Saturday, June 18, 2011

Bitcoin Open Forum - Part 3


By request, here is my latest comment in post form:

Hello Neverfox and Ramon,

So it sounds like supporting (investing in or working for) Bitcoin is more about taking an activist role in an anarchist revolution against the government and the fat cat bankers than it is about finding the best way to protect your savings, amirite?

Ramon, you wrote: "Even if 1/10th of 1% of USD-denominated wealth were to go into either of two DCC options, that could be hundreds of millions of dollars."

The total market cap for all Bitcoins in existence right now is about $103 million. (Link) If it is true that Satoshi Nakamoto has a quarter of the 6.5 million bitcoins in existence, then he alone holds $26 million. What about those other six project developers along with Satoshi? What is their combined share? 40%? 50%? Do you think that the potential you cite for an inflow of hundreds of millions to a present market cap of $103 million makes it more or less likely to be adopted as a currency? Answer = Less.

Moldbug does a good job explaining this principle here:

"One metaphor for monetization is that of a storage vessel, like a battery for electricity or a tank for compressed gas. When people buy into the currency, they are charging the battery and compressing the tank. When they sell out, they are discharging the battery. When new currency is created (perhaps by alchemists) without a buy-in, the tank has sprung a leak. Etc. The charge, or the pressure, is simply the market capitalization of the entire present (and discounted future) monetary good. […]

Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start. If large price increases in a commodity would cause a stockpile blowout, the walls of the tank are too thin. The whole premise of monetary restandardization is that the new currency will be stable and permanent. […]

However, because silver was fully demonetized in the 20th century and gold was not, the market capitalization of the gold stockpile is 60 times the capitalization of the silver stockpile [FOFOA: and 73,000 times the capitalization of Bitcoin]. Thus, comparable volumes of gas are pressing in to the gold tank and the silver tank, but the silver tank is 60 times smaller [FOFOA: and the Bitcoin tank is 73,000 times smaller].. It is actually surprising that silver has not risen faster and harder.

But this present advantage is also silver's long-term Achilles heel. The silver tank, being so much smaller, cannot take this kind of pressure. It will almost certainly explode. I have personal advice for those playing the silver market: bring your steel balls. If you buy into a bubble when it's small, and get out before it pops, you can do quite well. […]

Here is the problem with Bitcoin: the tank, I think, will pop…"


Gold is the only super-tank. It can absorb any flow the world throws at it without popping. It is stronger than all the pressure that is possible because of its uniquely large stock to flow ratio. And also the fact that the large stock is held in extremely strong hands that I like to call Giants and CBs. These Giants are the real-world producers and titans of today and yesterday, including a lot of real old-money Giants. Here are the bitcoin giants:

Satoshi Nakamoto
Gavin Andresen
Martti Malmi
Amir Taaki
Pieter Wuille
Nils Schneider
Jeff Garzik

Do you think these seven hands are strong enough to hold? $26 million can buy a lot of socks, that's for sure, but if you cash out into that competing currency called dollars it can also buy yachts and other fun things like coke and hookers. How about when Nakamoto's share is at $50 million? Will he still hold firm to his Anarchist convictions? How about $100 million? At what point do you think he will sell out for that other competing currency that buys jets and cars and cool stuff? Please read these two lines until they finally sink in:

"Thus a correct, second-order strategy to pick a winner has to consider the monetary pressures across the whole path to complete monetization. If the leak will reverse direction halfway through the process, the process cannot complete and should never start."

What you want in a medium of exchange (and yes, in a store of value too) is stability and potential permanence. I think this guy at least gets that concept. But since perfect stability in both (MoE & SoV) is impossible in the real world, the perfect solution for the world we actually live in today is a non-hard currency that declines slowly in value with a counterbalancing wealth reserve that slowly rises in value. This is Freegold. It is not Bitcoin nor Bitcoin plus Freegold.

In comparing Bitcoins to gold, I think there is one characteristic in which Bitcoins outshine even gold, and I'll bet that we can all agree on this one (except maybe Terry). Bitcoins truly have no value outside of being either a medium of exchange or a store of value. Hoarding them will never directly and physically infringe upon the natural rights of others nor impede the flow of physical inputs to industry.

One of the reasons gold is money is that, of all the physical elements that meet other monetary requirements, gold is the one that comes closest to achieving the perfection of this monetary property that Bitcoin achieves, being completely worthless aside from its monetary uses. Bitcoin is truly an artificial, purely symbolic currency, which makes it, you guessed it, just like all the fiat currencies in the world today. Except there is one big difference: Bitcoin has a limited supply!

What this means in practical terms is that Bitcoin is a hard currency. And remember, hard means difficult and inelastic. Today Bitcoin is trading as an asset backed only by the speculation that eventually it will be sufficiently accepted and adopted as a medium of exchange. Let's be clear about this. Today Bitcoin is not widely (or sufficiently) accepted and adopted as a medium of exchange. Today it is a speculative asset backed by nothing more than being a neat idea mixed with a little misguided hope and speculation. As strictly a medium of exchange, today, Bitcoin is redundant and superfluous.

Wejn,

I'm sorry I have offended your sensibilities in some way. I believe you said you have no stake in Bitcoin, so I'm curious what it is then. I think I get Bitcoin enough to see some big flaws, and I think Rawdog does too. And I also think that some of the things you call inherent benefits are actually major flaws. I understand roughly how the coins come into existence, how they cannot be faked or counterfeited, how transactions are verified and secured in a decentralized way. I can even imagine how this may be a model for some untethered digital currency far in the future. But I doubt Bitcoin will be it, because it is a hard currency, and that's not what we want as a society.

Perhaps someday there will be a crypto-currency that is decentralized but not hard. That could work well with Freegold, but it is unlikely to ever be adopted unless we called it a dollar or a euro. Bitcoin will not be adopted because it is hard. If you could make it into an easy money (unrestricted in volume), get the dollar to coopt it as its new base, then you might be on your way to the likely adoption of a digital, untethered, decentralized crypto-currency.

But then it's still lacking that physicality that we, as a society, demand. When things start to go bad, we like our physical cash. We want that physical fallback, in case things go bad. I don't need to be a computer scientist to understand these things. And I don't need to embrace a concept or be an activist to understand it is simply a part of the reality in which we live.

We, as a society, like the physicality of our base money, whether we realize it or not. We also like having a central authority in charge of it. For example, if your house burned down and you had a shoebox with $500,000 cash in it, you can take the ashes to your local Fed and if they can verify your claim in the ashes, they'll reimburse you with brand new cash. They do this all the time. I used to know someone that worked in that particular capacity. There are many other benefits as well, to both the physicality of base money and the centralization of an authority that can print and manage that base money, and in some cases reverse the effects of loss through theft or other causes.

It is my contention that all the problems that emerge in this type of centralized system that we have today, are rooted in the fact that we save in the same units we transact in. In other words, it's our own fault, all the problems. By saving in financial products denominated in that same unit, we lend precious support to those that would abuse their control over it to gain advantage. It is my contention that all those problems are actually only mere symptoms of the disease, and not the disease itself. And yes, those problems are cut off at the root with Freegold. Freegold doesn't so much stop the bad printing as it simply renders it useless, or at least self-defeating.

I know we (in our precious metals online community) complain a lot about central planning. But I think, as a society, we do demand it. I don't personally, but I can recognize that "we" do (can you see the difference?). Of course central planning is often wrong, it is stupid by design (see here) and it always blows up, and in the end, as savers, we hate it when it blows up. We think it would be much better if we just had a totally free market system whereby no powerful entity could meddle in our business. I agree. But as a society, as a tribe, that's not what we want. We want a powerful central figure we can run to and complain, and to point the finger at when things go bad. We don't want to be all on our own like allinvain.

So what we (savers) actually need is a monetary refuge from the bad effects of that which the tribe demands. And this refuge, physical gold, is actually decentralized, private and anonymous just like Bitcoin. And it is enacted in a decentralized manner, by the choice of the saver. And I believe that in choosing to save in gold, we'll remove the exorbitant privilege that we've always in the past given to that central figure.

In the same way that Real Bills are non-inflationary, so is good credit. Bad credit is inflationary and frivolous government spending leads to systemic malinvestment. But Freegold will expose both of those for what they are. The price of gold will rise if the banks engage in bad credit or the government gets out of control. And when things go bad, the savers will be automatically protected from the political effort to socialize the losses (which always begins as soon as big losses happen). There will be a healthy competition between the paper realm and the physical realm (gold) to attract our savings. Our savings will only go into the paper realm if it is being respected by the central figure.

But for the transactional currency, we actually want exactly what we have right now. A physical monetary base that can be produced by only one entity (preferably in a transparent way, more like the ECB than the Fed) and a credit system that is capable of both healthy expansion and contraction.

In other words, I think Bitcoin tackles the wrong problems. It's like a doctor that sees only the symptoms and doesn't understand the disease. And even though it treats a few of the symptoms quite elegantly, I don't think that this is what we as a society want in our transactional currency. So I don't think it will ever be sufficiently adopted in that role, or the other. You don't have to like a particular outcome in order to see it. And if you are an activist promoting some change that's not very likely in the absence of your activism, you may be hanging out at the wrong blog.

Why is Bitcoin like a Ponzi or a pyramid? For the same reason gold is not. See Moldbug's tank analogy above. Most Ponzi schemes do not begin with the intention of being a Ponzi scheme. Some do. But most are just misguided strategies that get out of control and end in a stampede to cash out. I believe this may have even been the case with Bernie Madoff.

Wejn, I'm not engaging the merits of a crypto-currency here. I get it. It's a pretty cool idea if you could make one that was "easy money" rather than hard money like Bitcoin did, and just let it be the medium of exchange (SoV on short timelines). But I still think it fails to monetize in our lifetimes for a number of reasons.

This gets a bit deep, but the concept of money is just that, a concept. It is almost literally just a word that we know and relate to money. Dollars. When I write a check for $28 at the grocery store and take $28 worth of food home, no actual dollars will ever change hands between me and the store. This is the way it has ALWAYS been. I didn't get that until I had read the Gold Trail at least three times.

We think in terms of dollars, therefore dollars are our money. This is the Misean Regression I discussed in The Return to Honest Money. The most likely path for Bitcoin to monetize would be for a major global meltdown to wipe out the present concept of money. In other words, to wipe out the shared knowledge of price ratios between all real things. Then a barter good like gold would begin to rebuild this knowledge base from the ground up, and if Bitcoin became the symbolic currency valued by gold holders for its qualities, it could then establish a reliable and stable Bitcoin-gold market.

