Friday, December 20, 2013

Murray Rothbard: Bitcoin is a Crank Scheme

In the August 1981-January 1982 issue of The Libertarian Forum, the great Austrian school economist Murray Rothbard offered a critique of Freidrich Hayek's support for denationalized money. With perhaps slight changes required  to bring it up-to-date, the commentary appears to me to be very applicable to Bitcoin:
The sad answer is that Hayek's proposal, even in the unlikely event it were adopted, is so irrelevant to our current monetary problems as to take on the aspect of a crank scheme. Suppose, for example, that the American government magnanimously allowed Hayek to issue "Hayeks", me to issue "Rothbards", our publisher "Pedy", etc. The problem, as Hayek's mentor Ludwig von Mises used to point out, is that we might issue these notes to our heart's content, but that nobody (except perhaps a few misguided friends or relatives) would take them.They would become curia for collectors, if not a laughingstock. For, this competition in moneys, contrary to Hayek's seeming assumption, would not begin in a vacuum. We would begin in a world in which the public has become accustomed, for centuries, to using only "dollars", "pounds", etc. as monetary units. As Mises demonstrated decades ago in his "regression theorem", people adopt certain units as money because they are confident that most other people will be using them as money. In short, the arrival of a thing or a name as money occurs only after a lengthy process of custom and habituation to its use. If we issue "Hayeks" and"Rothbards", no one will have been habituated to their use; and no one would either trust us to be efficient money issuers or have any confidence that anyone else would begin to use it as money. In fact,most people on the market, if they noticed the presumed "Hayeks" or "Rothbards" at all, would consider them jokes in questionable taste.

In fact, Hayek's plan ignores the most fundamental part of Mises' regression theorem: that nothing ever becomes money out of the blue; that it can only emerge as money as a unit of weight of a useful market-produced commodity: almost always either gold or silver. Once the public becomes accustomed to the dollar or pound as a unit of weight of gold, then the government can sever the accustomed name from its base in the market-produced commodity, and seize the monopoly of supplying it as a fiat currency - with results that we know all too well in the 20th century.

This latter point highlights the major flaw in Hayek's scheme: Not just that no one would pay any attention to these currencies, but that the scheme leaves the really important current moneys: dollars, pounds, etc., in the hands of monopoly government. Hayek's "denationalized" money may allow for freedom to produce such trivial paper tickets as "Hayeks" and "Rothbards", but it would disastrously leave real money: dollars, pounds, etc. safely nationalized and monopolized in the hands of government.And so inflation would proceed unchecked upon its way.

In the final analysis, then, the gravest flaw in Hayek's scheme is that it diverts free-market-oriented people from their most urgent monetary task: getting the dollar, pound, etc. out of the hands of government and into the hands of the people and the free market.In short, we must denationalize the dollar; we must get the government out of the dollar business. And that can only be done by restoring the status of the dollar (and the pound, franc, etc.) to its original role as a unit of weight of gold. Only a return to the dollar as a unit of gold can denationalize the dollar and other contemporary currencies and return their supply and regulation to the private market, to the mining of gold. What we really need now is not so much the denationalization of a non-existent "Hayek", but the denationalization of an all too existent dollar.

Note: For those of you who are going to charge that Rothbard's analysis doesn't apply Bitcoin because it has advanced beyond a few misguided friends and relatives, I would argue that this is exactly what has occurred with Bitcoin---given the internet age. Circulation is just amongst a small group. Bitcoin, despite much media hype, is really only played with by parts of the techie and libertarian world. The Bitcoin "float" is probably around 6 million bitcoins. In stock terms, that is a very small float, generally, occurring only in the penny stock world. Yes, some misguided friends and family of the techie and libertarian world are into Bitcoin, but that is it.

12 comments:

  1. As long as bit-coin is trading freely your wrong. Once the government shuts it down it proves that the government can shut things down. The internet was a little thing the techies messed around with in the beginning too.

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    Replies
    1. Bitcoin can trade for eternity - that does not make it a currency

      Perhaps this will shock you - but the internet is not a currency nor a store of value

      Delete
  2. "The problem, as Hayek's mentor Ludwig von Mises used to point out, is that we might issue these notes to our heart's content, but that nobody (except perhaps a few misguided friends or relatives) would take them."

