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I think essentially the Austrian explanation of money is a good one. Simplified version... Ask yourself this question: Why is money valuable. Answer: because I

by kriro 14y ago

I think essentially the Austrian explanation of money is a good one. Simplified version... Ask yourself this question: Why is money valuable. Answer: because I can buy stuff with it. Why can I buy stuff with money? Because it's valuable doh. This is circular of course, von Mises solved this by turning it into an infinite regress i.e. money is valuable because it was valuable before and moving the chain of reasoning backwards and arriving at the fact that money must have been valuable as a commodity before it became a money. There are certain characteristics that make one commodity more likely than another to become a money and to make a long story short that's why Austrians tend to favour the gold standard (because gold used to be a commodity then turned into a money). This would suggest bitcoins (and dollars, Euros and so forth) are bubbles. In the case of bitcoins one could even argue that if you could redeem them for the computational input you used when mining there is some commodity behind it. With that and the disclaimer that Austrians are fringe at best and laughed at by many mainstream economists out of the way let's get to my opinion on bitcoins and fiat money. I think that fiat money which is just backed by the word of the government that it's solid somehow works. Why and how I cannot explain nor do I seek to. But essentially I think that's why bitcoins could very well work, too. The backing is not by any government but rather by "internet consensus of sorts". In the information age that could essentially become a more powerful word of mouth backing (if enough people believe it it'll be stable) than the backing of any government. I don't think this is the final iteration of this sort of currency but if we must have a fiat currency by all means please let it be one that allows for the privacy bitcoin has inherently built in. Ultimately though the currency that you have to pay your taxes in is the one that has the edge. At the very least it shows that people are interested in a currency that is easy to use electronically, anonymous etc.

philwelch 14y ago
> I think that fiat money which is just backed by the word of the government that it's solid somehow works. Why and how I cannot explain nor do I seek to. Because of fiat, of course. To be precise, US Dollars are valuable because the US Government only accepts tax in US Dollars. Since taxes are levied on a proportion of economic activity by definition, that percentage of economic activity is instantly converted into demand for US Dollars. Additionally, thanks to legal tender laws, it's obligatory in the United States to accept US Dollars as payment for a debt. Thus, there is a large quantity of legally generated demand for US Dollars--enough to keep the currency valuable enough for other economic activities. It is also no mistake or coincidence, for instance, that wages and salaries are paid in US Dollars. When you combine laws saying both "income taxes must be paid in US Dollars" and "income taxes must constitute a proportion of total earned income", it saves a lot of effort for the earned income to be denominated and paid in US Dollars. If you got paid in bitcoins, someone would have to calculate the value of bitcoins in USD, sell some bitcoins for USD, and pay the taxes in USD. Actually, this is exactly what happens with stock grants (in a publicly traded company). Unless you can somehow generate similar amounts of demand for bitcoin, and simultaneously tightly couple that demand with major streams of economic activity, you won't accomplish the same thing. As far as I can determine, only the government can unilaterally dictate the currency that large, double-digit percentages of the GDP need to be denominated in.

by kriro 14y ago

philwelch 14y ago

> I think that fiat money which is just backed by the word of the government that it's solid somehow works. Why and how I cannot explain nor do I seek to. Because of fiat, of course. To be precise, US Dollars are valuable because the US Government only accepts tax in US Dollars. Since taxes are levied on a proportion of economic activity by definition, that percentage of economic activity is instantly converted into demand for US Dollars. Additionally, thanks to legal tender laws, it's obligatory in the United States to accept US Dollars as payment for a debt. Thus, there is a large quantity of legally generated demand for US Dollars--enough to keep the currency valuable enough for other economic activities. It is also no mistake or coincidence, for instance, that wages and salaries are paid in US Dollars. When you combine laws saying both "income taxes must be paid in US Dollars" and "income taxes must constitute a proportion of total earned income", it saves a lot of effort for the earned income to be denominated and paid in US Dollars. If you got paid in bitcoins, someone would have to calculate the value of bitcoins in USD, sell some bitcoins for USD, and pay the taxes in USD. Actually, this is exactly what happens with stock grants (in a publicly traded company). Unless you can somehow generate similar amounts of demand for bitcoin, and simultaneously tightly couple that demand with major streams of economic activity, you won't accomplish the same thing. As far as I can determine, only the government can unilaterally dictate the currency that large, double-digit percentages of the GDP need to be denominated in.