not an inelastic supply.

Non-sequitur.

Actually, any change to government-sponsored money is going to require legislation.

Depends on what you mean by "change". If it's too crappy (e.g. hyperinflation or banking system collapses), it may stop being used irrespective of legislative changes. Does that count or not?