Thursday, April 25, 2013

Ron Paul versus Cullen Roche on Bitcoins

Business Insider is featuring a piece by Cllen Roche Ron Paul's Definition Of Money Is Completely Backwards And Out Of Date

It is about money, bitcoins and Ron Paul's view of them.

There are two themes to the piece, Dr. Paul's view on money and Roche's view on money. I will start with an examination of Roche's view.

Cullen gets off to a wrong start when he writes:
Money is first and foremost a means of final payment.
This is a very confused way of looking at money. Money is generally considered a medium of exchange. That is, we exchange money for other goods and services, and vice versa, because we no others will accept money for what we want to buy later on. It is, in other words, the most liquid commodity. If you want to buy something, people will always accept money.

Cullen in his piece shows he is nowhere near an understanding of this when he writes:
 The physical form of money arose as a tangible form of record keeping that helped resolve the lack of trust that goes with something like a verbal bond.  If I require a note or coin before I give you a back scratch you’re essentially indebted to me and I have proof of this.  You can’t just skip out on your end of the deal.  So, instead of promises, we created physical things that represented ways to get your back scratched.

Cullen is thinking of money as somehow being a debt instrument, a promise to pay, if you will, but this is not part of money at all. There is no indebtedness when money is exchanged for goods. The exchange is complete in itself. It does not replace any verbal bond. It is two people exchanging for the what they prefer, one the money, the other the good or service. Beginning and end of story. The money does not in any way represent indebtedness (unless of course one person is borrowing money and the other lending it). Once, the exchange takes place (outside of the special case of a loan), the two people may never see each other again.

Cullen goes on from here building on his erroneous back scratching debt/promise theory:

Today, our money systems have evolved into highly complex electronic systems where the means of payment  now exist mostly as records in computer systems. And those records are backed up by a structured legal system and a regulated banking system in order to give you access to the economy of back scratches.
Cullen, in other words, apparently considers, in some poorly defined way, that money is an accounting system that regulates the demand for the goods and services offered in an economy. It is no such thing. It is a very liquid commodity. There are some monies, such as the paper dollar, that are dangerous money because they can be printed up by the government whenever it desires. There are other monies (or monies in waiting) such as gold and silver which can not be printed up by governments, which make them much sounder monies. It doesn't appear Cullen gets any of this in his world of money as accounting and  indebtedness units.

In other words, we will have to look elsewhere for an understanding of Ron Paul's view on bitcoins. What did Dr. Paul say about bitcoins? He said this:

To tell you the truth, it’s little bit too complicated. If I can’t put it in my pocket, I have some reservations about that. But it has been designed in the free market. If it is a means of exchange, it would not ever be illegal. You shouldn’t regulate it in the free market, but I do not think it fits the definition of money, which has been around for 6000 years. People want to see something they can know what it is, they can define it, touch it and put in their pocket. If you do not have a computer and someone running the computer and calculations, you don’t have it. I am not a big supporter of that, but I am not opposed to it. I admit, I do not fully understand what is going on with it.
As always, Dr. Paul was his usual humble self and said he did not understand bitcoins fully, but he did make one significant point when he said he had reservations about a money that can't be put into his pocket. There is an important insight in what he said, especially given that bitcoins are not now money in the sense that you just can't walk into any store and use them. They, in other words, are not readily marketable. It's possible they could become much more liquid and marketable overtime, however, I suspect that the government will put a stop to bitcoins, just as they did egold before it gets close to being that liquid and marketable. They will hit the bitcoin exchange centers by filing some type of money laundering charges against them (most likely bogus) and it will be game over.

Thus, Ron Paul's comment about money you can keep in your pocket is a very valuable observation. The most important money you can control is money you can keep in your pocket or that you can bury in your back yard.

Yesterday, I reported on a Swiss bank that refused to give a client his segregated gold, money laundering laws were cited. The government is making it more and more difficult to do what you want with your money. Thus, money you can keep in your pocket (or buried in your backyard) is smart money. This isn't like the 1930s when everyone trusted government and turned over their gold-money when the government said so. It won't happen this time. Gold that is in your pocket  and outside the banking system, is going to be a keeper, regardless of what the government says. Bitcoins will never get there, the government unfortunately will see to that. Ron Paul has it completely correct.


  1. >he had reservations about a money that can't be put into his pocket.
    Suppose could have them on some sort of pocket storage or communication device. Might come down to comfort level with this, something those less used to such, might have a harder time with, those of a younger age, perhaps less so.

    >I suspect that the government will put a stop to bitcoins, They will hit the bitcoin exchange centers by filing some type of money laundering charges against them (most likely bogus) and it will be game over.

    Yes, I think they will not wish to allow an alternative to whatever digital currency scheme they have in the works at this time. Congress might also pass legislation about it. Even if alt. digital currency providers(or their supporters) file court suits; based on historic supreme court rulings in the 1860's, 1930's etc. pertaining to greenback issuance, gold devaluation/confiscation, one would imagine the court system will continue to support the central powers fully on digital money schemes in terms of seeking to keep the govt. the sole purveyor, as well as their exclusive right to dictate terms-conditions of use, and ultimately value.

  2. Another intellectual pygmy swinging at Ron Paul's knees.