But you can't just shoehorn a new symbolic currency into a failed paradigm and expect it to be adopted and fix the paradigm. It simply doesn't work that way, hope, speculation and neat ideas notwithstanding. You can't just look at Bitcoin through the dollar lens and describe how it's better than the dollar. It's not about that. It's not about Bitcoin versus the dollar. It's about Bitcoin versus the next in line after the dollar. And in this case there are two new competitors, each specializing in separated parts of the money function.

Bitcoin obviously capitalizes on the crisis that the dollar now faces. And as I just pointed out, if the collapse was bad enough that the knowledge base of price ratios was wiped out, Bitcoin could then compete with other currencies to establish a new regressive link to gold or even silver. But oh my, what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring that would have set us back to having to reestablish a fresh barter link? Hmm, maybe that's why the second most widely used medium of exchange in the world today was created based on its fundamental regressive link with the barter money par excellence?

The way I see it, Wejn, this young kid named Bitcoin that is trying to be a hard money doesn't stand a chance at monetization. And I don't need to fully understand the algorithms or encryption to judge the concept. I can stipulate that the encryption is really cool and bleeding edge stuff like you say, and still reject the concept on common sense grounds.

As for the douche in the videos, I actually like him in those videos. I think he is hilarious, and so do some of the other FOFOA regulars (ones that have emailed me rather than posting comments like Texan). I even got a couple donations for this post. So rather than gasping that old online insult: "wow, just wow," maybe contemplate why you don't like him if you truly don't have a stake in Bitcoin. There's a line at the beginning of the fifth video that pretty much encapsulates why I put up this post:

"First of all, a lot of people have been saying that I've been too harsh, and mean and hateful to people that are just trying to come up with a new idea. Maybe so. But if my harshness and my meanness and my hatefulness will stop one person from getting scammed into this, then it's all worthwhile."

I just put up a very simple poll. It's at the bottom of the sidebar. It reads:

Target price for Bitcoin = $0

You can all click on agree or disagree.

People have been emailing me for almost a year now asking what I think of Bitcoin. Well, thanks to this hacker story I finally took a good look at it, and now you all know what I think! ;)

Sincerely,
FOFOA



Update:

106 comments:

d2thdr said...

The beast has been laid to rest. If there is no internet tomorrow, there wont be any bitcon.

Wejn said...

Subscribing comments.

Btw, fofoa, I also think you "nailed" it with this comment.

I will get more specific a bit later.

Wejn said...

FOFOA,

Looking at my comment from few hours worth of distance makes me blush. I came across more crude than I intended. For that I apologize.

As for offending my sensibilities: well, I generally enjoy your posts (and look up to you). So I was shocked you'd give platform to someone using bullshit and conspiracy theories to attack bitcoin. I'd say your style is using logic and reasoning.

Now, having read your last comment is again the breath of fresh air typical to your blogposts. And I'm saying this even though I don't get some of your arguments in their entirety.

Therefore I hope I've shown it's not exactly bitcoin itself that was so dear to me (to get me all indignant). Yay.

As for why I don't like Rawdog's videos: I would really like to know the reason myself. Because often times it's rooted in something I don't like about myself. I'm just unsure what is it in this instance...

Blondie said...

Wejn,

FWIW, I couldn't warm to Rawdog either.

Contrast all that shrieking with the calm, clear logic of the linked Richard Maybury video. Gotta give respect to get respect.

DP said...

I love Bowie, such a manly figure! :)

DP said...

We have lost nothing
Keep that thought firm in your mind
When you look but you don't find what you can offer
We have lost nothing
I keep that thought firm in my mind
When I look but I don't find what I can offer
I don't always know what it is you mean to show
But I keep it close to mine and we discover

Ash said...

Completely OT, but for those interested in a bit of morning "inspiration"...

The Post-Peak Rapture

Oh, and I use the word "inspiration" very loosely, as I understand most here don't need it.

re: FOFOA's post on Bitcoins

Excellent summary of why it won't work!

Ash said...

BTW, @ MF and others:

Part V of my series is taking awhile to be published, although it's finished (and relatively quite short). Given the onslaught of financial news over the week, TAE has had to focus on that. And a post of mine is going up there today, because it is a bit more time-sensitive (re: Bill Gross and "Operation Twist 2")

So I apologize for that delay, but I'm guessing it will go up early next week.

/SleepingVillage/ said...

Bitcoin = Shitcoin :)

We need a nice "Free~at" currency to go with Freegold. While similar to Fiat, it inherently carries a new and evolved nature. You can call it a dollar or a euro, but it will be different than it is now by having freegold as the medium for savings. Paper and digital bits for spending only.

Would it have a different psychological effect on a population that distrusts pure fiat money? Would we even need to make any sort of distinction once gold is free?

Phaedros said...

"How about when Nakamoto's share is at $50 million? Will he still hold firm to his Anarchist convictions? How about $100 million? At what point do you think he will sell out for that other competing currency that buys jets and cars and cool stuff? "

So what if he does sell it? Then, someone else, or a few others, will hold those bitcoins. That's not much of a worry there.

"What you want in a medium of exchange (and yes, in a store of value too) is stability and potential permanence. I think this guy at least gets that concept. But since perfect stability in both (MoE & SoV) is impossible in the real world, the perfect solution for the world we actually live in today is a non-hard currency that declines slowly in value with a counterbalancing wealth reserve that slowly rises in value."

What? This is absolutely absurd and a myth. Where do you get off saying stuff like this, especially that last part? Money is not a store of value, never was meant to be. It's a medium of exchange. The only reason that it can hold value, at least for a certain period of time, is that confidence in it as a medium of exchange persists over time. Please show us why we need a currency that declines in value and one that increases in value? Or is it simply so that you have something to invest in?

mr pinnion said...

Soz, off topic, but gold article on zero hedge.Game changer?
Regards
Ozzy

Crack said...

You dont get out much do ya?

Print out some non-shitcon articles an take em back under that rock

Neverfox said...

@FOFOA

So it sounds like supporting (investing in or working for) Bitcoin is more about taking an activist role in an anarchist revolution against the government and the fat cat bankers than it is about finding the best way to protect your savings, amirite?

Yes and I believe I said so explicitly at least a few times.

Thanks for taking the time to go in depth. I actually agree with most of what you say here and, if you look through my comments, you'll see that I still favor gold (in the Freegold sense), that I don't like the dual-role/deflationary aspect of Bitcoin, and that I've never stated it would be a sure winner. I think I was fairly consistent in those things, even while being positive (and intolerant of what I see as just bad arguments). What I do like is the spirit, innovation and awareness it seems to be driving, before anything.

I'll be thinking about your analysis in the meantime. This is actually exactly what I've been looking for and I'm glad you went back to your thorough style.

P.S.
Have you had a chance to check out that series of articles I posted in my first comment of Part 1?

sackot said...

@FOFOA

I'd appreciate it if you could explain in different words why "the tank, I think, will pop" (either for silver, or bitcoins). I'm no economist, and can't quite follow the reasoning. It seems to me equivalent to the people who say that gold could never take on the role you label Freegold, because it would have to go to $50,000, which could clearly never happen. Why could it never happen? Gold is divisible, silver is divisible, and so are bitcoins.

I'm with Wejn on the silly clown in the videos. I've only known about bitcoins for one week, and now own, oh, 0.003something bitcoins, whereas my gold position is more substantial, so I don't think it has anything at all to do with what I have a stake in. I don't like people who mock what they don't understand, and I despair at the ones who don't know how much they don't know. The clown combines both those to perfection.

Sackot.

The Doc said...

Instead of Bitcoin, why don't we channel our forces and get the masses into physical gold and silver??
Join the Silver Viral Project- lets take Silver Viral!

http://silverdoctors.blogspot.com/2011/06/silver-viral-project-guidebook.html

Ramon said...

@ sackot:

Imagine two inflated balloons, one larger than the other and connected to each other through a piece of tubing.

If you were to squeeze the larger of the two, the smaller would expand in order to accommodate the increased volume of air being pushed into it. Of course, the larger balloon wouldn't have to deflate nearly as much as the smaller would have to inflate if it were to take on a large volume from the big balloon.

Without any way of relieving the excess volume, the smaller balloon will catastrophically rupture. I view Bitcoin "mining" as that relief valve, but it is a somewhat static element and may not be sufficient to offload enough during a large enough inflow.

If that were to happen with the nascent Bitcoin environment, the stigma that would be associated with such forms of currency could set them back quite a ways. The early adopters would be burned and traditional investors afraid to even utter the name Bitcoin.

Consider how long it has taken internet-based companies to come back into the limelight after 2001. Recovery time with Bitcoin after such a collapse is an as-yet unknown element.

Bitcoin does have very desirable attributes and is a truly pure abstract currency; my view is that this type of electronic model would be a wonderful complement to Freegold. It's good to note the dangers, though.

Ramon said...

@ sackot:

Addendum: take the larger of the balloons to be much larger, by at least an order of magnitude.

Motley Fool said...

Hiya Neverfox

I know my statement without backing was a tad rude. :P

Please read the following attentively and then share your thoughts.

http://blogs.fin24.com/Motley.Fool/the-nature-of-government

Sincerely

TF

DP said...

^
I'm with Fool

FOFOA said...

Hello Neverfox,

I just read your friend's three posts. As always seems to be the case, deflationists and/or Marxists and/or Post Keynesians inadvertently make the case for dollar hyperinflation and Freegold whilst trying to argue against it. No surprise there (to me anyway). But with so many different angles from which to approach these particular posts, I'm not really sure where to begin, and I'm not convinced they are worth the effort that I put into my posts.

So I'll make you a deal. You ask me a few *specific* questions about his posts for which you would like my opinion, and I will reply. And I also welcome any of the other readers to chime in with their responses to your questions as well. This will be a nice exercise in pseudonymous, decentralized, open-source responding!

Also, please include the actual text from his posts that you reference in your questions, for the benefit of my readers that don't care to go read 12 pages of Marxist theories about value and "the problems of capitalism" (his words). This should be fun, and if it turns out to be worthwhile, we'll even make it into a post!

Sincerely,
FOFOA

Jeff Herron said...

Just ran across this on ZeroHedge:

http://feedproxy.google.com/~r/zerohedge/feed/~3/RSicg9CSUWk/forget-blood-diamonds-here-comes-conflict-gold

The next development toward Freegold/RPG?

