Wednesday, May 14, 2014

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.


  1. One. Cash cards. Digital debt. Both are non-paper non-physical money that existed before BTC.

    Two. I don't see "digital" as non-physical. My computer and all its software, privacy ware, wires, hard drives, net connections, etc. etc. are indeed very, very physical. More so than paper in many ways.

    Three. Algorithms shmalgorithms.

    This is the same hocus-pocus that accompanied the arrival of derivatives as the great white hope of the financial markets. And you can see where that led.

    Four. What's up with this bloke?

    Went and read his articles from earlier and no sign of this meltdown to be seen anywhere.

    Five. He has no moral grounds to criticize Mises' inconsistency. Nothing he's written before matches up with the stuff he's saying now.

    Maybe this is a Tucker body-double..and the real Jeff Tucker has been snatched up well ahead of the Rapture..

  2. Tucker is a pop econ and self-proclaimed tech writer, not a serious intellectual heavyweight like Hoppe or Tom Woods, so I'm not surprised that he departed the Mises Institute or that he has been so loopy as of late attempting to tackle complicated economic subjects as he rubs elbows with other lightweights like Reisenwitz and other leftist subversives.

  3. The linked report is just that, a second-hand report of Tucker's speech. I cannot separate the author's own misconceptions from any "non-Austrian" comments Tucker may have made. But even assuming the accuracy of the report, it sounds like Tucker is attacking certain misconceptions of "pop" Austrian theories, meaning that it is distortions of Austrian theory that Tucker is attacking, not mainstream Austrian theory.

    For example, the report states (all caps are mine):

    "POP Austrian economics was the subject of much criticism, with special attention paid to CLAIMS that Austrian economics requires money be a physical commodity, and especially the fallacy that money must have 'intrinsic value'."

    So Tucker here is criticizing, not agreeing with, the idea that money must be "physical" or have "intrinsic" value, whatever those things mean. And if Tucker said he used to believe otherwise, Tucker is now admitting he was previously in error on this point and no longer holds those views.

    Also, when all the "deflationary currency" comments are read in context, including the reference to gold as also being a deflationary currency, it is clear that Tucker, or the reporter, is using the term "deflationary currency" only in the sense that because of the inherent limitations on the ability to increase their quantities, they tend to result in a slow decline in the price level, even though their quantities increase, which is true, and Austrian. And this predictable decline in price level does create an incentive to defer spending.

    Also, the author of the report states that "Austrians have historically labeled gold mining as non-inflationary." This is a ridiculously incorrect statement and makes me think that the author's understanding of Austrian theory is so limited that he is incapable of accurately describing whatever Tucker did say. The author doesn't say that Tucker said this. I hope not. I have recently re-read virtually everything Rothbard and Mises wrote about money. Neither Rothbard nor Mises say that gold mining is not inflationary. They both say that even though gold mining DOES increase the quantity of money, it happens so slowly and predictably that it usually causes only very small distortions in the capital structure and because productivity increases faster than this small inflation, there still is a general tendency to price declines even with this inflationary result of gold mining.

    Therefore, this article seems to be just a garbled, probably biased, attempt to save Bitcoin from Austrian skepticism, especially skepticism based on certain misconstructions of Austrian theory. I would love to see a transcript of Tucker's actual speech before I judge him.

    1. Where are you getting the idea that Wenzel or anyone else says Tucker currently thinks, or did think, that money must have intrinsic value? This is a combination, perhaps, of your confusion and Tucker's inability to express properly his core point.

      The article is an "attempt to save Bitcoin from Austrian skepticism" You don't think Tucker is trying to do that?

    2. Its a product of your confusion. Read my quote again. Tucker is CRITICIZING the pop notion that money must have intrinsic value. As to whether Tucker, along with this article, is trying to save Bitcoin from Austrian skepticism, I don't know, which is why I didn't say so either way. But it sounds like Tucker at a minimum is trying to save Bitcoin from POP, namely half-baked, or incorrect Austrian theory. But as I wrote, I would like to see the actual speech transcript before coming down hard on Tucker.

