The flawed foundations of Austrian economics

[tar]

Nah!

Is this that famous kind of flawless Austrian argumentation?

 

[cypherdoc]

@Roger_Murdock
"All it took to get the ball rolling was a few visionaries who recognized that Bitcoin's fundamental properties gave it the potential to, over time, become valued by others for its exchange usefulness, which led them to place immediate value on it."

Agreed, This this is plausible.

But it is a very interesting question how the first Bitcoin exchangers determine what initial value to assign to the unit. All the Regression Theorem says is that this initial value had to be based on something other than just previously observed exchange values. The initial demand could be based on something as trivial as "having fun". For example, many people spend countless hours collecting in-game currencies like World of Warcraft Gold. So I see no reason why initial Bitcoin acquirers couldn't have been motivated by similarly trivial reasons. This means the initial value could have been based on some combination of the amount of leisure time people felt like spending on mining, and an incremental electricity cost that was small enough to seem trivial.

Krawisz's speculation explanation could be true, but it's also possible that initial value was based on more frivolous reasons.

as long as you don't insist on the origin of a money having to come from a physical commodity, i suppose you can shoehorn Bitcoin into the Regression Theorum

maybe you can look at the speculative origins of Bitcoin bootstrapping in terms of Bitcoin being looked at as an "investment" in it's early days. investments come in all forms, physical (like real estate, oil, grains) or as digital (Facebook, MSOffice). an "investment" feels more concrete. this is how i looked at it back then based on it's fundamental properties. i also think that Bitcoin has not yet reached monetary status as it doesn't fulfill the "unit of account" part of the definition. so it's still an investment and advancing thru the Regression Theorum on it's way towards becoming true money. but we need way more global adoption before we can achieve unit of acct status.

 

[Erdogan]

Is this that famous kind of flawless Austrian argumentation?

No, but your writing was so far out I did not want to undertake a discussion.

Lose that violence perspective. Violence can not possibly be the source of value of money, the value that is far above the usefulness the money stuff is made of. Robbers take money all right, but, if anything, it would reduce the value, by increasing the risk. You have 100, but if the risk of losing it to a thief is 50%, the value for you would be reduced to the equivalent of 50 in a safe situation.

The value of money comes from the market, and you can use destructive force on it to draw prices in either direction, but it is still the market. (The price is something that is revealed when in a voluntary exchange, some number of one thing is exchanged for some other number of another thing. The price of thing expressed in the other thing is some number divided by some other number). No king can change that.

 

[Roger_Murdock]

That is a general misinterpretation of the foundation of money and when why and how it emerged.

The foundation of money (credit) is power. With the first claim of tribute the reference is there. Whatever is claimed the subjects have to provide it on the fixed date(!) or they will face penalty. This is the reference of power: force and violence - the foundation of money, markets and prices.

I can certainly agree that a monetary system is going to make systematic extortion easier. (Having to collect cows from the cattle farmer, baskets from the basket weaver, etc., etc., would be kind of a pain.) But ... so what? Money also makes voluntary, wealth-creating exchange and the coordination of productive economic behavior infinitely easier. And the historical origins of money don't strike me as terribly important. Even if money as we know it were the invention of some warlord who created it as a way to make the collection of tribute easier, that wouldn't change the fact that money as a behavior is a hugely useful tool for wealth creation. So if you don't like extortion and violence (and I don't), the answer isn't to try to scrap the idea of money entirely because a) the TPTB aren't going to go along with it; and b) you'd be throwing the baby out with the bath water. A better approach in my view (as an anarcho-capitalist) is to embrace an alternative to the monetary status quo (like Bitcoin) that seeks to remove power from the hands of a privileged elite. And also to try to change people's consciousness so that they recognize the illegitimacy of the state's purported authority.

BTW, if you haven't read this article, I'd strongly recommend it:

http://nakamotoinstitute.org/reciprocal-altruism-in-the-theory-of-money/

 

[tar]

No, but your writing was so far out I did not want to undertake a discussion.