Casper said...

Maybe this is what mr pinnion was trying to point out earlier...

http://www.zerohedge.com/article/trading-over-counter-gold-and-silver-be-illegal-beginning-july-15

Can someone confirm that "trading paper gold/silver" is going to be halted, but there's no limit if you wanna buy "physical gold/silver"

Is this like the USG doing the reverse FDR? (advocating holding physical?!)

Casper

JR said...

MF and DP,

I love you guys, but please stop your embarrassing yourself and trolling it up with utter ignorance. You simply haven't a clue what you are talking about. You obviously have no idea about the depth of brilliance and scholarship in this area. I enjoy your guys immensely, but few things irritate me as much as ignorant hating.

Here's a some food for thought:

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”

Just as we have all grown in our understanding of economics through our humble host, such that we can all look back and now see how much we didn't know, so to it is for other areas.

Lets just not go there. This blog is not the place. If you're really into it, and like randian thoughts, perhaps you could get into the "JARS" (http://aynrandstudies.com/jars/index.asp). Its edited in part by one of the most brilliant writers out there an a/the leading market anarchist philospher, RL. Go start as his blog, aaeblog, and at the related parent organization, the molinari institute.

Sorry this was harsh.

Cheers, J.R.

JR said...

Hi Neverfox,

As a daily reader of Roderick, Charles, Sheldon and Brad's army, among many others, it warms my heart to see the rare fellow with exposure to and some appreciation for market anarchism.

Molinari, Proudhon (:-o), early Spencer, Tucker, Spooner, SEK3, etc. No need to confuse this rich tradition of individual anarchist thought with silly Marxism as is the pulpy, popular way of dismissing things. Bakunin dismissed that political theory nonsense long ago, and Bohm-Bawerk destroyed the economics (Saffra wasted his career trying to straw man BB and resurrect Marx, and while he obviously failed miserably, he did give us the petty enjoyment of spawning clowns like Steve Keen).

Its hard enough with so much conflationism, be it vulgar libertarianism or vulgar liberalism, and with jokers like the trojan "statist" horse that is Chomsky’s Augustinian Anarchism masquerading about as "American's best know (sic) anarchist"!!

No need to drag things down into the muck with marxist appeals to rubian intellects. Your obviously smart enough to see the absurdity if your willing to invest a little time.

+++++++++++++++

re: bitcoin and your anarchist advocacy, you couldn't be more wrong.

AS a LL I'm sure you recognize and understand that anarchism can arrive only gradually, as the result of changes in the ideological hegemony, institutional changes, and the creation of alternative institutions.

I'm an agorist, but the collapse of the state is not anarchy. That's a failed state. We don't want a failed state, we want anarchy. Its not about weakening the state via an alternative currency like bitcoin, that line of thought gets you nowhere but to a mess that gets blamed on anarchy (look at all the tards who go blaming Somalia on anarchy when its a failed state, ala http://c4ss.org/content/1201). Bottom line, the ideological jawboning over the relative degree of statism involved in current economics discussion wholly misses the point.

Its about knowledge. Anarchy happens because people want it. Help spread the knowledge. Maybe a little less advocacy (bitcoin is not the way to anarchy, its the way to destroy anarchy by lumping it in with ideologically fueled, fundamentally flawed and utterly ignorant economics) and a little more reading. Citing Marx tells me you have a long, long way to go.

Enjoy the ride, its a pleasant if not short one J.R.

sackot said...

@Ramon

"Without any way of relieving the excess volume, the smaller balloon will catastrophically rupture. I view Bitcoin "mining" as that relief valve, but it is a somewhat static element and may not be sufficient to offload enough during a large enough inflow."


Thanks for the comment. I'm supposing that how we regard the probable gyrations of Bitcoin value depends upon what we are asking it to do for us. The Bitcoin is sufficiently divisible, and enough of the 21 million already exist, that I don't see any technical reason why it can't take the pressure, so it's just a matter of how the users feel about it.

My initial reaction on reading the Bitcoin literature was that it was the perfect partner to Freegold as a MoE (and I see that FOFOA does not think that). During any transition to such a system, its value in terms of either gold or fiat will not be stable. That only matters if you try to use it also as SoV. The adopters who would make it viable would be online retailers, and if they wish during any transition to value things in more stable fiat currencies, they should easily be able to do so. The same applies to retailers selling gold coins: their shopping system has to update according to spot, they don't just throw up their hands and say "we just can't sell coins, their value keeps changing". At the end of any such transition, national fiat currencies would have withered, but in an exact mirror, Bitcoin would have become stable.

I certainly agree that the pre-programmed rise in the quantity of Bitcoin is unlikely to match the trajectory of Bitcoin uptake. The objection that this will cause massive deflation again only matters if you try to use it as SoV, hence the Freegold/Bitcoin perfect partnership.

I think I can hear FOFOA or others at this point saying "but we've already got fiat currencies perfectly adequate the the MoE task, why would Bitcoin be any better?" Well, let me count the ways--or maybe not, I'd be here all day. One observation, though. The world looks different to people living on a large continent and operating the reserve currency. Here in Europe we've long been used to operating in multiple currencies, and to being taken to the cleaners by banks and payment services. The appeal of an online, P2P, cash equivalent may be much more apparent to people from this background. Another group who will see the advantage with no explanation required are migrant workers wishing to remit part of their wages to families back home. Western Union is another rip-off service. I think it's no coincidence that the only non-USD currencies so far offered by a recent US-based Bitcoin exchange are all Latin American.

Sackot.

Ash said...

"Its about knowledge. Anarchy happens because people want it. Help spread the knowledge. Maybe a little less advocacy (bitcoin is not the way to anarchy, its the way to destroy anarchy by lumping it in with ideologically fueled, fundamentally flawed and utterly ignorant economics) and a little more reading. Citing Marx tells me you have a long, long way to go."

JR, if you had the slightest understanding of complex systems theory and/or the historical evolution of the human species on Earth, you would also conveniently understand why your statement is nonsense. What do people want, again? To be convinced that you are the economic reincarnation of Christ, born to instill market anarchism into the fabric of the Universe? A little more reading, indeed.

DP said...

@JR - harsh away my friend!
Sincere words are not pretty.
Pretty words are not sincere. :-)

For me, any steer coming from you is a steer I wish to take seriously. So I'm sure I'll enjoy delving into your recommended reading in due course to see what's new in the world for me.

... I don't always know what it is you mean to show
But I keep it close to mine and we discover
...


Sincerely,

DP :-)

Terry said...

DP said:
"So I'm sure I'll enjoy delving into your recommended reading in due course to see what's new in the world for me."

If you are looking for a good read you might try 'Lost Secrets of the Sacred Ark" by Laurence Gardner. After that, you might try all of Zachariah Sitchin's books. Then back to Gardner's Genesis of the Grail Kings. After completing those, you will understand the true nature of gold. Then you can help me understand them :-)

Vasile said...

About "Satoshi cashing out when/if the BTC/USD ratio reaches 1000:1" argument.

My understanding is that when/if such a ratio is reached, "caching out of bitcoins" will not be necessary, as there will be a lot more options to spend your bitcoins.

You already can buy pizza and jewellery with bitcoins, and if 95% of all goods will be available for bitcoins what will be the point of "caching out"?

TL:DR version, not worried, not worried at all. It would be like "caching out" of dollars to soviet roubles, during the summer of 1991 because the exchange ratio was never that high.

The major worry is merchants not embracing bitcoins.

mortymer said...

And here there is A.Fekete with new one:
"THE MARGINAL UTILITY OF SILVER"
http://www.professorfekete.com/articles%5CAEFTheMarginalUtilityOfSilver.pdf
(Sorry if this was already linked, have not had time to check latest posts)

DP said...

Sorry, Terry... :)

Jeff said...

The 'gold trading outlawed on forex' story seems a non-issue. It appears some rules are being changed/games being played in the spec paper casino (have you ever bought physical gold in a forex account?). Those rule changes will be enforced by the banker-captured regulators. Carry on.

Indenture said...

Happy Father's Day Everyone :)

Vasile: "if 95% of all goods will be available for bitcoins what will be the point of "caching out?" Love the word will. You mean when Amazon.com accepts Bitcoins. I wonder what the odds of that are?

Robert LeRoy Parker said...

More hacking problems with bitcoin.

Link

mr pinnion said...

@JR

" I enjoy your guys immensely, but few things irritate me as much as ignorant hating."

Surely you mean disagreeing?

Few things irritate me more than people who call other people 'haters' , just because they disagree with their opinion.
The same aplies to the word 'denier'.
'hater' implies the the opposing opinion is not born from logical thought , but irrasional hatred.
In my opinion it is a cheap insult usually made by the loosing argument.Which is why i dont need to bother reading those 12 pages, because i hate Marx, allways have.

@casper
Thanks. It was the link.
I was in a hurry and wanted to throw that in the comments in the hope that when i got back someone would have posted an idiots guide to how it would effect the price/value of physical gold.

Regards
Ozzy

Vasile said...

@Indenture

Yes, Amazon/Barnes-Noble, and Ford/Toyota accepting bitcoins and paying authors/subcontractors with bitcoins is the real problem.

But if it does not happen, the price of Bitcon will never be in the $1000+ range.


Slightly unrelated to the topic, but since you mentioned Amazon... Authors selling e-books directly for bitcoins, can be bad news Amazon.

Ramon said...

@ Robert LeRoy Parker:

It appears to be an issue with the Mt. Gox exchange and possibly individual user security practices rather than a problem with the Bitcoin system itself.

These kind of issues will no doubt be fairly prevalent during the maturation infrastructure surrounding Bitcoin (currency exchanges, wallet management, etc).


@ FOFOA:

A lot of reading since your last comment in part 2; I felt it necessary to revisit Freegold prior to responding in full. Correct me if I'm wrong; the difference between the gold certificate ratio described by Jim Sinclair and Freegold seems to be semantic.

I'm fond of the saying: "Fix the problem, not the blame." I hope that readers understand these discussions aren't over who's right. Instead, point counter-point is a way to advance understanding and explore ideas.

On a continuum, I suspect the outspoken advocates and probably majority of participants are heavily biased in the activist/anarchist direction. My own views aside, if I didn't see genuine potential in the technology underlying Bitcoin and the manner in which the system is designed, I'd be much more reserved about it. What I think is most relevant is that I keep an eye open for things that will loosen the mankind-imposed authoritative noose in a practical manner.

