6 ms·

He is essentially giving the chartalist theory of money. Money cannot arise except through the fiat of the state. Chartalists hate the Mengerian theory on the o

He is essentially giving the chartalist theory of money. Money cannot arise except through the fiat of the state. Chartalists hate the Mengerian theory on the origin of money because it posits that money arises as a market phenomena. Eventually the state co-opted money, but that does not mean money arose because of the state. The emergence of bitcoin is a thorn in the side to chartalists. We can't really go back and figure out the exact history of how gold emerged as money, but bitcoin is being monetized right before our eyes. The angst felt by chartalists is also felt by inflationists. They hate the idea that you could have a successful currency that cannot be inflated beyond a fixed supply. So they are naturally defensive. Every success bitcoin has undermines their world view.

maaku 13y ago
Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoin for example.
- adventured 13y ago
  Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation. Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.
  - maaku 13y ago
    What I'm saying is that deflation is an arbitrary choice made by Satoshi in the construction of bitcoin. It is unrelated to the issue of state backing. Bitcoin could just have easily had a perpetually increasing monetary supply. This literally would have been a single line change to the bitcoin source code. Freicoin does something similar with it's demurrage and perpetual reward.
  - drcube 13y ago
    "Price fluctuations in the value of currency" is the definition of inflation/deflation. Monetary policy can cause inflation, but it's not the only way inflation can occur. Wikipedia: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."
    - Bootvis 13y ago
      I'm not saying that Friedman is right but this is a thorny issue in economics: Inflation is always and everywhere a monetary phenomenon. —Milton Friedman, 1963
      - drcube 13y ago
        Sure, it's a monetary phenomenon, but that doesn't mean it always comes from monetary policy. In fact, the big reason monetary policy exists is to control inflation. Without monetary policy, inflation and deflation depend solely on the production of the economy compared to the relatively fixed supply of money. Which is what will happen if bitcoin takes off. Growing economy + fixed money supply = deflation. So the GP was wrong when he said there can be no inflation by definition once all the bitcoins have been mined and the supply is fixed. Deflation (negative inflation) is pretty much guaranteed with a fixed money supply. There's more stuff to buy with the same amount of money, so things will cost less. Consistent deflation will be very upsetting for the status quo. I'm not saying it's a good thing or a bad thing, but when the incentives shift towards keeping your money in a shoebox, and against using banks, taking or giving out loans, investing and spending, that's going to be a huge change.
        Bootvis 13y ago
        However, with Bitcoin the percentage claim on the total economy is constant. So, in a sense, the real price of all consumer goods also remains constant. In this view there is no inflation or deflation and inflation indeed is a purely monetary phenomenon. What is correct view? I don't know, the only thing I remember about the monetary economics class I took, is that the professor and I didn't agree. About what I don't know. I do know that these are interesting times for him and colleagues. When/if Bitcoin stabilizes they can study the effect of monetary policy, the PPP, etc. I almost want to become one.
fiatmoney 13y ago
That's not my reading; I believe what he is getting at (similarly brought up in Graeber's book) is that when the government controls a large enough share of the economy, the sine qua non of "money" is that you can pay taxes with it. That doesn't require anything about the historical origins of money.
- andrewla 13y ago
  I should probably read Graeber's book, though based on what I see here I might find it a bit exhausting. I hear this argument a lot in discussions about bitcoins, and I ask, but have not yet received, a good explanation. Let me ask you if you can summarize the reasoning for why paying taxes in a currency helps a currency? It seems very obvious that the opposite is true -- if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that. Which is why tax law always requires arcane provisions to allow the taxation of barter and foreign currency transactions so that the loophole can be closed. It seems that if the ability to pay taxes in a currency were sufficient to support a currency, then laws dictating how to handle non-local-currency transactions would be unnecessary.
  - justincormack 13y ago
    The example in Graeber's book was the government pays soldiers in some currency it invents, and then taxes the non soldiers in the economy the same amount. The soldiers need to eat (which is important as they might otherwise just give the coins to the civilians). So the transaction of food for money makes sense, and the civilians can pay their taxes and the soldiers can eat, and the arbitrary currency has a measurable value.
    - andrewla 13y ago
      Ah - this makes sense, at least historically. With a tax that is more of a levy rather than something proportional to receipts or income, then it makes sense. But like the Mises Regression theorem, this seems more to relate to the historical origins of money as opposed to current usage.
  - 13y ago
blahbl4hblahtoo 13y ago
I think the idea that states co-opted money doesn't stand up to historical scrutiny. States have evolved for the purposes of providing situations where "markets" can arise. I have to be honest though, I'm not an expert on the subject. Also, everything about the critique presented doesn't have to be false for the successes that bitcoin has had to be real. I think that bitcoin really serves as a form of regulatory arbitrage... its real value, the value that people are placing on it, represent gains that can be made by avoiding fees and oversight. Its an alternate currency that couldn't exist without a state system. As for the inflationary ideas...I find it really very similar to gold or maybe some other more rare natural resource... don't all of the ideas about hoarding and "de beers" (sic) style monopoly still apply? I'm genuinely asking not trying to be a prick...
21echoes 13y ago
> We can't really go back and figure out the exact history of how gold emerged as money actually, we can. it's called historical anthropology, and books upon books have been written on the topic. to summarize those books for you: the chartalists were basically right. standardized currency and thus stable markets took off once governments did what governments do: pass laws to standardize things. also, contrary to your assertion that the only "monetization" event was "how gold emerged as money", we've actually gone through a number of cycles back and forth between gold/precious metal-backed money and credit-backed money. metal-backed money tends to hold during periods of imperialism and warfare (where the expected lifetime of a given state is low due to risk of being conquered/defeated, and soldiers have high exposure to other markets), while credit-backed money tends to emerge during periods of stability and peace (where states are more stable and trust-worthy than the rate at which some given metal comes out of the ground).
dinkumthinkum 13y ago
You're playing a strawman game here, though. Some of are just practical and live in the real world.
erikb 13y ago
Although I believe that what you say will be correct in maybe 10 years, currently this is not the situation in my eyes. Currently nobody fears bitcoin, because it is still way too low profile to harm anybody. And although their arguments might be wrong we all agree that bitcoin and even the general idea of crypto money can still fail because of a vast amount of reasons, right? The thing is at the moment no crypto money has a real success. Yes, thousands more people care about bitcoins than 2 years ago, but it's not a critical mass yet.