Lose that violence perspective. Violence can not possibly be the source of value of money, the value that is far above the usefulness the money stuff is made of. Robbers take money all right, but, if anything, it would reduce the value, by increasing the risk. You have 100, but if the risk of losing it to a thief is 50%, the value for you would be reduced to the equivalent of 50 in a safe situation.

The value of money comes from the market, and you can use destructive force on it to draw prices in either direction, but it is still the market. (The price is something that is revealed when in a voluntary exchange, some number of one thing is exchanged for some other number of another thing. The price of thing expressed in the other thing is some number divided by some other number). No king can change that.

You somehow misunderstand me or I just failed trying to point out the basically obvious requirement for money/markets/contracts(!) the Austrians (and (Neo)Classical) proponents mistakenly presuppose as a natural given "thing" which in their imagination even could be created by competitive private institutions: centralized law. A law that guarantees the obligation whereof the "value" results, e.g. someone has to provide 100 kilo of corn on september the 1st - otherwise he is degraded into a slave or beheaded or whatever sanction you may think of. Before this "state-building" procedure, no one has even thought about producing a surplus - there was neither a need of it (because it existed voluntary solidarity inbetween communities) nor did anyone know what a fixed due date meant (this came with the tribute claims in the world for the first time).

Based on this new due dates the people then were able to calculate interest rates in the first place - but in a vice versa way we usually understand it today: with a discount beforehand, so if A had a claim on B for 100 kg of corn on september the 1st he "sold" this claim for 80 kg of corn to C on august 1st, for example. Then came cessions of such claims etc.

So it is not surprising that in over 800 examined tribes they could not detect an endogenous way of freely applicable private property and therefore no economy. None of them developed money. It is ridiculous to even think about money within a voluntary solidarity community. They hardly could think of barter - and if so it was based on loose debt relationships (like within the family or to pretend losing honor in so called "gift economies") without fixed due dates or interest rates. You see: there existed no market as there is no market within your family this very today.

I hope you can now understand why "value calculations of individual preferences" to the very far beginning of mankind (which are needed for the Regression Theorem) never were a realistic assumption, even less when we look on the historic socioethnological and anthropological evidences.

 

[tar]

A better approach in my view (as an anarcho-capitalist) is to embrace an alternative to the monetary status quo (like Bitcoin) that seeks to remove power from the hands of a privileged elite. And also to try to change people's consciousness so that they recognize the illegitimacy of the state's purported authority.

BTW, if you haven't read this article, I'd strongly recommend it:

http://nakamotoinstitute.org/reciprocal-altruism-in-the-theory-of-money/

You are correct that it was easier to collect silver than to collect tons of corn - this development of tribute change is also historically proven and hereby I think it is necessary to mention that not the "thing" (corn, silver, coins, cash, electronic bits and bytes, you-name-it) itself is money - money is the immaterial right of debt amortization and the particular "thing" is only the information carrier set by the sovereign as public law!

But the story told by most economics - that money had been invented to simplify the bartering process (due to the same reasons you explained the complexity reduction of tribute collecting, which is correct) is a complete misunderstanding of what money really is. Furthermore this explanation makes no sense as every (small) state territory (dominion) had its own monetary standard which even would have complicated the assumed(!) processes of barter between those territories even further.

Bitcoins (et al) therefore are no money (in a general understanding) as they
a) are not able to redeem tribute claims (public law) and
b) do not emerge from private contracts (which theirselves are not able to exist without the rule of (public and private) law)
By the way, both have a fixed due date where the related debts are redeemed!

So, whenever a state will accept Bitcoin as tax amortization they become the information carrier of the immaterial law of debt amortization and could therefore be named as money for the general public. Looking on the Bitcoin concept: b) is per se not possible but Bitcoin are able to be used to fulfil private contract debts (what most people think is the only requirement to call something "money" ... unfortunately, it is not).