If I am to make use of a tool that will provide some element of relief from the restrictive yoke of government, I also want the tool to remain viable, stable and robust. There is safety, as well as strength, in numbers. In that sense, Bitcoin is the closest to precious metals I've seen so far. Granted, the recent volatility needs to be watched. What we give up to be part of the network and related systems is another debate.

A possible solution that could provide the compromise between easy and hard money that you've alluded to being necessary:

The current Bitcoin hard limit is set at 21 million units with 6 additional orders of magnitude available with revisions (reserving 2 orders of magnitude for 1/100th unit division as with cents; effectively 8 digits total).

A dynamically-set current system unit volume determined by statistical calculations based on select variables (possibly transactional volume, acceleration of aggregate participation from past period token generation, etc) would not add much processing overhead. This would allow for the system to automatically adjust the total Bitcoins available, again relying on the same mutual consensus pattern that verifies transactions.

The general concept is fairly simple; details might introduce some complexity. Implementation isn't trivial, but nowhere near impossible. Making adjustments to the system now can mitigate the monetization complication explained by Moldbug.

"An ounce of prevention is worth a pound of cure."

Your thoughts?

Texan said...

JR,

Sorry, but what exactly are you talking about in terms of "anarchy"?

If it comes to pass, will someone still collect my garbage twice a week?

And will Domino's still deliver in 30 minutes or less?

Indenture said...

RPL: Thanks! "The bitcoin will be back to around 17.5$/BTC after we rollback all trades that have happened after the huge Bitcoin sale that happened on June 20th near 3:00am (JST).

Does anyone else have a problem with the concept of "rolling back all trades"? That doesn't sound like a confidence boost for users!

FOFOA said...

Hello Ramon,

Breaching the decimal point should not be viewed as an expansion in volume. It is only an expansion in value. And in that sense, it must compete with other stores of value for the focal point prize if the decimal is breached. Your "6 additional orders of magnitude" do not act as a deflator, just the opposite. So while they help it in the SoV role they do nothing for the MoE role on which Bitcoin's SoV role is predicated.

Remember from my "Big Gap in Understanding..." post that fiat currency operates "like a tug-of-war. The printer controls supply and the marketplace controls demand. When demand for a currency spikes its price, the printer just eases his grip on the rope, releases more rope and the whole demand side just falls on its butt.

"...With a fiat currency, this is the way it works. No matter how hard demand pulls, if the printer doesn't want the price of the currency to spike all he has to do is release more rope. It's his ace in the hole. He can always send the marketplace to its butt. The printer is firmly in control of the supply side.

"But in the same way that the marketplace has no control over the supply side, the printer is powerless on the demand side."

With Bitcoin you have mechanized the supply side and ultimately limited it to 21 million units. Subdividing those units is not the same thing as adding more units. It is quite the opposite.

Now let's look at Another's quote that I used in that post substituting in Bitcoin for paper:

"Know this, "the miners/developers of Bitcoins do never tell the owner that the Bitcoin has no intrinsic value, that judgment is reserved for the person you offer that currency to"!

"So it is the receiver of currency—not the giver—that determines its value. That's the power of demand. And what do you think happens to the printer when the demand side drops the rope?"

So Bitcoin is an inherently deflationary currency dependent on the amount of demand for a deflationary currency from "the people you offer that currency to." Deflationary means the value of the currency will mostly be rising, not stable. How much demand do you think there is for a deflationary transactional currency in the real world?

(cont)

FOFOA said...

2/2

Hayek wrote that it is the job of the currency issuer "to control the quantity even of a token money in such a manner as to keep its value constant." He was being critical of governments that were creating currency willy-nilly to try and fight economic woes like unemployment. This is not the proper role/goal of a currency manager, fighting unemployment. The only correct role of a currency manager is keeping the value constant. And for this reason, Hayek wrote that gold, because it is inherently deflationary (just like Bitcoin) is "very unsuitable as money," but makes a very good investment:

"It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power." Link

But here's the problem with Bitcoin -- it is only a good investment if it will ultimately be monetized. Otherwise it is nothing more than a speculative bubble, which leads me to my target price. How long that bubble can last is anyone's guess, but I would be looking out for a chart that seems to be going parabolic as a good time to get out. Anyone who's looking for my Orbital Launch Pattern aka the "inverted waterfall effect" in their Bitcoin TA does not understand currency theory IMVHO.

Sincerely,
FOFOA

Ramon said...

@ FOFOA:

"Breaching the decimal point should not be viewed as an expansion in volume."

I appreciate the reply. Yes, it's essentially a stock split, so the current holders simply have increased granularity while there is no increase in participation or actual value delta on an aggregate basis. I saw that as a simulated inflation and did consider it an odd method of providing inflation attributes, but thought it might be good to have an expiration built in for an unproven form of currency (even if that expiration might take multiple decades to reach should it catch on).

When the 6-8 decimal place usage is exhausted, real deflation would indeed be incurred and continue unabated without a systemic adjustment. This could be visualized as a ratchet that eventually seizes up, or kind of like the debt clock in NYC that now uses the $ position as an extra digit.

What I proposed earlier boils down to a secondary stock offering (internal and dynamically-generated). That actually creates additional units and subsequent real inflation within the system. Upon experiencing a major devaluation, it is possible to generate what would amount to a reverse stock split which also does not change ownership levels. At another programmatically-determined threshold, a 2 for 1 recombination could be performed internally.

There are a number of statistical analysis methods that can be used to evaluate the system's internal structure. One way would be to track the ratio of Bitcoins to gold. Another could make use of internal volume flow rates, or multiple methods could confirm one another before triggering the threshold.

End result: effectively infinite rope is available and when it goes slack, the system will pull it taught. The described rope tension should remain intact within a range, affording both flexibility and relative stability without direct human intervention (central banks and the like).

Technical feasibility is not the question, just the will to implement it. I am curious as to whether you agree with my assessment that this would correct the deficiencies in the existing Bitcoin system.

Robert Mix said...

Looks like Bitcoins is nearing the end of its "15 Minutes of Fame" (like Prechter will when paper gold goes to $400).

I am glad that I did not put any money nor any significant time into Bitcoins when the subject went viral perhaps a week or so ago.

I liked Rawdog... He almost certainly saved at least one person from going down that trail (me!) only to lose money or waste of time.

I voted $0.

Beanie said...
This comment has been removed by the author.
Hagbard said...

I voted "Agree" because it was the closest to saying "The question does not make sense". It's like asking whether "1 ballistic missile = 100 cataphractarii". Or, rather, "1 fish = 17 nails". Bitcoin and a centrally run currency cannot coexist - the purpose of each is not to complement, but to supersede the other.

Motley Fool said...

Hey JR

To start with, it wasn't my intent to hijack the thread. I simply provided a link( in a open forum, no less) to what I have found to be the most logical position yet, to redirect the OT discussion there. If our gracious host has any issues with that, I will cease and desist immediately.

As to your second charge, ignorance… I have spent a lot of time trying to find a valid critique of her political philosophy. All I managed to find was various forms of character assassination. If you have links for good critiques I would be much obliged. I will check out the links provided.

In simplest terms, I like anarchism (which I understand to be the complete absence of government), but I think that the retaliatory use of force should not be placed in the individuals' hands. If you know of any valid argument that refutes that position, please do share.

It is my opinion that anarchists throw out the baby with the bathwater. Granted at present the bath is freaking huge and it's easy to miss the baby. :P

As to your last charge, being hateful… What? Lmao.

Lastly, I am not embarrassed by ignorance; I find it is a great way to learn. Once again, be so kind as to point me in the right direction. :)

Peace

The Fool

FOFOA said...

Hello Ramon,

Anyone can issue a novelty currency. I'm thinking about those orange tickets I used to "mine" on the skeeball machines at the arcade. That was a true novelty currency, but it wasn't a purely symbolic currency because it was actually backed by the issuer with toys in his display case.

Unless you are a government, your purely symbolic currency will never be money unless and until other people actually start thinking, knowing and remembering prices denominated in your currency. This is quite a hurdle. In fact, I don't think it has ever been achieved with a private, unbacked (by the issuer) currency. And until it is, my money is on that it's impossible.

In my comment/post I wrote:

"This gets a bit deep, but the concept of money is just that, a concept. It is almost literally just a word that we know and relate to money. Dollars. When I write a check for $28 at the grocery store and take $28 worth of food home, no actual dollars will ever change hands between me and the store. This is the way it has ALWAYS been. I didn't get that until I had read the Gold Trail at least three times."

You wrote: "End result: effectively infinite rope is available and when it goes slack, the system will pull it taught."

When you write "effectively infinite," is your meaning like saying gold is infinitely divisible, so if we really wanted to, we could theoretically use physical gold atoms as all the money the world would ever need? Or do you mean "effectively infinite" as in the dollar is effectively infinite just like the Zimbabwe dollar proved to be?

Can you see that the former is deflationary while the latter is inflationary? Or are you proposing an algorithmic programmatically-determined hash-encrypted combination of the two? That a Bitcoin is not only divisible one hundred million times like gold, but then it can also be reproduced infinitely like the dollar? Do you think this is a good combination of properties in a private monetary candidate?

In your "Bitcoin money world" are you imagining that an actual Bitcoin will change hands in each and every transaction? In other words, that the monetary base (all Bitcoins that have ever been mined) would be the entire transactional money supply?

Or rather, are you imagining that a Bitcoin as a specific remembered value will become the numeraire, the basic standard by which we measure (and remember) the worth of different goods and services relative to one another? And that banks would then issue credit denominated in Bitcoins and that credit (created out of thin air) would circulate as our money?

Do you think these two are compatible, or mutually exclusive in terms of the human money concept?

Let's compare Bitcoin to gold. In the former capacity (monetary base) Bitcoin would be analogous to "gold". In the latter capacity (numeraire) Bitcoin would be analogous to "Troy ounce". I can say I have a Troy ounce of gold. But I don't say I have a gold of gold, or a Troy ounce of Troy ounces, do I? So what do I say about Bitcoin? I can't say I have a Bitcoin of Bitcoins. Do I have a dollar's worth of Bitcoins? Do I have a Bitcoin of dollars? Do I have 10 sock's worth of Bitcoins? If you say you have one Bitcoin, I'll say I have one orange ticket. Which is more valuable? How do you know? What unit (thought, numeraire, money) are you using to make that judgment? There is actually a solid reason the dollar doesn't face this same dilemma. Do you know what it is?

Sincerely,
FOFOA

JR said...