maaku 13y ago

Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoin for example.

adventured 13y ago
Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation. Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.
- maaku 13y ago
  What I'm saying is that deflation is an arbitrary choice made by Satoshi in the construction of bitcoin. It is unrelated to the issue of state backing. Bitcoin could just have easily had a perpetually increasing monetary supply. This literally would have been a single line change to the bitcoin source code. Freicoin does something similar with it's demurrage and perpetual reward.
- drcube 13y ago
  "Price fluctuations in the value of currency" is the definition of inflation/deflation. Monetary policy can cause inflation, but it's not the only way inflation can occur. Wikipedia: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."
  - Bootvis 13y ago
    I'm not saying that Friedman is right but this is a thorny issue in economics: Inflation is always and everywhere a monetary phenomenon. —Milton Friedman, 1963
    - drcube 13y ago
      Sure, it's a monetary phenomenon, but that doesn't mean it always comes from monetary policy. In fact, the big reason monetary policy exists is to control inflation. Without monetary policy, inflation and deflation depend solely on the production of the economy compared to the relatively fixed supply of money. Which is what will happen if bitcoin takes off. Growing economy + fixed money supply = deflation. So the GP was wrong when he said there can be no inflation by definition once all the bitcoins have been mined and the supply is fixed. Deflation (negative inflation) is pretty much guaranteed with a fixed money supply. There's more stuff to buy with the same amount of money, so things will cost less. Consistent deflation will be very upsetting for the status quo. I'm not saying it's a good thing or a bad thing, but when the incentives shift towards keeping your money in a shoebox, and against using banks, taking or giving out loans, investing and spending, that's going to be a huge change.
      - Bootvis 13y ago
        However, with Bitcoin the percentage claim on the total economy is constant. So, in a sense, the real price of all consumer goods also remains constant. In this view there is no inflation or deflation and inflation indeed is a purely monetary phenomenon. What is correct view? I don't know, the only thing I remember about the monetary economics class I took, is that the professor and I didn't agree. About what I don't know. I do know that these are interesting times for him and colleagues. When/if Bitcoin stabilizes they can study the effect of monetary policy, the PPP, etc. I almost want to become one.