Hence, the advantage of Bitcoins is to undermine the surveillance of the state over:
a) private credit contracts which are redeemed by Bitcoin
b) the amount of assets transferred in/out of the country
- and therefore it undermines the potential taxation or even the existing economic balancing mechanisms of the state which likely will lead to corresponding law changes in the future.

 

[Erdogan]

@tar

You are still far out. The market is inherently human, voluntary action has been the preferred way since people understood that violence is highly destructive, the reverse of value creation. Value creation is the win win trade, you make a good or service, act in the market, and both participants in the trade are better off, the sum of value they have together has increased.

Just imagine a sleepy town, where the peace is broken by a raid of a thief. To protect themselves, everyone needs to lock down their things and start guarding them, which means higher cost and lower output, lower productivity. The thief wins some, but his victims lose far more.

This has been known for millennia, and is the basis for the two commandments: do no harm and take no shit.

In the market, the prices are not set, they are discovered. The different actors have a set of values, or fundamental reasons to want to choose one thing over another, and to achieve it, they act. Every time you act in the market, you change it. You change the supply and demand curves, and sometimes the supply or demand on the current equilibrium is exhausted, and the price jumps a pip.

A violent lord can intervene with price controls, but it will always reduce the value creation, and if the price set is to far off the equilibrium, the trade will stop, either the market actors will stop selling the good for that low price, or they will stop selling the money for that low price... inverting the price measure here, just to make the point that money is also a good in the market. So that lord can not set prices, he can only stop the market.

TLDR; Seeing that all that was just a response to your very first sentence, you can maybe feel the pain I have from reading your words.

 

[cypherdoc]

where do you think the mafia went? packed up their bags and moved to Wall St. white collar crime pays much better and is much safer. plus:

 

[Erdogan]

http://www.cnbc.com/2016/07/15/this-ex-undercover-agent-infiltrated-pablo-escobars-drug-cartel-as-a-money-launderer.html

The agent flew the (other) criminals to New York and hand led them to the NYSE floor...

 

[tar]

@tar

You are still far out. The market is inherently human, voluntary action has been the preferred way since people understood that violence is highly destructive, the reverse of value creation. Value creation is the win win trade, you make a good or service, act in the market, and both participants in the trade are better off, the sum of value they have together has increased.

Are you living in wonderland? I even showed you how the Indians have "learned" the "value" of gold, which beforehand ("before hand"... haha) was z e r o for them. A very nice win win situation!

TLDR; Seeing that all that was just a response to your very first sentence, you can maybe feel the pain I have from reading your words.

I can read your cognitive dissonances and how much you suffer from it, unfortunately. On the one hand I understand that you prefer the imagination of a happy win win humanity... on the other hand I recognize it as ignorance to accept tribute and law as general economic foundation.

 

[Erdogan]

Are you living in wonderland? I even showed you how the Indians have "learned" the "value" of gold, which beforehand ("before hand"... haha) was z e r o for them. A very nice win win situation!

If so, how come they collected it in the first place?

Look, it is not utopia, I know there is a lot of violence out there, and there will always be some. But at different times and places, there is sometimes more violence and less prosperity, or sometimes less violence and more prosperity. The market allows for not only short sighted egoism, but also long time, psychological rational selfishness. It allows for plain gifts also, it is completely up to the owner of property do do what he wishes with it. Most people are rational and good, being hard pressed in violent circumstances, good people also steal. Or, they let others steal for them, giving away the authority to steal which they never had, which is a greater sin.

 

[tar]

If so, how come they collected it in the first place?

You mean the Indians? They used it as trinket beforehand - without due dates, therefore no valuation of property / prices, no interest rates, no credits, no economic incentive, no market.

it is completely up to the owner of property do do what he wishes with it

Do you know when and why property emerged? An alienable right of private law that stands above sheer posession! Can you imagine that property rights are a fundamental change for sociocultural behaviour which have absolutely nothing in common with delightfulled plans in order to have so-called "win win situations" at all?