    Remember "S&H Green Stamps"? Were these small stamps "Money"? They were issued on the backs of money/dollar exchanges for food at the supermarkets of the day (usually 1 stamp for each dime of purchase). There were stores where you could exchange filled stamp books for toaster ovens, etc. The end of S&H came quickly in the early Inflation Era as people voted with their feet - and pocketbooks - to eliminate the middle man.

    The fact that "Hayeks" might not be taken seriously is not an argument against "Hayeks". THAT'S THE POINT! It is an argument for an agreement between two or more people as to what constitutes "Value". Anything that allows free decisions in one's control of their own value should be the focus.

    "I just made $4 Trillion Dollars by moving special numbers on a computer screen! Ask me how!

    - Ben Bernanke"

    The point here is that there is a "Recognized Form" of money as there is a recognized form for National Armies. Stray a little bit off the (recognized) beaten path and one of these recognized army types might be knocking on your door. We determine exchange value all the time and there is nothing any government can do about it. It cannot do anything about because, as Whitehead stated about a slightly different subject, we are "internally determined but externally free".

    If I determine that gold is the proper store of value, I may buy as much gold as I can but I pay, for example, in dollars that I then free up for other people to use as they see fit. Value through time.

    "...the gravest flaw in Hayek's scheme is that it diverts free-market-oriented people from their most urgent monetary task: getting the dollar, pound, etc. out of the hands of government and into the hands of the people and the free market."

    Well, yes. To do that, however, would involve getting out of the current situation by not participating in the Money System, using the law to eliminate the explicit monopoly and other means that I cannot divine. The Free Market allows such indetermination here.

    I'm afraid that in this one, "The Referee declares this match a draw..."
    Pity.

    CW

    ReplyDelete
  3. "The problem, as Hayek's mentor Ludwig von Mises used to point out, is that we might issue these notes to our heart's content, but that nobody (except perhaps a few misguided friends or relatives) would take them."

    Remember "S&H Green Stamps"? Were these small stamps "Money"? They were issued on the backs of money/dollar exchanges for food at the supermarkets of the day (usually 1 stamp for each dime of purchase). There were stores where you could exchange filled stamp books for toaster ovens, etc. The end of S&H came quickly in the early Inflation Era as people voted with their feet - and pocketbooks - to eliminate the middle man.

    The fact that "Hayeks" might not be taken seriously is not an argument against "Hayeks". THAT'S THE POINT! It is an argument for an agreement between two or more people as to what constitutes "Value". Anything that allows free decisions in one's control of their own value should be the focus.

    "I just made $4 Trillion Dollars by moving special numbers on a computer screen! Ask me how!

    - Ben Bernanke"

    The point here is that there is a "Recognized Form" of money as there is a recognized form for National Armies. Stray a little bit off the (recognized) beaten path and one of these recognized army types might be knocking on your door. We determine exchange value all the time and there is nothing any government can do about it. It cannot do anything about because, as Whitehead stated about a slightly different subject, we are "internally determined but externally free".

    If I determine that gold is the proper store of value, I may buy as much gold as I can but I pay, for example, in dollars that I then free up for other people to use as they see fit. Value through time.

    "...the gravest flaw in Hayek's scheme is that it diverts free-market-oriented people from their most urgent monetary task: getting the dollar, pound, etc. out of the hands of government and into the hands of the people and the free market."

    Well, yes. To do that, however, would involve getting out of the current situation by not participating in the Money System, using the law to eliminate the explicit monopoly and other means that I cannot divine. The Free Market allows such indetermination here.

    I'm afraid that in this one, "The Referee declares this match a draw..."
    Pity.

    CW

    ReplyDelete
  4. "Paper Tickets" back in the day did not have greater utility than fiat currency. Bitcoin does. It may not be a widely used currency, but it will have a niche like paypal - as a way to transfer funds and as a store of value.

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  5. Rothbard's statement is entirely correct for what he is addressing, but it's totally irrelevant to bitcoins.

    Bitcoin cannot be issued till anyone's heart is contented.

    Bitcoin acts, in all respects, as if it were a physical commodity. It is scarce, fungible, divisible, secure, recognizable, impossible to counterfeit, durable - in fact, it is in all ways a superior currency to gold.

