Jeff Tucker's Bizarre Attack on Austrian Economics

My email box has been flooded by readers sending me a link to a Bitcoin Magazine report on a speech given by Jeff Tucker in Boston. There have probably been a lot of off the wall speeches in the city, since it was the home of Ted Kennedy, and Elizabeth Warren currently lives just across the Charles River in Cambridge, but Tucker's speech, from an Austrian economics perspective, certainly ranks among the top ten speeches in Boston that fit into the category, What the Hell Was That?

I am not going to discuss every error among the cluster of errors made by Tucker in the speech, that would require a book, but I will do a drive-by that points out some of the glaring absurd comments that Tucker made.

Ruben Alexander at Bitcoin Magazine writes:

Tucker remarked during the event how “deflationary” currencies such as bitcoin incentivize saving. 

This is a comment that you often find being made by Bitcoin fanboys.  But what exactly does this mean? There are basically two definitions of deflation, one is that it is a decline in prices in relation to a currency, the other is that it is a shrinking of the supply of a given currency.

Additional bitcoins are being mined all the time and nowhere in the protocol are there any rules that call for the eventual shrinkage of the supply of bitcoins. Thus, bitcoin is certainly not deflationary in the sense of a currency that is experiencing a decline in supply.

But further, the idea that bitcoin is somehow, and in all cases, a deflationary currency, in terms of its price relative to other goods, is also absurd.  The current bitcoin price is $441.46, the peak price for Bitcoin was around $1,200, that means anyone that bought bitcoin between $442 and $1,200 has seen a decline in the purchasing power of the bitcoins they are using. That is, in terms of bitcoin, prices of other goods and service have skyrocketed, that is inflation not deflatin.

And speaking of the definition of money supply, Bitcoin Magazine tells us this:

Tucker also questioned the relevance of traditional Austrian definitions of inflation, noting that there is no single Austrian definition, and pointing out that the premier Austrian economist, Ludwig von Mises, didn’t even have a uniform definition, changing wordings between his two foundational Austrian works The Theory of Money & Credit
 and Human Action.

This is a major distortion of Mises take on the definition of inflation. Mises refined his view on the role of money a bit in the 30 plus years between the publication of the two books, but Tucker's implication that there was some drastic redefinition by Mises of the two general ways the term inflation was defined by him is simply incorrect.

Here is Mises in The Theory of Money & Credit (my bold):

I am by no means in agreement with those unusually influential voices that have been raised against the employment of the expression inflation altogether. But I do think that it is an expression that it is possible to do without, and that it would be highly dangerous, on account of a serious difference between its meaning in the pure economic theory of money and banking and its meaning in everyday discussions of currency policy, to make use of it where a sharp scientific precision of the words employed is desirable.

In theoretical investigation there is only one meaning that can rationally be attached to the expression inflation: an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange value of money must occur Again, deflation (or restriction, or contraction) signifies a diminution of the quantity of money (in the broader sense) which is not offset by a corresponding diminution of the demand for money (in the broader sense), so that an increase in the objective exchange value of money must occur... But once the economist has acknowledged that it is not entirely nonsensical to use the expressions inflation and deflation to indicate such variations in the quantity of money as evoke big changes in the objective exchange value of money, he must renounce the employment of these expressions in pure theory.

Here's Mises saying pretty much the same thing in  Human Action.

The semantic revolution which is one of the characteristic features of our day has also changed the traditional connotation of the terms inflation and deflation. What many people today call inflation or deflation is no longer the great increase or decrease in the supply of money, but its inexorable consequences, the general tendency toward a rise or a fall in commodity prices and wage rates.

Again, it is not that Mises, 30 plus years later, did not advance and refine his understanding of the nature of money, but there was a consistency in Mises view that the quantity of money was at the core of the definition of inflation  for the economist, while the general public tends to consider increasing prices as inflation.

Bitcoin Magazine also tells us:

Tucker added...A common misinterpretation of the Austrian Regression Theorem, wherein money must be a physical commodity, is to blame. Tucker admitted that he himself never thought non-physical money could arise.

What the hell is he talking about here? Is he saying that prior to Bitcoin that there have been no non-physical commodities that have been money? Is he aware that the current U.S. dollar is not backed by any type of physical commodity?

Or does he mean that Bitcoin, unlike the dollar, is generally held in the form of electronic wallets versus paper? This may be a change in method by which a non-physical commodity currency is held but the essence of the two, as money, are the same in that people hold either because they believe that they will be able to use either of the two to purchase goods and services.

There are many other distortions in the speech, but I am going to stop here. It is sufficient to say that Tucker approaches economic discussion in a manner very similar to John Maynard Keynes, with both men there is a lack of clear focus on definitions and meaning. Terms and longer observations are made, without a proper foundation, and then the dangling terms and observations are used to construct an argument that take us into a never, never land of distortion mirrors.