To give you a hint:
- 'The Economics of Property Rights' is about neither Property nor Rights (Hodgson, 2014)
- "Power, the State and the Institution of Property" (Martin, 2003) (only the first page is in english, unfortunately - but you can find the whole thing in english within this book)

 

[Erdogan]

What is the consequence of all this? What are you going to do? Will you get some coins and hold? Will you use them? Will you move into a position of power? Will you support the powerful? Will you take their gifts, will you try to become a receiver of monopoly privileges? Will you join the ranks of the economic academia, the neo keynesian cargo cult? Do you want to depress bitcoin? I don't understand what you are up to.

 

[tar]

I don't understand what you are up to.

Primarily a common and reasonable understanding of the dependency between public and private law and the related subordination of any economic development whereof money, interest, markets etc. initially emerge - instead of following ahistoric assumptions of outdated theories.

What is the consequence of all this?

That we have to accept the contradiction of public (state) and private (market) law and their partial dependencies and finally can get rid off such socialist (state) and liberal (market) approaches that ignore those dependencies and therefore led to poverty and millions of deaths in the last century.

What are you going to do?

Spreading the word

Will you get some coins and hold?

I bought one 2 years ago (after the first big hype) and speculated a bit with Litecoin. Still have the 1 bitcoin.

Will you use them?

For paying or what? Nope - as I do not have any clue where and what I should pay with.

Will you move into a position of power?

I often thought about a political career but I do still not know which party or movement I should join (Europe: Germany). The lefts still represent outdated marxistic theories, are blind for the law and ignore family rights as well as demographic developments The rights emotionally cling on national thinking which will also not help to solve the problems with multijurisdictional organisations for whom no centralized institutional law exists. However, the middle just tries to sit the situation out and I cannot recognize that they have conceived that most of the problems lie in law assymetry for jursdictional and multijurisdictional organisations.

Will you support the powerful?

I am mostly for the underdog as the established ones here agitate against the majority of German civilians - not only against those who are net payer in the social system but also the receivers and the middleclass in general (the wages stagnate since nearly 20 years).

Will you take their gifts, will you try to become a receiver of monopoly privileges?

As a society/state in general is a system of redistribution of wealth I give my very best not to give too much wealth away but I cannot hide my economic activity as my business partners do not pay me in Bitcoin and I have to pay my taxes in Euro.

Will you join the ranks of the economic academia, the neo keynesian cargo cult?

I once studied economics on the university and was shocked enough by the nonscientific assumptions in order to create mathematic models which have nothing in common with the real world. After I wrote my thesis on property economics and debitism I now sympathize with ANEP (Academy for New European Political Economics).

Do you want to depress bitcoin?

Why should I? I see it as what it is for now: an object of speculation (like an electronic type of gold) but not money as explained before.

 

[Erdogan]

Thanks for that. It is not my view, I hold only the natural law as genuine, and politicians mostly irrelevant, an annoyance to avoid, to be aware of, just as I try to not move drunk in the dark, with money sticking out of my pockets, calling on and provoking people, in areas known to be risky of robbery.

I know what freedoms I have, working with the barbed wire in my own head, and associating with people that I like. The world is not perfect, it will never be, but it is also possible to live.

 

[Zarathustra]

@tar

You are still far out. The market is inherently human, voluntary action has been the preferred way since people understood that violence is highly destructive, the reverse of value creation.

This is science fiction à la Hobbes. The opposite happened. The homines sapientes became violent when they have been forced to produce surplus (tribute/tax) to the war lords (church and state). That's the origin of the market and all kind of money (an enforced contest that had been inexistent before). That's the tragedy of the commons, which lived in anarchy, self-sufficiency and therefore without suffering organized violence.