A RESPONSE TO GARY NORTH’S POSITION ON BITCOINS (I’ll leave it to the reader to

http://www.garynorth.com/public/11828.cfmDISAGREEMENT: A RESPONSE TO GARY NORTH’S POSITION ON BITCOINS

(I’ll leave it to the reader to suggest which one of us makes a better argument.)

I agree bit-coins aren’t money (a commodity). Nor are they are fiduciary media (redeemable). But they do qualify as a money substitute as either token money, or shares of a stock that is highly liquid (non-redeemable tokens).

1) GREY MARKET TOKEN MONEY

The very worst I can see, is that Bitcoins or some equivalent will evolve into a grey market money for grey market goods. This has already begun to occur.

2) LOW TRUST TRANSACTION MONEY

Their value is lower costs and protecting your credit card information. It lowers the consumer’s perception of risk.

Bitcoins eliminate the problem of recurring charges from online transactions and subscriptions.

3) LOW FEE HIGH RISK TRANSACTION MONEY

As soon as someone creates an escrow service for more expensive grey market transactions, that will succeed.

As such it is an exceptional currency for elites.

4) A MONEY SUBSTITUTE FOR LOW CONSUMER VALUE TO MONEY BROKERS

Bitcoins eliminate the problem of needing a ‘bank’ that can identify you by abstract means. In other words, it is an exceptional currency for the margins of society, just as credit cards are an exceptional currency for the upper quintiles, debit cards for the lower middle, and cash is for the lowest.

BUSINESS MODELS

I have proposed a number of business models where the transaction costs are low, but lower transaction costs are meaningful (retail). The grey market.

I think it is unwise to be fooled by the environmental legitimacy of the enduring credit system that is used to manage human beings.

So at this point I think I might take the issue up with North directly. Because while I agree with his position on MMT as permanently inflationary, I think he is confused by the term ‘money’ when it comes to Bitcoin, and while he is CORRECT that the price of Bitcoins are speculative for INVESTORS in Bitcoins, he is incorrect that the price of Bitcoins are intolerable for CONSUMERS of Bitcoins when they are used as a means of clearance.

Once Bitcoins have burst a few times, the speculation will drop as it has with other speculative commodities, and because of low volume, volatility should continue. But holding Bitcoins for ten minutes while you make a purchase on your credit card, then use the Bitcoins for an online purchase is not going to impede the transactions. My self, I’d love to see a credit card service for doing just that, instantaneously charging my card, transferring the funds to someone else via bitcoins, or at least just resolving exchange between parties via bitcoins.

THEY ARE’T MONEY – BUT THEN LITTLE *IS*

Bitcoins are NOT MONEY. They are speculative shares of stock in a custom stock exchange, whose advocates seek those shares to be universally owned, and therefore usable as a money substitute.

Fact is we don’t know if it can work or not because this particular attempt at creating a money substitute has not been tried as a pre-purchase good, and similar efforts have been previously limited to evolutions on the wire transfer system – which is high cost and omnidirectional. I am arguing that like pornography built the Internet, the grey market will build Bitcoin or some equivalent.

And I think that it is very hard to argue against those facts simply because one is confused by the marketing use of the term ‘money’, and failing to see this particular media as non-redeemable token-money, or highly commoditized shares of stock.

CLASS OF MONEY SERVES DIFFERENT CLASSES OF SOCIETY

Something I found very obvious when we built software for check cashing services. Classes serve each other. They use the same money. But in different forms. With different transaction costs. Cash has a VERY HIGH transaction cost to the lower classes. It is easily stolen. It is nearly impossible to secure. And I suggested, for example, a payroll service in Bitcoin that would bypass the check cashing services, and therefore the need for the lower classes to have bank accounts. This eliminates the need for low income areas serving low income people, cash that can be stolen in robberies. It eliminates bank fees on checks, debit cards. It eliminates clearing times on funds.

In fact, on a moral basis, I’d push Bitcoins as a public service for the poor on that basis alone. Where the WEAKNESS of Bitcoin as a non-redeemable good is a benefit precisely because it is NOT redeemable: it helps transform cash into abstract property that cannot be easily stolen, as we have transformed MOST assets into abstract property that cannot be stolen, and which is one of the reasons for the decline in crime: you can’t steal what’s hard to steal.

ON THESE BASIS ALONE

I do not see Bitcoin fulfilling the libertarian fantasy of an alternative to fiat currency or hard currency at any particular point in the future. However, the low transaction costs of these goods for markets currently NOT served by the banking system, (or tolerated by regulation) is, as we have seen with online pornography and drug purchases, sufficient to drive demand for this product.

But iff and only iff the user interface problem can be sufficiently solved to serve as I’ve stated above.

CONTRA AUSTRIANISM

I do not let my consensus with the Austrian trade cycle, and the Austrian recognition of opportunity costs, or my distaste for (hatred of) the immoral socialist, totalitarian state, interfere with my analytical reasoning.

We should not defend the ‘brand’ money, by reducing it to as an ideological term subject to sanctity and reverence. And we should not fail to understand the multitude of uses for the multitudes of mediums of exchange.

If you want to argue that Bitcoins are not money. That’s well and good. Because as a store of value they are as weak as a fiduciary media, without the benefit of being redeemable. They are in a speculative phase right now like any stock that is issued and has low volume. They are likely to crash.

So if you are an investor in Bitcoin, then you may or may not succeed. I’m betting that people are not buying low and selling at the highs on the way up and taking advantage of the lack of transaction costs. We can’t do that with stocks because of high transaction costs. We can manipulate Bitcoin prices more easily for this reason. But investors will be ruined in waves, and that’s fine.

That has no bearing on the short term use of BTC. It only has bearing on its use as a store of value over longer periods of volatility. And even that volatility will be eliminated by more extensive use.

The grey market is sufficient incentive for BTC success.