FOFOA writes above:

"...It is my contention that all the problems that emerge in this type of centralized system that we have today, are rooted in the fact that we save in the same units we transact in. In other words, it's our own fault, all the problems. By saving in financial products denominated in that same unit, we lend precious support to those that would abuse their control over it to gain advantage. It is my contention that all those problems are actually only mere symptoms of the disease, and not the disease itself. And yes, those problems are cut off at the root with Freegold. Freegold doesn't so much stop the bad printing as it simply renders it useless, or at least self-defeating.

I know we (in our precious metals online community) complain a lot about central planning. But I think, as a society, we do demand it. I don't personally, but I can recognize that "we" do (can you see the difference?). Of course central planning is often wrong, it is stupid by design (see here) and it always blows up, and in the end, as savers, we hate it when it blows up. We think it would be much better if we just had a totally free market system whereby no powerful entity could meddle in our business. I agree. But as a society, as a tribe, that's not what we want. We want a powerful central figure we can run to and complain, and to point the finger at when things go bad. We don't want to be all on our own like allinvain...."

Dante_Eu said...

I am not as sophisticated as others here so this is my chicken brain's attempt to see if BitCoin is a good alternative.

1.As a store of value: Well good luck with pursuing Arabs to sell their oil for your BitCoin.
2.As a medium of exchange: Here is my ultimate test for any FIAT currency:
"If you can't wipe your ass with it, it ain't worth shit!"

Dollars, Euros, Swiss franc, etc I can use as toilet paper if needed. They pass the ultimate test. BitCoin on the other hand…well good luck with that…:-)

PS Glad to see rawdog on this blog. Hope to see his youtube nemesis also. The one and only: Randytooth!

Neverfox said...

@MF

I'll check it out. Thanks!

@FOFOA

"I just read your friend's three posts."

Great, but charley2u is not my friend. I have never met the person. It's just a blog I read (which no more makes me a Marxist then reading the Onion makes me a vegetable).

"So I'll make you a deal. You ask me a few *specific* questions about his posts for which you would like my opinion, and I will reply. And I also welcome any of the other readers to chime in with their responses to your questions as well. This will be a nice exercise in pseudonymous, decentralized, open-source responding!"

It may take me some time but thanks for the offer. I'll do my best to take you up on it. Should I just post them here or what?

@JR

As much as it's nice to come across another anarchist here and to receive some "encouragement," I found your reply to be pretty patronizing. It also reads, with its lists of the sacred and profane, like the worst kind of ideological closemindedness. Your rather insulting conclusion that I need to read more because somewhere sometime I might have made mention of Marx is, to borrow a phrase, a "straight Anarcho-Capitalist cliché -- hate on all things with even a faint whiff of Marxism, everywhere, as often as possible." Surely there are better ways to engage the world.

I'm also not sure where you got the idea that I was advocating for a failed state, in the sense that you mean it -- a rapid collapse of current safety nets such that there is a large degree of suffering. Besides perhaps begging a few of its own questions, I'll respond to it by quoting another friend of mine, Charles Johnson (whom you mention; I also personally know the other fellows you read daily and I can't bring myself to imagine that they wouldn't agree with me for the most part):

"I’m not a gradualist, but I’m not in the least bit interested about limited-statist party-building or political platforms, either. At the level of moral principle, I have a very simple approach to taxation, government welfare programs, regulation, etc. If I had a platform, it would be three words — Smash the State — and the programme I favor for implementing that is for each and every government program to be be abolished immediately, completely, and forever, whenever, wherever, in whatever order, and to whatever extent that we can, by hook, by crook, slingshot, canoe, wherever the political opportunity to do so presents itself. Political coercion is an evil against which it may sometimes be prudent to retreat, but with which there can be no negotiated compromise. (All such compromises, so-called, are really just conditional surrender.)

In other words, on the one hand, I am an ultra-immediatist, in the sense that I believe that everything’s got to go, and that libertarians and anarchists should make no bones about saying so; and, on the other, I also — unlike certain gradualist anarcho-statists like Noam Chomsky or Ursula K. LeGuin — am an ultra-incrementalist, in the sense that I don’t think that we ought to put our efforts to abolish anything on hold until we’ve somehow (how?) managed to abolish just about everything."


If bitcoin isn't an "alternative institution," what is it? And what is?

mortymer said...

@Costata: Any thoughts, comments to the latest from A.Fekete? I would love to hear your take. Thank you.

costata said...

Hi mortymer,

I have read the A. Fekete latest and I think he has lost his mind. Seriously.

DP said...

@costata: Awww man! now I have to add Fekete's article to my To Do list today, right after the new item "get popcorn". Between you and JR, and my sick 7-year-old, my day has now officially gone right off the rail! :-D

mortymer said...

@costata: I got through it last night but it was very late so I need to bite bit deeper to digest. Everyday there are surprises :o)
It seems to me as far as I remember reading his excellent work that he thought it could be Mexico to bring silver first to world monetary issues, now he thinks it could be China? Why the change? Could it be based on the latest info from BIS about Americas + following reports?
http://bis.org/events/ccaconf2011/home.htm

CHina, They can have whatever they want now if they spend slowly and wisely.

IMO The IMF tries to balance debtors and creditors is a headless attempt.

Btw: have you read this?
http://tinyurl.com/64m5ydb
(Zoellig speaks)

"MODERATOR: [Off microphone.]

QUESTION: Is it true, sir, that you are currently trying to influence the U.S. Congress to not support a non-American candidate for leader of the World Bank Group?

MR. ZOELLICK:Am I trying to influence--I'm sorry, the U.S. Congress--

QUESTION: To not to support--if there is not an American that is going to be--

MR. ZOELLICK:Well, right now, the IMF is the one that is open.

[Laughter.]

QUESTION: Yeah, but for next year.

MR. ZOELLICK:Well, that's--but the answer is, no, I'm not trying to influence it, but that will depend on what happens next year, and that's ultimately a decision for shareholders.

In fact, it’s a point I made in Brazil last week, what I've been trying to do across the World Bank Group is bring in more emerging market leaders as well as women at higher ranks, because I think one of the best things I can do for the Bank but also for eventual leadership is have people who are potential successors. So, if you actually look at the World Bank, the level right below the presidency is called "managing director." So, for the first time, the three Managing Directors are all from emerging market countries: One is a woman from Nigeria, one is a woman from Indonesia, and another is a man from Egypt, and our Chief Economist is from China.

Now, it is true that IFC, our private sector arm, is run by a European, a Swede, but I hope that doesn't disadvantage us too much."

[Mrt: so it seems that there are things boiling in IMF :o) based on comments from all different parts]

Indenture said...

Dante: Profanity is discouraged on this site but, lol, I really enjoyed your sentence. I can see FOFOA with his little orange ticket giving it the 'wipe test' and declaring, "This is not a symbolic currency".

webabuser said...

What just happened at MtGox revealed that a single user owned 500K BTC, that is about 8% of the 6.63 millions of currently existing bitcoins, so this person had quite some power to move the Bitcoin market as he pleased, while it remains a mistery how he acquired a such large sum (of course not by "mining").

http://webabuser.blogspot.com/2011/06/biggest-bitcoin-exchange-hacked-user.html

I've been quite enthusiastic about Bitcoins until I knew this. Too much advantages for "early adopters" to not smell, sound, and taste like a Ponzi.

DP said...

@JR, I don't really want to take this thread far off down the political argumentation cul de sac line either; as you said it's a long way from RGP and HI! But unfortunately your email isn't on your profile so I don't have another practical choice than this for the moment...

Would you say Wiki:Agorism is a fair summary of your point of view? (My email is on my profile, if you prefer? :-) )

Disclosure: I'm not looking to start a fight, just interested to better appreciate your pov now you've put it out there.

Cheers!

DP :-)

RogerW said...

"I have read the A. Fekete latest and I think he has lost his mind. Seriously."

Costata, you might be right. Reading the latest article, I thought I was reading 'Harry Potter meets Shaolin Monks'!!

Indenture said...

Well now I have to read Fekete's THE MARGINAL UTILITY OF SILVER

Indenture said...

The above link is a web site not a downloadable pdf so click away.

mortymer said...
This comment has been removed by the author.
Manoj Samanta said...

41% of gold held by Belgian central bank has been lent out - reports zerohedge.

mortymer said...

One link, latest about R.Mundell from my series:

http://anotherfreegoldblog.blogspot.com/2011/06/mundell-latest-about-freegold.html

Matt said...

Looks like the Mt Gox hack has just derailed bitcoin!

For what it's worth I am not too worried about the early adoptor problem - currently there is 6miliion coins in the market (with the originators having a high percentage of these) and another 12 million being mined gradually over the next 10 years. If bit coin did work out that would make the early adoptors very very rich but they must know that it won't work at all unless they encourage stability and a steady uptake of the coins. In this way, pure hoarding is self defeating.

Watched an interesting video by some tech guys who obviously have a lot of skin in the game discussing the new apps that are being created to make bitcoin just as usuable as any electronic payment system.

I'll be picking up some over the next few months i believe. Just a few on the side in the case of them being adopted in some way in the event of a hyperinflationary collapse of the worlds reserve currency. Stranger things have happened.

Joel said...

JR,
As a Libertarian I am always interested in the agorists/anarchists views, many of which I support. The stumbling block for me is this idea of security, as spelled out in DP's Wikilink:

"As the counter economy expands, it challenges the authority of the State, crippling its ability to operate. With the State's coercive monopoly undermined, the market is then able to generate the security services necessary to openly defend their clientele against coercive government as a criminal activity (with taxation being treated as theft, war being treated as mass murder, et cetera).

Joel said...

continued...

So I love the idea of crippling the state and undermining the coercive monopoly, but this idea of generating the "security necessary to defend against the state." Sounds like a noble cause, but what prevents that security force from getting too large and abusing it's power? As much as I hate big govt., I see the same (if not bigger) opportunities for unchecked abuse in the private sector (too much power in the hands of a few). So my question is, what do anarchists believe will be the check and balance on the new private systems?

Lomcvok said...

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)"

$1 Billion in Homeowner Aid Offered
Homeowners facing foreclosure can now tap into a $1 billion program of emergency loans to help tide them over a temporary financial crisis, the Department of Housing and Urban Development (HUD) has announced.

Interest-free federal loans offered to unemployed homeowners
"The US Department of Housing and Urban Development and the nonprofit NeighborWorks America said the program will provide hundreds of local borrowers with interest-free loans of up to $50,000 over a two-year period. In some cases, the money will not have to be paid back...."

