This week, a perfectly named Bitcoin market called Sheep Marketplace went down, taking $100 million of the sheep’s Bitcoins with it. It announced this.
Sheep is down
We are sorry to say, but we were robbed on Saturday 11/21/2013 by vendor EBOOK101. This vendor found bug in system and stole 5400 BTC — your money, our provisions, all was stolen. We were trying to resolve this problem, but we were not successful. We are sorry for your problems and inconvenience, all of current BTC will be ditributed to users, who have filled correct BTC emergency adress [sic].
I would like to thank to all SheepMarketplace moderators by this, who were helping with this problem. I am very sorry for this situation. Thank you all.
This morning, I received an email from someone named Mike. He is a perfect example of the sheep to be sheared.
Mike does not like my articles exposing Bitcoins as a digital tulip mania. He decided to put me in my place.
The problem with people who have never read an economics book carefully is that they pick up the jargon, but they have no knowledge of the actual logic of economics.
I received an email from a stranger yesterday. It began, “Gary.” At that point, I knew it was from a some 20-something kid. Adults do not begin a letter to a stranger with his first name.
I’ll try to be brief.
Since gov’t fiat usurped the place of real money, fiat now functions as money and we call it money. You call it money. You keep saying dollars are money. Do dollars fit the regression theorem? I think not, except by way of cannibalizing gold. But that’s been a done deal for a long time, so we call all this stuff money now.
I have written about this in 2004 in my article on the de-monetization of gold.
This kid does not understand the basics of arguing. When you write to someone who writes 7 articles a day, you should figure that he has written something on the topic you are raising. When you tell him that he doesn’t understand something on which he has written for 50 years, you should first do a Google search. But kids who begin letters with the author’s first name are not skilled in debate.
Bitcoin is a market response to gov’t fiat. It’s a decentralized fiat, a people’s fiat if you will. It rides the dollar just like the dollar rode gold. It uses dollar values for economic exchange just like the otherwise worthless fiat dollar used the whole price history of gold/silver economies.
First, there are hardly any economic exchanges made with Bitcoins. There is almost nothing offered for sale. Second, the only thing that most people are buying with their hard-earned dollars are Bitcoins. It’s a tulip-mania bubble. Third, because the price of Bitcoins is highly volatile, no one can make calculations about its value tomorrow. This is why Bitcoins are not money. Bitcoins are no more money than tulip bulbs in the Netherlands in 1636 were money.
It’s bootstrapping itself in a hampered, gov’t controlled market. It’s a way to use fiat against gov’t fiat.
The government’s fiat is good for $14 trillion per day in transactions. Its fiat has been operating since 1914. A price denominated in the dollar conveys information. The entire nation’s economy is based n this familiar information. This is the basis of the division of labor. Prices change maybe a percent or two a year. So, the dollar is money.
Bitcoins are not money. The two fiats are not comparable.
The fact that the issue of bitcoins is limited to 21 million makes it more attractive than continually depreciating gov’t fiat.
More attractive to whom? Not to 100 million households who use dollars.
The test of all this theory is the market. The kid mistakes his own rhetoric for the market. The market for Bitcoins is tiny. Every new entry forces up the price, which destroys the crucial feature of money: its price predictability in exchange.
It gains value by siphoning value – just like all gov’t fiat does.
This is gibberish. It is not analysis.
Yet all these modern currencies are tied to gold in some way, having built on that foundation. If Bitcoin builds on the gov’t fiat foundation, which itself is built on gold, and siphons off value as gov’t fiat siphoned value, then how is it not money in the sense that you are using the term for the dollar?
It is not money because it is not being used in exchanges. You cannot buy much with it except illegal drugs and computer programming.
The government shut down Silk Road for drug dealing. The Sheep Market soon followed.
We don’t have a free market, so what’s the point in applying a free-market test to alternative currencies in this climate?
I see. Economic analysis cannot apply to anything but a free market. This therefore means that it cannot apply to anything in history, because we have never had a free market. This kid uses economic logic to deny economic logic.
As I said, people with a cursory knowledge of economics do not know what they are talking about. All they have is jargon.
Bitcoin might fail miserably if a free market were restored, but in the absence of one isn’t it just another fiat money? How does the fact that it’s not issued by a gov’t mean that it isn’t money? You seem to be saying that dollars and euros and pesos are money, but a non-gov’t fiat is some sort of scam! Something doesn’t add up in your analysis.
If you are confused about the logic of monetary theory, then of course monetary theory does not add up for you. The fault, dear Mike, does not lie in monetary theory. It lies in you.
Tell me, if the gov’t of Bananaland had issued Bitcoin, would you then call it money?
Apparently you would. You’d probably praise them for coming up with a way to prevent a fiat money from inflating into infinity! And that’s why you need to re-think your position.
This kid is not much better at the rhetoric of contempt than he is at economic analysis.
You can’t say gov’t fiat is money but private fiat isn’t.
We have an entire civilization operating in terms of fiat money — a civilization that is marked by compound economic growth. But this kid defines away this reality. In his word, all fiat monies are equal. The play-pretend money of Bitcoins and the monetary system that supports an entire civilization.
If you want to make your point stick about the regression theorem, then you should stop referring to the dollar as money. Then you’d maintain a pure intellectual standard of what money is in a free market, but wouldn’t have much to say about how to resist the fiat tyranny with crypto-currency.
The libertarian movement, like all movements, has a majority of people who do not know the logic of their movement. Pareto’s law rules. About 20% really do understand. About 60% have some vague understanding, but they cannot articulate it. About 20% do not know up from down.
Mike is in this latter group.