    3. This is the video of the event:

      Tucker actually speaks quite highly of Rothbard throughout the entire event.

    4. @Alan You are spot on except for the last two paragraphs of this comment. Just look at the quote Wenzel pulls for this article. He should have bolded the following part of the first quote: "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." If an increase in need (demand) for money accompanies an increase in the money supply, that is not inflationary. When resources are put into mining gold (or bitcoin), this is the accompanying demand. The price level does not rise when gold is mined. Just think of every unit of money being a box, and inside the box is what was exchanged for that money. Fiat money is adding empty boxes and reducing the average amount of stuff per box. Gold mining is adding boxes that are full of mining equipment.

    5. Yeah that's real great analysis, except that Mises later though out that part of his theory (That's what Tucker was probably referencing) and Rothbard never used it. In other words, you have no idea what you are talking about. Just a typical fanboy response throwing shit out without understanding the context.

    6. @Anonymous Yes, it's true that Mises later redefined inflation. I like early "Theory of Money and Credit" Mises better. Rothbard seems to agree with me about "The Theory of Money and Credit" being the culmination of Austrian monetary theory: He says, "The Austrian theory of money virtually begins and ends with Ludwig von Mises's monumental Theory of Money and Credit, published in 1912."

    7. Rothbard definitely had the view that gold mining wasn't inflationary. From "What Has Government Done to Our Money?": "Inflation may be defined as any increase in the economy's supply of money not consisting of an increase in the stock of the money metal."

  4. You are an idiot. That's my point, no one is saying Tucker is arguing otherwise. Your initial phrasing suggest someone is. Your inability at regarding comprehension is climbing at an exponential rate.

  5. Of course crypto currencies can and will be inflationary. They are already forking the Block Chain to enable fractional reserve.
    Are Off Block Chain Transactions Bad for Bitcoin?
    Bitcoin was designed to be a decentralized and trustless payment network – with the power to do this provided by the block chain and its ability to publicly confirm the digital currency’s digital transactions.Rather contentiously, however, as the bitcoin economy expands, more and more transactions are being carried out off the block chain.Such transactions are tracked on private databases instead of the block chain, and cannot be publicly tracked.
    Ortutay, the on-chain micropayment entrepreneur, thinks that some bitcoin companies may have other, less desirable reasons to transact off-block chain: “Exchanges use off-chain so they can run a fractional reserve. Certain (unnamed) exchanges/brokers do this because it’s hard to operate otherwise.”

  6. I get closer to removing EPJ from my news feed each day. This bickering is ridiculous. "Tucker did this.", "Kinsella said that.", "Libwaps don't want to play with us.". Shut the fuck up already.

  7. Tucker is right about Bitcoin being deflationary. A maximum of 21 million Bitcoins will be mined and over time some will be lost so over time the total number of Bit coins will shrink.

    1. You think a large number of people who have bitcoins that are worth over $400 are going to lose them, Dream on. That might have occurred early on when bitcoin first came out and people forgot their passwords but now.

  8. Tucker is being misquoted, apparently. Here is his comment on another piece that quotes this piece:

    Jeffrey Tucker • a day ago

    Thank you for this. The headline is oddly misleading though, because my thesis was to defend Austrian monetary theory in light of Bitcoin and against pop misunderstandings of that theory.

    1. This looks like spin by Tucker to me. If he is "defending" Austrian theory then why does he attempt to give the impression that Mises fundamentally changed his views on money, when in fact the Mises quotes pulled by Wenzel show that is not the case.

      What Tucker is doing is promoting Bitcoin at the expense of everything including the scholarly reputation of Mises.

    2. @Anonymous The Wenzel's quote from Mises absolutely does not show that. Any serious student of Mises knows that his definition of inflation was different in Theory of Money and Credit than it was in Human Action. Gold mining is inflationary in HA and not inflationary in TMC: Go back and read the first, non-bolded part of the quote Wenzel cites. Rothbard, if you're curious, held that gold mining wasn't inflationary: "Inflation may be defined as any increase in the economy's supply of money not consisting of an increase in the stock of the money metal."