Texan said...

Rhetorical question - can physical gold be hacked?

Joel, I see very little difference between "agorism" and "feudalism" in terms of the ultimate outcome. It's localized "strong man" rule.

Neverfox said...

@Joel

For some answers,and in the interest of not derailing this thread, please see here, here, and here. Hope that helps.

Neverfox said...

So my question is, what do anarchists believe will be the check and balance on the new private systems?

While those longer texts get into details, I think the best answer is shortest:

We will.

costata said...

Short read, off topic for this thread.

http://www.finextra.com/News/Fullstory.aspx?newsitemid=22675

"Thus far, all 64 Kuveyt Turk ATMs installed in Istanbul have been upgraded to offer 1 and 1.5 gram ingots of gold bullion as well as banknotes......"

"In the US, PMX Gold has set up a banking division with the aim of introducing gold dispensing ATMs nationide follow a pilot run at a shopping mall in Boca Raton, Florida, that saw $270,000.00 in gold sales dispensed through one machine in roughly two and one half months."

Ramon said...

@ FOFOA:

Cheers again.

Nothing to detract from anyone, I just like to always reiterate that my usage of the word Bitcoin as a catch-all for the entire categorization of purely abstract and decentralized forms of currency (Bitcoin, Open Transactions, Ripple, etc), distinct from the paper currencies we're familiar with; also irrespective of whichever one eventually might "stick".


"Anyone can issue a novelty currency."

Of course. The question is: what attributes make any of them uniquely useful over what we have?

I think this question from one of your earlier posts ties in well.


"But oh my, what if some other people already saw this coming four decades ago and sought to create a currency to prevent a major meltdown from occurring ... ?"

How would any new currency, be it the Euro or SDRs or what-have-you, be any different than a merging of existing ones? How would it improve upon the prior methods of control that have proven so fallible?


"When you write "effectively infinite," is your meaning like saying gold is infinitely divisible, so if we really wanted to, we could theoretically use physical gold atoms as all the money the world would ever need? Or do you mean "effectively infinite" as in the dollar is effectively infinite just like the Zimbabwe dollar proved to be?"

Primarily in the sense that they can be conjured according to the system's estimation of demand, so like the Zimbabwe dollar. I do see the inflationary nature of this - the rope being let out. The matter of Bitcoins also having the attribute of infinite divisibility is a result of being mathematical constructs, but is not necessarily applicable with the suggested changes. I had not considered the combination of the two; it may add unnecessary complexity, but makes for interesting conjecture. It would seem that the deflationary aspect is more troublesome than the inflationary methods (who would want to see a 2:1 [or even 100:1] reverse split cut their balance in half notionally even though the valuation remains the same).

(continued)

Ramon said...

"In your "Bitcoin money world" are you imagining that an actual Bitcoin will change hands in each and every transaction? In other words, that the monetary base (all Bitcoins that have ever been mined) would be the entire transactional money supply?

Or rather, ... the numeraire, the basic standard by which we measure ... the worth of different goods and services relative to one another? And that banks would then issue credit denominated in Bitcoins and that credit (created out of thin air) would circulate as our money?"


I think it's a hybrid with a gradual integration of the contemporary system that could eventually become numeraire in the mind of the majority. I've been imagining a structure like an animal cell with a stable, golden nucleus at the core, highly fluid traditional currencies making up the bulk or cytoplasm and an automatically-regulatory Bitcoin forming a restrictive membrane or shell. The experiences with paper fiat in my mind have been a bit like uncontrolled explosions; Bitcoin acts as a means to harness that power just as the reciprocation of a cylinder in an engine.

Bitcoin, if successful, will be almost entirely beyond any one human's or group's direct control for at least some period of time. It acts in a competitive way with contemporary fiat currencies because of its lack of automatic control properties. As traditional fiat grows distant from the stability of gold, Bitcoin's autonomous self-correction prevents them from going too far astray lest they relinquish viability to the Bitcoin system (which may happen anyway as some traditional currencies may be too mismanaged in the first place). Bitcoin takes all emotion (ambition, greed, etc) out of the equation.

I do think that local/regional/national currencies are too entrenched to simply disappear, and they offer a physical representation that is useful for human perception, as you've mentioned elsewhere. Still, how many people use paper cash compared to those using a card that provides access to their abstract store of intangible monetary units? Having Bitcoin paper currency would be possible, but I think unworkable in reality, so the difference there isn't very great.

(continued)

Ramon said...

"I can say I have a Troy ounce of gold. But I don't say I have a gold of gold, or a Troy ounce of Troy ounces, do I? So what do I say about Bitcoin? I can't say I have a Bitcoin of Bitcoins. Do I have a dollar's worth of Bitcoins? Do I have a Bitcoin of dollars? Do I have 10 sock's worth of Bitcoins? If you say you have one Bitcoin, I'll say I have one orange ticket. Which is more valuable? How do you know? What unit (thought, numeraire, money) are you using to make that judgment?"

That's like asking whether I measure dollars in francs or francs in dollars. Bitcoin is fiat at heart and as abstracts, they are equivalent. At the moment, Bitcoin has properties like a commodity and could be termed akin to gold, but is functionally fiat and seems to naturally assume such terminology.

It could be synonymous with all of the world's traditional currencies, maybe equivalent to the term GDP. Of course, slicing up the USA GDP returns dollars. As suggested earlier, securitization of everything using Bitcoin is a possibility. That may lead to a much more readily calculated variant of GDP. Then everything is estimable in relation to everything else via gold, domestic currency or Bitcoins - even sonic screwdrivers.

On that note, how is art valued? Does the currency exchanged or unit of measure matter so long as it's agreed upon by both parties? If elements of one method appeal more than another, so be it.


"There is actually a solid reason the dollar doesn't face this same dilemma. Do you know what it is?"

No.

I'll venture a guess that with the dollar being derived most directly from the Spanish piece of eight, it began as a direct representation of a physically immutable manifestation and isn't confused with the actual value of an object. It isn't an abstract of an abstract and it offers no function of utility beyond a means of exchange.

Overall collective perception has developed to a point of the domestic currency unit being synonymous with money; what the collective consciousness agrees upon becomes perceived reality, with potential implications greater than just the monetary system. That isn't to say a paradigm shift can't occur, though an entrenched idea is as real as a physical object.

I'm unaware of your familiarity with object-oriented programming, so I'll just say that I find the concept of money to be similar in many ways.

Again, thank you for taking the time to discuss this. It's an incredibly interesting topic.

Pete said...

@ Ramon

(FOFOA): "There is actually a solid reason the dollar doesn't face this same dilemma. Do you know what it is?"

My answers:
1) legal tender issued by Government.
2) only legal tender accepted to pay taxes.

Simply, as the overarching governing body of the country, the Govt reserves the right to choose which currency is acceptable for use.

If you try to pay taxes in bitcoins, you'll encounter some trouble.

JR said...

Hi Neverfox,

Of course I'm begin patronizing, because I think/hope you are smart, intellectually exposed and motivated enough to be impacted by it. It appears I give too much credit, but I'm quite aware of my shortcomings in this regard.

If bitcoin isn't an "alternative institution," what is it? And what is?

What are you talking about? I'm completely lost, who are you suggesting holds this view?

++++++++++

Giving you the benefit of the doubt as to your professed good faith "confusion," which your nonsensical response has rendered utterly suspect at best, let me reiterate my point so it is crystal clear:

bitcoin is not the way to anarchy, its the way to destroy anarchy by lumping it in with ideologically fueled, fundamentally flawed and utterly ignorant economics

Of course its an "alternative institution."

The issue at hand is its viability, or more accurately put, its obvious lack thereof.

Cheers, J.R.

JR said...

Hi Pete,

Perhaps our humble host will clarify some more, but no, it has nothing to do with that.

Here's a hint as to the right answer: Mises was real smart.

Here's ANOTHER hint:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!

Cheers, J.R.

mortymer said...

Jean-Claude Trichet: Interview with The Times

http://bis.org/review/r110620e.pdf?ql=1

Interview with Mr Jean-Claude Trichet, President of the European Central Bank, in The Times, conducted by Mr Sam Fleming on 13 June 2011 and published on 16 June 2011.

"...The projections now suggest that Greek obligations to the official sector could in a couple outweigh Greek obligations to the private sector. That underlies why those in Germany say we should have private sector involvement. Do you not accept their logic?
The position of the Governing Council, which is public, is that we are not taking any decision in this domain. It is first of all for the executive branches to see what they want to do. We are telling them that to embark in a compulsory way of dealing with this issue is not advisable. We are telling them that doing anything that would create a credit event or selective default or default is not advisable. In any case it is their decision, and then we will take all the appropriate decisions ourselves as far as the Eurosystem is concerned, in line with our statutory obligations. But again, we are saying very clearly that they should avoid compulsion, credit event, or selective default or default. Our position is clear.

Do you think a compromise is possible on this?
No other comment.

There was a story a few weeks ago that some in Greece were considering a withdrawal from the euro. Has anyone in an official position ever raised with you that possibility?
No.

And likewise Ireland and Portugal?
Correct.

What would you say would be the consequences of such a thing?
It is not a working assumption that anybody considers..."

JR said...

Ramon wonders,

How would any new currency, be it the Euro or SDRs or what-have-you, be any different than a merging of existing ones? How would it improve upon the prior methods of control that have proven so fallible?

Maybe that's why FOFOA wrote:

Anyone who's looking for my Orbital Launch Pattern aka the "inverted waterfall effect" in their Bitcoin TA does not understand currency theory IMVHO.

Who knew - economics, its not just for breakfast anymore.

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

It's an incredibly interesting topic.

What topic is that - its obvious not currency theory or economics?

I can go read economically ignorant political advocacy almost everywhere, its nearly impossible to ignore. Why would anyone bother with yours?

At least the fox, msnbc, etc talking heads are somewhat unintentionally entertaining for those with an appreciation for farce.

What is you redeeming quality? The unintentional comedy of your pathetically overt pandering and attempted exploitation of the lcd of the libertarian community?

Cheers, J.R.

Pete said...

@ JR

I see, I had to re-read FOFOA's comment in context.

I think my point stands, just not to that quote in context ;)

The answer is that the dollar is the default measuring device by which we psychologically evaluate the trade value of things. It doesn't face such a dilemma because it has the 'focal point' of monetary usage.

(not sure my language is totally accurate there - 'monetary usage')

Hrrmmm, my answer sure was different this time around huh. My bad.