    Rothbard argues that dollars should be backed by gold, but Rothbard never mentions what means should be used to ensure the accounting of dollars to gold is accurate. Bitcoin is simply a gold standard accounting ledger without the gold.

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  6. I read the same words and I see him crying out for Bitcoin to fill all those criticisms. Doors of perception I guess.

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  7. This is the final straw.

    Wenzel has misappropriated a Rothbard text to try and demonstrate that Bitcoin cannot work.

    Rothbard here says that Hayeks would not be accepted in the market because it could be the case that nobody (except perhaps a few misguided friends or relatives) would take them. Well, Bitcoin is not like this at all right now; it is widely accepted and growing rapidly.

    The confidence gambit also does not work either, because people are confident in it and can be so not only because other people accept it in trade, but because the number of units of the money is strictly controlled by a network of computers, which is, by the way, the most powerful computer operation ever created by mankind.

    Bitcoin has not become money out of the blue. Peter Surda has clearly outlined all of this from the Austrian School perspective. Please use Google to read his work.

    The really important current moneys: dollars, pounds, etc., can be taken out of circulation by Bitcoin. The fact that most people use mobile phones and Skype for telephone calls instead of land lines demonstrates how one technology supplants another.

    It is clear from this piece of text that Rothbard is not talking about a system like Bitcoin. Here, he is describing another fiat paper currency like the dollar, printed privately. This is what he is talking about when he describes Hayeks as "denationalized" trivial paper tickets. Bitcoin is neither paper or trivial.

    Wenzel in his footnote claims that Bitcoin has circulated only amongst a small group. This is absolutely false. Coinbase, a single Bitcoin dealer has just signed its millionth customer. And that is a single Bitcoin business; there are many more all over the world, and they are growing exponentially. I put it to you that there are more Bitcoin users than Libertarians in the world.

    The "float" of Bitcoins that Wenzel cites is also utter nonsense; each Bitcoin can be split into one million pieces. He does not know even the most simple fact about it. Or does he? He conducted this interview:

    https://www.youtube.com/watch?v=dpJYFZOgDKQ

    In June 2013 with Trace Mayer, where Bitcoin was explained to him comprehensively. All he could say between the answers was, "um hmmm". Clearly everything that was told to him went straight over his head.

    Finally, what would Murray Rothbard really think about Bitcoin were he alive? We can get an idea from this video of Milton Friedman, who describes Bitcoin in 1999:

    https://www.youtube.com/watch?v=6MnQJFEVY7s

    People like Wenzel and North, unlike the great Rothbard and Friedman are able to see the future, to develop and create ideas. What is reprehensible is to use the words of these great men to try and prop up a false idea that is anti Libertarian and anti Capitalist.

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    Replies
    1. Amen Anon 7:27

      Delete
    2. You are anti-intelligent. You are a useful tool.

      You idiots who jumped on the first public ledger system are so voyeuristic its gross. It may rise in fiat 'value', as that is all it is exchanged for in volume (see Overstock.com), but it, as Rothbard illustrates, pulls the cohesion out from under the common-thread tying any anti-Statist movement, despite differences. The ignorati dominating this (above false) anon-LMAFOA meme fest, should know better---these so called geeks.

      What of the fact verifiers lose profit incrementally as AN INAPPROPRIATELY DEFLATIONARY (IN THE MONETARY SENSE, YOU FOOL) FUNCTION MAY SEEK TO REFUTE FREE-MARKET PRICE DEFLATION MODERATED BY A FREE MARKET IN MONEY PRODUCTION.

      CUZ WHY NOT. Why don't you bitcoin shills talk about the fact the so-called gold-styled hard number, divisable to a satoshi, is easily devalued. All it takes is verifiers controlled by a majority.

      After you idiots get your moms and everyone else up on this--or as you may say --adoption is broader--miner/verifier profits fall, consolidation and coalitions become natural, and in time a few may by out a few others... Then, once everyone is sure the deflationary hell, which is not a free market-moderated supply, is the supposed "cause", the works of Jorg Guido Hulsmann, and Rothbard and Mises will be 'refuted' in a new way by the centralists, at one-time, our common foe.

      Delete
  8. if any of his assumption were true, then why the need to forbid other currencies? why the need to make the dollar mandatory if its already so great on its own? isn't it obvious that the fed is the biggest scam in the last 100 years ... what was so great about the 2008 crash?

    ReplyDelete