Quote from: Dr Bloggood on January 06, 2014, 02:32:49 PM

Quote from: BlueNote on January 06, 2014, 07:03:54 AM

Quote from: Erdogan on January 06, 2014, 12:20:08 AM

Quote from: overunity on January 05, 2014, 11:21:39 PM

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My question is why would a highly publicised economist like schiff with a great reputation keep saying these things ,I would love him to explain how is it even possible to honestly with a straight face say these silly statements .
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He does not understand bitcoin completely yet. Like many libertarians, he is locked up in the intrinsic value controversy. Austrian economics requires the money stuff to have intrinsic value. It was Mises who expressed it with his regression theorem. Bitcoin has no intrinsic value. Gold glitters.

We think either it doesn't matter, or that there is a miniscule intrinsic value, enough to satisfy the requirement.

That's not really correct. Austrians hold that economic value is subjective. The regression theorem is simply an inference about the emergence of money from barter. It's saying that a medium of exchange must have been valued for itself by the market prior to being adopted for use as a money. From the point of view of monetary theorists, it was necessary to break the perceived infinite regression of saying that something always had value as a medium of exchange. Obviously you have to close the loop somewhere, so this is just a logical inference which keeps you out of the circular logic of saying that something always had medium-of-exchange value when discussing the emergence of money.

Peter unfortunately does use the term "intrinsic value," but he's not an academic. What he means is market value apart from its use as a medium of exchange. What people in the hard money crowd find it hard to grasp is that human beings can quite easily ascribe value to something that was initially valueless (no market price) like the tokens produced by the Bitcoin software on Day 1 of its launch. No bickering about monetary theory can contradict what we actually observe in the marketplace. We see clearly that people started valuing Bitcoin for itself due to its perceived utility or novelty or whatever. It's irrelevant what the reason to value it was in the minds of the participants. The relevant point is that they then form the market for Bitcoin, and it's off to the races. Bitcoin is being used as a medium of exchange now, and so it obviously had to have had a value to people (if not a price) before it started being traded for pizzas and such. That's the point of the theorem. It's expressing the idea that this is a logical necessity. But the regression theorem should not be used as a predictor. It just says that if something becomes a medium of exchange then it was valued for itself immediately prior to that. People tried to use it as a predictor when it came to Bitcoin and got confused.

So one persistent error is in thinking that if something did not always have a market price (like the original BTC tokens), then it was never really valued for itself in the marketplace, and therefore can't become a money (due to the regression theorem). This is obviously a misunderstanding of the theorem, but it's hard to catch when you've focused on the virtues of hard money for so long. We never think of gold and silver as being valueless at one time because most pat explanations of the emergence of money start with precious metals being valued commodities already. But originally they did not have prices at all - just like Bitcoin. They were newly discovered curiosities at one point too. So this failure to go back to the beginning of the story of precious metals led to confusion when people analyzed Bitcoin as being merely valueless tokens with "no intrinsic value." Add to that the fact that Bitcoin was engineered on a computer and you get an understandable resistance in people who have been immersed in classical monetary theory.

Great post! You just put 500 pages of discussion about "intrinsic value" to rest...

I have said it in a different way, but probably essentially wanting to express the same thing: BTC has "intrinsic value" because of X,Y and Z (X,Y and Z being, for example cheap transactions, independence from governments and being easy to transport). Just like gold has brought intrinsic value before it was used as currency/store of value for the first time because of U,V and W.

I do not agree with this. Intrinsic value is well defined in economics. All economic things, basically, have that kind of value. Money, because it is used in indirect exchange, get additional value, called exchange value. Can something exist that has only exchange value, as contrast to something that has intrinsic value and gradually gets exchange value in addition? The post by BlueNote above bring in many other topics and expands the discussion to just about everything.

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Erdogan and BlueNote, can I ask you where you come from - is it the academic world, have you privately studied this and/or have you been investing for some time (and if yes into what if you don't mind me asking)?

I am an economist of education from a long time ago, but the real interest and self-education came a few years ago, when I found austrian economics. I have not read all the books necessary to be a real economist. I don't need or want to hammer people with famous names, but what I write is certainly mostly from the masters. I have the confidence to declare Mises' regression theorem ... just wrong. It is interesting, but not necessary for bitcoin now. That does not make Mises any smaller.