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it's why are they swapping that amount of stuff for that amount of other stuff
God point. I'm saying the initial exchange rate can be a wild guess. You can see this if you read lazlo's thread. He later asks:
So, I'd say he was just guessing at the exchange rate and possibly he could have done it for less or more, but that this doesn't matter. He didn't need to reference some pre-existing use value of bitcoin.
I don't mean to use the anecdote as a a rule (besides, someone in the thread that same day says that he could sell his 10,000 btc for $41 on bitcoinmarket.com, so there seems to have already been a price anyway).
I maintain, though, that humans can establish a market price without reference to any previous price or use-value. I do not agree with Mises' "it must happen" argument.
Imagine bitcoin had failed prior to Pizza Day. We certainly wouldn't say it had been money, right?
I disagree with this. I think we'd call it a failed attempt to create money. I don't think we'd call it something else (eg. a collectible). Esperanto is not a very useful language, but if you look at it, it's hard to say it's something other than a language.
People did expend effort to acquire it, though.
It is the nature of bitcoin that you cannot acquire it any other way. It must be mined. I suppose someone else can give it away to you, but they had to acquire it through mining. No bitcoin has ever entered this world that wasn't worked for. This would also be true if it never caught on as money.
those nerds were willing to work for bitcoin on the chance that it became money someday, not because it was money immediately
This sounds a lot like speculating on foreign currency. I might buy Turkish lira not because I can spend them immediately, but because I suspect the exchange rate will go up and I'll spend them later. I don't see why such an argument should prevent the initial adopters of bitcoin from acting like bitcoin is money.
One of the amazing things about prices is that they can incorporate inchoate knowledge that we can't even articulate to ourselves.
Somehow, those early developers decided how to ration their time and physical resources in the acquisition of bitcoin. They didn't do zero and, to my knowledge, they didn't go all the way to the other extreme of investing all of their time and wealth on it.
I don't think the allocations they made were entirely random within that range, either. They had some expectations to go on, all prior to any MoE/SoV/UoA functionality.
People expect the Regression Theorem to have more teeth than it really has. As you highlight later, Subjective Value Theory requires that any source of value is a sufficient starting place, including a few nerds thinking something is neat.
we'd call it a failed attempt to create money
How is that different than what I said?
we'd call it a failed attempt to create money
How is that different than what I said?
I should have put it this way:
I think we'd call it bad money.
I don't think the allocations they made were entirely random within that range, either. They had some expectations to go on, all prior to any MoE/SoV/UoA functionality.
This is what I understood Graf (and Mises) to be saying is meant by praxeology here: there is always something prior to being valued as money.
But I think Bitcoin is a case where people didn't have any prior expectation. They meant to use it as money from the beginning. Obviously, I have no idea what any person's private expectations are, but I think there is at least a little gap where it is possible that the main expectation of people who first used bitcoin was that it was useful as money. And if there is such a possibility, the regression theorem isn't a satisfactory formula.
Of course, I should probably be asking why it matters.
Subjective Value Theory requires that any source of value is a sufficient starting place, including a few nerds thinking something is neat.
I hope that I took it farther than this. I wanted to express: "a few nerds can think something is money even if it has never had any other value."
Ok, some of the confusion is perhaps coming from thinking money is a purely Boolean category, rather than a continuous property.
Hoppe talks about partial moneys (not sure if that was his terminology), which are commodities that take on some monetary characteristics. The Regression Theorem is trying to explain how things get started on the path to becoming money. They had some recognized properties that suggested they might function as a MoE, SoV, or UoA, and began being acquired for those reasons, resulting in a monetary premium. If that monetary premium amplified over time, then the good is considered to be emerging as a money, but it isn't money until it's overwhelmingly used for monetary purposes.
In that sense, those nerds weren't thinking bitcoin was money initially, as the word is used in the Austrian tradition. They may have used the word "money" to describe what they were making, but since there was no monetary use yet, an Austrian would say they had created something that might be able to fulfil monetary functions if people adopted it for such purposes.
a few nerds thinking something is neat
This is just my own framing and why I don't get hung up on Regression Theorem stuff.
Bitcoin is a case where people didn't have any prior expectation.
I don't think that's right. There would be an enormous range for possible future purchasing power, but the technical mechanics of bitcoin could place some bounds on it. In the moment, they were allocating costly things to the production of bitcoin (electricity, their own time, computational resources, etc.). Even if they didn't do precise accounting, they would have at least a vague sense of what their production costs were and likely wouldn't exchange bitcoin wildly below what it had cost to acquire.
You were right earlier to draw an analogy to currency speculation, but were wrong to make the analogy with a currency that is already in use. Same for the Esperanto analogy: there was a point prior to Esperanto actually being made, but after it had been conceived and was being developed, when it was not yet a language.
The key thing that needs to be explained isn't why people started swapping certain stuff for other stuff, it's why are they swapping that amount of stuff for that amount of other stuff: i.e. Why 10,000BTC for 2 pizzas? Why not 1BTC for 5 pizzas?
The initial exchange rate comes from the perceived value of the two goods. In the case of commodity monies, we base that in the use value of the commodity. As you note, though, bitcoin had no other use value, so we need something else to explain why it had the perceived value that it did. Doing so will also explain why people expended effort for bitcoin before it had any exchange value for other goods.
Imagine bitcoin had failed prior to Pizza Day. We certainly wouldn't say it had been money, right? People did expend effort to acquire it, though. That means it had economic value and we could calculate the implied exchange rate of bitcoin for that labor.
My thinking is that those nerds were willing to work for bitcoin on the chance that it became money someday, not because it was money immediately. That means it's economic value was the value it would have should it become money multiplied by the probability that it becomes money and then discounted by the expected time it would take to become money.
As it proved itself from a technical standpoint, that probability increased and it became more valuable. Then, based on that initial value, some test exchanges for goods are made, starting the process of price discovery.