fiatmoney 13y ago

That's not my reading; I believe what he is getting at (similarly brought up in Graeber's book) is that when the government controls a large enough share of the economy, the sine qua non of "money" is that you can pay taxes with it. That doesn't require anything about the historical origins of money.

andrewla 13y ago
I should probably read Graeber's book, though based on what I see here I might find it a bit exhausting. I hear this argument a lot in discussions about bitcoins, and I ask, but have not yet received, a good explanation. Let me ask you if you can summarize the reasoning for why paying taxes in a currency helps a currency? It seems very obvious that the opposite is true -- if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that. Which is why tax law always requires arcane provisions to allow the taxation of barter and foreign currency transactions so that the loophole can be closed. It seems that if the ability to pay taxes in a currency were sufficient to support a currency, then laws dictating how to handle non-local-currency transactions would be unnecessary.
- justincormack 13y ago
  The example in Graeber's book was the government pays soldiers in some currency it invents, and then taxes the non soldiers in the economy the same amount. The soldiers need to eat (which is important as they might otherwise just give the coins to the civilians). So the transaction of food for money makes sense, and the civilians can pay their taxes and the soldiers can eat, and the arbitrary currency has a measurable value.
  - andrewla 13y ago
    Ah - this makes sense, at least historically. With a tax that is more of a levy rather than something proportional to receipts or income, then it makes sense. But like the Mises Regression theorem, this seems more to relate to the historical origins of money as opposed to current usage.
- 13y ago

blahbl4hblahtoo 13y ago

I think the idea that states co-opted money doesn't stand up to historical scrutiny. States have evolved for the purposes of providing situations where "markets" can arise. I have to be honest though, I'm not an expert on the subject. Also, everything about the critique presented doesn't have to be false for the successes that bitcoin has had to be real. I think that bitcoin really serves as a form of regulatory arbitrage... its real value, the value that people are placing on it, represent gains that can be made by avoiding fees and oversight. Its an alternate currency that couldn't exist without a state system. As for the inflationary ideas...I find it really very similar to gold or maybe some other more rare natural resource... don't all of the ideas about hoarding and "de beers" (sic) style monopoly still apply? I'm genuinely asking not trying to be a prick...

21echoes 13y ago

> We can't really go back and figure out the exact history of how gold emerged as money actually, we can. it's called historical anthropology, and books upon books have been written on the topic. to summarize those books for you: the chartalists were basically right. standardized currency and thus stable markets took off once governments did what governments do: pass laws to standardize things. also, contrary to your assertion that the only "monetization" event was "how gold emerged as money", we've actually gone through a number of cycles back and forth between gold/precious metal-backed money and credit-backed money. metal-backed money tends to hold during periods of imperialism and warfare (where the expected lifetime of a given state is low due to risk of being conquered/defeated, and soldiers have high exposure to other markets), while credit-backed money tends to emerge during periods of stability and peace (where states are more stable and trust-worthy than the rate at which some given metal comes out of the ground).

dinkumthinkum 13y ago

You're playing a strawman game here, though. Some of are just practical and live in the real world.

erikb 13y ago

Although I believe that what you say will be correct in maybe 10 years, currently this is not the situation in my eyes. Currently nobody fears bitcoin, because it is still way too low profile to harm anybody. And although their arguments might be wrong we all agree that bitcoin and even the general idea of crypto money can still fail because of a vast amount of reasons, right? The thing is at the moment no crypto money has a real success. Yes, thousands more people care about bitcoins than 2 years ago, but it's not a critical mass yet.