JR said...

Hi Pete,

I FYP you (fix your post):

Hrrmmm, my answer sure was different this time around huh.
My good.


Yes indeed, well done good sir!

Semantics are for idiotic nits, the important point is you are getting it and are well on your way.

Cheers, J.R.

Pete said...

Thanks JR :)

DP said...

@Texan: If it comes to pass, will someone still collect my garbage twice a week?

Depends. What's in it for me? ;-) Just a rat-free neighborhood? No profit? Hmmm, someone else can take this opportunity, thanks.

@Joel: So I love the idea of crippling the state and undermining the coercive monopoly, but this idea of generating the "security necessary to defend against the state." Sounds like a noble cause, but what prevents that security force from getting too large and abusing it's power? As much as I hate big govt., I see the same (if not bigger) opportunities for unchecked abuse in the private sector (too much power in the hands of a few).

What are you trying to imply? :->

What I don't quite understand about this idea of zero public sector, private legal defence, is ... who buys the judge and jury? The defence or the prosecution?

Clearly, I still have a lot more learning about this stuff ahead of me. Thanks to all for bringing me this opportunity to learn about something I've simply filed under irrelevant and aint-gonna-happen, until now.

Texan said...

FTAlphaville.com has a great piece on the bit coin hack at Mt. Gox. Well worth a read.

Mt. Gox is apparently one of the "largest" exchanges for bit coins.

It has a " daily limit" per user of $1000.

Jeff said...

I can't find any official source that belgium has lent 41% of its gold. Perhaps mortymer could help?

mortymer said...

http://bis.org/
-> Central bank hub
http://bis.org/cbanks.htm
-> National Bank of Belgium
http://www.nbb.be/
-> en
http://www.nbb.be/pub/Home.htm?l=en
-> most likely some monthly bulletin or statistical issue somebody spotted.
If I remember correctly it was written that it was mentioned by some official person at some official event.
Anyway, the gold is still in Eurosystem it just changed hands, or its paper form did.

mortymer said...

http://www.nbb.be/pub/01_00_00_00_00/01_02_00_00_00/01_02_10_00_00/01_02_10_01_07.htm?l=en

"What do the National Bank's gold and foreign exchange reserves represent and what purpose do they serve?

The foreign exchange reserves shown on the National Bank’s balance sheet are Belgium’s official foreign exchange reserves which are held and managed by the National Bank. They comprise gold, gold claims and claims on the IMF, and foreign currencies.

Article 141 §2 of the law of 2 August 2002 on the supervision of the financial sector and on financial services, inserting an Article 9 bis in the Organic Law of 22 February 1998, specified that these assets managed by the National Bank constitute assets allocated to the tasks and operations within the domain of the European System of Central Banks (ESCB) and the other tasks of public interest entrusted to the National Bank by the State.

The National Bank’s foreign exchange reserves are managed on the basis of the rules of prudent management, taking account of liquidity, security and yield considerations."

More at: (sorry no time for this)
http://www.nbb.be/pub/App/Search/Search.aspx?l=en&q=gold

Ash said...

Neverfox,

I was skimming over the links you provided, which allegedly support the concept of anarcho-capitalism.

I was disappointed by the one entitled "Chaos Theory", because after looking at the chapters, I found it had absolutely nothing to do with Chaos Theory and appears to simply use that as a selling point (hey, its a free country, right? right, but a very misleading one as well). And to pre-empt the expected response... no, chaos theory does not actually predict that unrestricted economic markets in human society will inevitably create spontaneous order out of "chaotic" self-interested decisions.

Anyway, the author clearly has little understanding of how Western legal systems have evolved and operate. In fact, many general judicial interpretations of laws and specific case decisions have been increasingly geared towards promoting "economic efficiency", such as creating presumptions of liability for the "least cost avoider" in tort, contract and property law. So there is a distinctly libertarian trend in the evolution of law at the local/state level, but as you go higher, it becomes much less feasible to "let the market decide" and we see more reliance on canons of statutory interpretation, legislative history, judicial philosophy, etc.

Just to focus on one major flaw in the article, among many others... The author uses the example of a private "Arbitration Agency X"(AAX) that develops in unrestricted, competitive markets to adjudicate disputes that are governed by laws also developed in the markets (via contract formation between various actors using simple language that will invariably be standardized over time by yet other private companies).

Yet, once AAX interprets certain contract provisions to mean certain things, they are effectively creating new law. In the anarchist system, any "bad" creations of law can be theoretically challenged, and ideally the most correct interpretation will win out over time, right? But there is a huge advantage to "bad" rules (unpopular , subjective, whatever) persisting in our complex system, which is predictability and consistency of rulings across large scales.

You may argue that those things are not really necessary at small scales with regards to various fields of law, but it is quite necessary for any field that governments economic/financial transactions across political borders. The push would be, once again, to centralize decision making power within fewer arb agencies at larger scales, because that process itself becomes a competitive advantage for certain companies in the marketplace.

The chain of idealism in these theories is much like the chain in Bitcoin, except on a much larger scale, since we are not only talking about competing currencies anymore. "Anarcho-capitalism" is the quintessential oxy-moronic phrase, and "bit coin" isn't very far behind.

Neverfox said...

@Ash

I found it had absolutely nothing to do with Chaos Theory and appears to simply use that as a selling point

I think it was an attempt at a joke. Anarkeh = chaos, didn't ya know?

FWIW, "Chaos Theory" is not my favorite. I'm not an "anarcho"-capitalist and so I find it much too...what's the word...vulgar. I only included it because it gives one in-depth perspective on the defense question. Perhaps I should have thought better of posting something I have a hard time fully endorsing but my hope for it is to get people (not you so much, as you strike me as a sharp person) to think outside of the box, which is often the toughest step in these kinds of conversations. I actually share your concerns with his model and think "let the market decide" goes too far in abstracting away from people. Because of that, I don't have much of a dog in the fight to defend it. I'd be much more interested in your reaction to the Roderick Long pieces. I'm pleased that you're engaging with this.

I'm simply not a very good consequentialist (I think it's a dead end philosophically) and so, for me, it comes down to what I feel morality and justice dictate. If that alone makes me an idealist, so be it; everyone then should be an idealist. But if by that term you mean that I represent things as they should be when, in fact, it's impossible to expect that to mean anything in our world (violating the idea of ought-implies-can), then I disagree with you and we can explore why we disagree.

"Anarcho-capitalism" is the quintessential oxy-moronic phrase

I fully endorse this statement.

Ash said...

Neverfox,

"I think it was an attempt at a joke. Anarkeh = chaos, didn't ya know?"

Perhaps you're right, but many libertarian types use chaos (complexity) theory to support the "fundamental nature" of their socioeconomic arguments, which is a very flawed application IMO (similar to how they use Darwin's theory of evolution). It obviously provides great insights into how our complex markets/economies operate, and is something I write about frequently, but it's not a general justification for getting rid of governments (in many ways it predicts the inevitability of large government IMO).

In that sense, I am not an "idealist" like you and more of a "depressing human being", as DP would point out. But just like many of the "optimists" around here, I don't think it does any good to debate what's moral and just for human society, but rather where we are most likely headed despite or because of our various convictions.

So with re: Roderick Long and the article you referenced, it's not that I don't necessarily agree with some of his points, but rather the idealistic structure of his argument. For example, I would definitely agree that government is a coercive monopoly, but I wouldn't agree its unnatural or we are capable of maintaining global civilization without it. And I also think that's why his substantive points are very weak (the following response to why private agencies are unlikely to evolve into coercive cartels):

Well, could that happen? Sure. All kinds of things could happen. Half the country could commit suicide tomorrow. But, is it likely? Is this cartel likely to be able to
abuse its power in this way? The problem is cartels are unstable for all the usual reasons. That doesn’t mean that it’s impossible that a cartel succeed. After all, people
have free will. But it’s unlikely because the very incentives that lead you to form the cartel also lead you to cheat on it – because it’s always in the interest of anyone to make agreements outside the cartel once they are in it.


Unfortunately, most of human history in societies does not support his argument whatsoever. It's not only possible that coercive cartels succeed, it's extremely likely.

Ash said...

I should also note that when I say coercive cartels will "succeed", I mean they will inevitably develop over time and gain larger shares of productive economic power, especially at increasingly larger scales of resolution (local, national, regional, global).

That doesn't mean they can last forever, though, and RL is right that they do undermine their own existence over time, but unfortunately that only occurs after the broader system has become extremely dependent on their functions and has lost much of its resilience to major change.

Ramon said...

@ JR:

"Here's ANOTHER hint:

Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"!
"

So the premise is: an object (in this case a form of currency) is used as a means of exchange. As long as the value is agreed upon initially, the object is adopted for general use. When accepting it in exchange for my goods and/or services I continually demand more than the last time, resulting in a perpetual built-in profit for me, assuming I own or control the means of production.

Is that an accurate example?


"Maybe that's why FOFOA wrote:

Anyone who's looking for my Orbital Launch Pattern aka the "inverted waterfall effect" in their Bitcoin TA does not understand currency theory IMVHO.
"

My focus has involved inquiry into the shortcomings of Bitcoin and what might be changed to create more stable system growth, specifically mitigating FOFOA's OLP. There are some who desire such a rapid rise, but I'm not sure how you associated an OLP with what I've been describing.

The similarities between Bitcoin and gold end where popular understanding and level of integration with the global monetary system diverge. Bitcoin is essentially fiat with properties of gold. The adjusted version of Bitcoin I offered seems to alleviate the danger of overheating and excess relative price distortion.

If you find similarities between what I write and other ideas, provide examples.

mortymer said...

Statement by Agustín Carstens to IMF Executive Board
Press Release No. 11/246
June 21, 2011

http://www.imf.org/external/np/sec/pr/2011/pr11246.htm

note:


Bank of Mexico governor sees value in gold holdings

The governor of Mexicos' Central Bank, which bought 93 tonnes of gold in Feb and March, says is not fleeing US dollar.
Posted: Thursday , 12 May 2011

MEXICO CITY (Reuters) -

http://www.mineweb.com/mineweb/view/mineweb/en/page504?oid=126883&sn=Detail

"Mexico's central bank sees value in holding gold as part of its reserves, Bank of Mexico governor Agustin Carstens said on Wednesday..."

Joel said...

