Bitcoin Bolt

Since Patrik Korda still criticises my approach to money substitutes, I thought I’d summarise here their fundamentals. This is not a definition of a money substitute, nor an exhaustive listing of all possible types of substitutes. Rather, it is to explain their essence in a way that is easily understandable and clarify why Bitcoin has nothing to do with them.

The fundamental of a money substitute is a causal link between money in the narrower sense and the substitute. This causal link is the main, necessary, factor explaining the price of the substitute. For argument’s sake, I’ll leave it open whether other, optional, factors exist. This is the essence of the point Mises was making, he was trying to explain the price of money substitutes. And he found the explanation in the causal link to the money in the narrower sense.

For Bitcoin, there is no such underlying causal link to a money in the narrower sense that explains the price of Bitcoin. The price of Bitcoin is determined by other factors.

Therefore Bitcoin is not a money substitute (or it wouldn’t be if Bitcoin was money).

Jeffrey Tucker – What Bitcoin Is Teaching Us:

Jeffrey Tucker (@JeffreyATucker), editor of Lassez-Faire Books and past editorial vice president of the Ludwig von Mises Institute, posts how deflationary currency brings a change to what we know about money.  Excerpts:

“None of us in living memory has had experience with a currency that rises in value. The emergence of Bitcoin — a digital currency that has grown in purchasing power over time — has changed that experience dramatically.”
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“The 20th-century experience flipped our expectations for what money should do. Especially in the postwar period, the falling value of the dollar punished savings and rewarded spending. This is exactly what the Keynesian economists hoped for. They wanted money always circulating and never ‘hoarded.’ ‘Deflation’ was to be avoided no matter what.”
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“Bitcoin is often described as a ‘deflationary’ currency. This is exactly why Paul Krugman hates it so much.”
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“Here’s what beautiful about this experience: It doesn’t matter in the slightest what Paul Krugman thinks. It doesn’t matter how many economic experts Paul Krugman lines up to oppose Bitcoin. It doesn’t matter how many Nobel Prize winners denounce it and oppose it. That’s because Bitcoin is not a “policy” invented by elite and privileged intellectuals. It is a market-based currency, one created by an entrepreneur and chosen by market players.”
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“That is an essential postulate of the free society. When government gets hold of the money, freedom is in peril. When the market makes and manages money, freedom has a built-in reinforcement in half of every transaction. In short, just based on our experience with Bitcoin so far, we see the conventional wisdom of a century completely turned on its head. Fantastic!”

 – http://lfb.org/today/what-bitcoin-is-teaching-us
 – http://bitcointalk.org/index.php?topic=171577.0 (Further discussion of the article)

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