DP,
Mafia link was funny, just about blew milk out my nose. Exactly what I was implying. Could never trust private security to do the right thing. Arbitration seems to lose the appearance of fairness when the arbiter has a Glock nine levelled at you. Agree with Ash that they will always have the tendency to get too powerful, seems like anarchists are a bit naive on that idea. Give me a stripped down govt., Freegold, and capitalism with minimal political interference (no lobbying, no bailouts, etc...) and I'd be happy as a clam. Marx would still not be able to find his first job, though, lol. Bummer.

Texan said...

Ash, the "Arbitration Agency X" you reference is also known as "Thunderdome". Two men enter! One man leave!

How does the old joke go?

"Anarchists of the World!.....oh never mind."

Blondie said...

Ramon,

”the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to“

The premise is that it is not the holder of the currency who determines it’s value, but the person to whom the holder offers it in exchange. If you wish to purchase something from me, I am the one determining the value of the currency you are offering, aren't I?

”Bitcoin is essentially fiat“

I disagree. Fiat means “by decree” ie. Govt dictate. No govt is demanding taxes be paid in BTC. There is also no physical BTC base money, whereas electronic fiat is essentially a claim on physical base fiat.

IMO, Bitcoin is essentially a fledgling deflationary virtual currency seeking usage demand.

Don’t get me wrong, there are aspects of Bitcoin I find quite intriguing, and your descriptions of its structure were excellent (thank you for the primer), but for various reasons which have already been extensively covered here in the last week I don’t think it is going to be displacing any of the incumbents as either MoE or SoV.

FOFOA’s orbital launch pattern graphs the value of the item of “real value” the market selects during Mises’ “Flight to Real Values”, or as Moldbug calls it “the phenomenon of monetary restandardization”. As has been noted on a number of occasions, in this there can be only one:
Moldbug again - ”If this price increase [of the instrument of “real value”] is sustainable, you are buying into the next monetary standard. If it is not sustainable, you are buying into a bubble.

Thus, the goal of the rational actor is to choose the X that everyone else will choose (assuming they choose right), but choose it first. In standards terms: pick the winner, be an early adopter.“

DP said...

@Joel, I see you fixed your own post... ;->

Marx would still not be able to find his first job, though, lol. ---->Bummer.<----

mortymer said...

GCC mulls end to gold customs duty
Gulf states plan unified gold stamp, says FGCCI

Published Tuesday, January 18, 2011

http://www.emirates247.com/markets/gold/gcc-mulls-end-to-gold-customs-duty-2011-01-18-1.343831

[Mrt: Bit old news but still a news (at least for me)]

Joel said...

DP,
Mafia link was funny, just about blew milk out my nose. Exactly what I was implying. Could never trust private security to do the right thing. Arbitration seems to lose the appearance of fairness when the arbiter has a Glock nine levelled at you. Agree with Ash that they will always have the tendency to get too powerful, seems like anarchists are a bit naive on that idea. Give me a stripped down govt., Freegold, and capitalism with minimal political interference (no lobbying, no bailouts, etc...) and I'd be happy as a clam. Marx would still not be able to find his first job, though, lol. Bummer.

Joel said...

Not fixed, just double posted. Blogger told me the original couldn't be posted, so I posted again at a later point without checking to see it had worked the first time, after all. If you can't trust Blogger, who can you trust? Interesting link here to a Forbes article on the need to return to a hard money gold standard:

http://blogs.forbes.com/ralphbenko/2011/06/13/the-emerging-new-monetarism-gold-convertibility-to-save-the-euro/

Steve Forbes is quoted as saying the argument shouldn't be whether we need to go back to a gold standard, but what type of gold standard we should go to...

FOFOA, your bite at the apple is coming soon! Maybe you should send your Ron Paul letter to Forbes as well.

Rui said...

@ Ramon

If sth has no value in itself then it is less desired as a form of money than precious metals. FIAT is also less desired but at least government tries to put a strong promise behind it, and at first government can make good on their promise. FIAT eventually crashes as government always fails on every promise they ever make.

The problem of Bitcoin is it's backed up by promises even weaker than what government provides. Bitcoin is even riskier than government FIAT when you look at it from that angle. It'd lose in competition with FIAT, let alone metals.

samix said...

FOFOA can you belive this ?

http://blogs.forbes.com/ralphbenko/2011/06/13/the-emerging-new-monetarism-gold-convertibility-to-save-the-euro/

mortymer said...

@samix, yep.

- See Joel (June 22, 2011 9:05 AM) or

- http://anotherfreegoldblog.blogspot.com/2011/06/mundell-latest-about-freegold.html

Have a nice day! :o)

Pls, note also Mundell´s ideas about joint/world currency. This is what Fofoa was hinting about pegged currencies and their relationship to gold in/out-flown in connection to inflation.

Ramon said...

I recently had the opportunity to read Doug Casey's take on Bitcoin and felt it provided a good format for targeting specifics.

On describing a currency's required properties:

It has to be durable, divisible, convenient, consistent, and have value in itself. But don’t forget your own addendum of “can’t be created out of thin air infinitely.”


Durable? Yes. The internet has proven extremely resilient and the Bitcoin network utilizes the same infrastructure. The actual Bitcoin system was not affected by the Mt. Gox crash.

Divisible? Yes. Bitcoins can be divided ad infinitum if so desired, resulting in inflation as demand increases.

Convenient? Mostly no. This is dependent upon liquidity, which is steadily increasing. Eventually, this could be an easy yes.

Consistent? Yes. Bitcoins are entirely fungible; i.e. a Bitcoin is a Bitcoin.

Intrinsic value? Yes - I suggest that the resiliency of the network itself is the value. What is the internet worth? How do you quantify that? What is its GDP? The same applies to Bitcoin. We do not have general metrics for those notions yet, but it is obvious that the networks are highly valuable.

Lastly, the only way the Bitcoin supply can be inflated is by network consensus. This could even be viewed as a form of direct or pure democracy. Decentralized, self-regulating computer networks have major implications across many aspects of systems theory, not just with currencies.


It's been over two weeks since the issue with the Mt. Gox Bitcoin exchange. It was one of several and the only one to experience a drop in BTC valuation that reached USD$0.01. Other exchanges did see the drop from $30 per BTC to a little under half of that and they've stabilized for now at about 50% from the peak. If these kind of flash crashes can occur in major, highly sophisticated international bourses, why should it be so shocking that it occur here?


@ Blondie:

"If you wish to purchase something from me, I am the one determining the value of the currency you are offering, aren't I?"

Yes, I agree. After rereading my example, it does seem convoluted, but I think we are saying the same thing.

"Fiat means “by decree” ie. Govt dictate."

I admit, traditionally centralized government is the first thing that comes to mind. Bitcoin may be decentralized, but it isn't lacking governance: the system governs itself. This may be more of a technical and semantic argument. My observation is that Bitcoin acts similarly to fiat.

"IMO, Bitcoin is essentially a fledgling deflationary virtual currency seeking usage demand."

Absolutely. I think the demand exists, but isn't aware of Bitcoin yet. At least not in any significant capacity.

"... your descriptions of its structure were excellent ... I don’t think it is going to be displacing any of the incumbents as either MoE or SoV."

Thanks, I've been working with decentralized networks for quite a few years and have had a lot of time to develop explanations.

The way I see it, Bitcoin doesn't have to displace anything. I think that it's different enough to offer another layer. Replacing existing models is certainly a possibility, but definitely not an immediately likelihood without a collapse as suggested by FOFOA.

Moldbug's point about stability is exactly what I'm wondering about - whether the volatility in the Bitcoin system is too great for it to endure or if its resilient and flexible enough in current form to continue on. The arbitrary 21 million unit limit and set divisibility do seem like they could be too rigid for wild swings like what happened this month.

Blondie said...

Ramon,


Moldbug's point (and FOFOA's) about stability is in regard to the strength of the hands the respective assets are held in, with FOFOA's theory that the MtGox "hack" was not necessarily a hack at all but a large weak hand "diversifying" being a potential example.

Neverfox said...

@Ash

Perhaps you're right, but many libertarian types use chaos (complexity) theory to support the "fundamental nature" of their socioeconomic arguments, which is a very flawed application IMO (similar to how they use Darwin's theory of evolution). It obviously provides great insights into how our complex markets/economies operate, and is something I write about frequently, but it's not a general justification for getting rid of governments (in many ways it predicts the inevitability of large government IMO).

FWIW, I agree and I have never (or would never) make that kind of argument. I'm an anarchist because I believe it to be the morally correct thing to be (and, yes, I am an ethical realist). So when you say:

I don't think it does any good to debate what's moral and just for human society, but rather where we are most likely headed despite or because of our various convictions.

I just scratch my head because much of the progress we have as a species that's worth a damn has been because we debated what was moral and just. And, of course, by definition we should.

Unfortunately, most of human history in societies does not support his argument whatsoever. It's not only possible that coercive cartels succeed, it's extremely likely.

In my experience, that is probably the most oft-quoted passage from that article when someone wants to point out why they disagree. And the reason you give is the most common one I hear. But I think it rests of a few fundamental mistakes.

First of all, he isn't making an empirical argument. Obviously we don't have anarchy. By pointing that out, you're hardly telling him or me something we don't already know.

Notice how you stuck the word "coercive" in there yet it appears nowhere in that part of Roderick's argument. This is quite important. Roderick is addressing a very specific charge: that given a world where people, at the very least, aren't violating rights ("Suppose we have anarchy"), is it likely that a collection of protections agencies would form a successful cartel. That's very different from saying it isn't likely, give coercive tactics, for cartel theory to fall apart.

Now, at this point, you might want to say, "OK, but that's a fact of life. People are coercive and will use force to get their way." OK, but that's a different argument that anarchists hardly disagree with. That's why people become anarchists. That point is addressed by appeals to doing something about that. In other words, Roderick is not arguing that the unstable cartel forces acting on private defense agencies would be how we get to a world with more respect for rights. He's only addressing the specific matter presented.

All of that aside, my other response is, "So what?" If I assume for the sake of argument that it is likely, does that mean I shouldn't be an anarchist? If I think that other arguments establish the morality of non-aggression, it's not my problem if you can't figure out how it would work given history. To paraphrase Sheldon Richman (who was speaking on another topic), "I could speculate or I could dig up some historical examples. But why should I? Why is it my responsibility to say how [anarchy would solve the defense problem]? I am not being flip. Someone explain to me why, after I show the injustice of [coercive monopoly], I am obliged to tell [people how to best organize for voluntary defense]. Seriously. Should I answer a taxi driver's similar question after I show that government licensing of taxis is unjust? Figure it out.

Post a Comment