OK, this is a really long one...but I think merging the topics can be beneficial, so please bear with me
(Also thanks to @Rothbardian_fanatic and @Undisciplined for pushing back against me, prompting me to think through and explain more clearly—I hope?—my perspective).
Rundown:
- Meaning of Intrinsic Value in (monetary) economics
- Meaning of Subjective value in (Austrian) economics
- Why it pertains to music, and why music is a noneconomic good (without economic value).
(1)
The intrinsic value conversation is really boring—and Bitcoiners don’t come out ahead.
Contrary to what most Bitcoiners would claim, intrinsic value doesn’t invalidate “subjective value,” the core economic tenant from which all economic analysis ultimately “stems” (see below). And no, this isn’t a shill for Peter Schiff.
All that intrinsic value means in monetary economics is that the object used as money has nonmonetary use cases. Gold, like all commodity money, is like that—which is why it comes up as a critique of bitcoin largely from gold bugs.
Fiat economists don’t really invoke this argument against bitcoin either, since bitcoin obviously share with fiat the property of having no nonmonetary uses. As so often is the case, bitcoin becomes this ideal middle-ground between fiat and gold (#749912).
It’s a description, a categorization—not a moralization or counterargument.
I think this confusion has happened because Bitcoiners overcorrected on the not-backed-by-anything FUD that we get left, right, and center. But, to paraphrase Parker Lewis from Gradually, Then Suddenly (and Eric Yakes' The 7th Property before then): money doesn’t need to be backed by anything, it needs to accomplish (= have credible) monetary properties.
(to make life maximally annoying for us here, in finance "intrinsic value" usually means the true value of a stock, Warren Buffet-style—using some discounted future cash flow formula. I'm too much in the efficient market hypothesis camp to entertain such statements: value exists only in acted-out prices, i.e. market, i.e., market price; anything else is hypothesized cosplay.)
In the 2010s, lots of Austrian economists were thinking about this since there’s a treasured “formula” called the Regression Theorem that Mises (the leading Austrian economist of the 20th century) popularized. It explained, by using time, why an intrinsically useless item like fiat can become money and remain money (go read up on it in case you’re not familiar with it: Wikipedia or the Mises Institute.)
Bitcoin as money challenges this, and the best answer I’ve seen comes from Will Luther, basically saying that the Regression Theorem therefore is practically irrelevant (“calls into question the practical relevance of the regression theorem"). Here’s the article, and here’s a The Daily Economy rundown of the topic.
- Mises: All current monies need non-monetary uses cases, now or in the past;
- Fiat can trace its non-monetary use case back to historical instances where it did. Bitcoin doesn’t have non-monetary use cases.
Thus: Either the Regression Theorem is invalidated by bitcoin—since it doesn’t have non-monetary uses—or the Regression Theorem itself, as an explanatory device, becomes watered down to the point of irrelevancy.
The explanation has been to engineer a nonmonetary use case (in the beginning, a plaything and status object among cryptographers; now as a unfakeable, undeletable storage of documents): if being a fun plaything for cryptographers anno 2009 is all a fledgling money needs to pass the Regression Theorem, it’s not a particularly strong/impressive/demanding theorem. Anything passes, more or less.
(2)
Now, what’s up with subjective value?
Apparently I caused a hissy fit yesterday, both among Stackers (#796401) and some Twitterati schmucks, when I said music doesn’t have economic value.
These topics are related since they both rely on a misunderstanding of subjective value.
Subjective value doesn't mean that anything goes or that nobody can ever understand me because of my unique lived experience; me likey, therefore value. No, that's postmodern sociology and an entirely different can of worms.
In economics, all we do is we substantiate the Latin phrase De gustibus non est disputandum ("there’s no accounting for taste"). Subjective value is the inferred assumption used to account for why people like/prefer/act in different ways.
Here, Per Bylund in "The Objective Science of Subjective Value"
“Subjectivity” is colloquially used as a reference to something that is without explanation, seemingly random, and without basis. This is not what the term means, however. It simply means that something is personal rather than necessarily shared and equally understood by everyone.
But Austrian economics claims to be a value-free, objective science, which means that we can objectively say things about the world even though all value ultimately stems from invisible subjective wants and desires.
Market prices, the core of what is an economic world, are objective in that they're inspectable—obviously and really there, as opposes to the arcane forces that make anyone prefer strawberry ice-cream over chocolate ice-cream. The beauty of the market economy—aside from coordinating activities and sending signals about wants and relative scarcities (#780358) —is that it makes objective that which was only provided subjectively.
The importance to economics and understanding our world here is unbelievably crucial. Mises, and to some extent Hayek, learned in the process of battling out the socialist calculation debate in the 1930s what the core value of Austrians' emphasis on market prices were: it came down to rivalrousness. (I wrote about this a freakin' decade ago, in case you want to delve into my fledging Austrianism).
Market prices have informational value because they stem from social, profit-seeking processes of rivalrousness. What I am currently using cannot be used by others, which means—given that there exists others who would like to use the things I'm currently using for some purpose—that we must allocate the scarce resources in some way. If there are more of these things abundantly available than anyone wishes to use, there is no need to resort to the price system for allocation. All is and can be satisfied.
We can say, as a matter of objective economic science, that immaterial(!) goods existing far beyond any possible demands there may be from all of humanity, cease to be economic goods.
Scarcity, like Lionel Robbins argued, is the basic problem that gives rise to economics. There are no market prices in heaven, one’s decisions (i.e., praxeology) become limited to that of how to allocate time only.
(3)
Music and its technological transformation.
If you've followed along so far, the short story is this:
Music—literally, practically, objectively, definitively—does not have economic value. The digital content transmitted into my headphones right now is an infinitely replicable, nonrivalrous goods. Ergo, music is no longer in the economic/praxeological sphere—like oxygen, gravity, the Pythagorean theorem, or food recipes.
I pay Spotify, not for "music" or "music services" but for the technical convenience of having all the world's music and more available across devices, and the playlists I've pain-stalkingly gathered over the years. Music ceased being an economic good with digitization (information wants to be free, etc), and streaming services found a technical way to monetize its existence anyway.
Through technological means, music was decoupled from its real-world, scarce-goods origin: Historically, music was a perishable service, performed only locally and fleeting. With 20th-century technology and ability to record a performance, humans made this service a good; music was still scarce, wrapped up and inseparable from the material disc or LP or machine that had “recorded” (hence “a record”) the music.
But the move from economic to non-economic good happened because of further economic improvements again. Now our music is entirely digital, its digital files not even on my devices as their content are streamed into my ears on demand.
Here’s from my Mises Institute piece earlier this year:
Computer files such as recorded music became nonrivalrous and—a few business behemoths and their lobbying efforts aside—infinitely copiable and nonexcludable. Files, therefore, aren’t property since they aren’t scarce. The physical and economic (but not legal!) inability of creators, or makers of recipes, inventions, music, or other things made nonscarce by technology to exclude users is the very principle that makes intellectual property nonproperty. (Joakim Book, "Private Property Comes from Scarcity, Not Law")
Ideas are not subject to economic decision-making; recipes are not scarce; the Pythagorean theorem does not require user fees to its copyright holder.
Appeal to authority (in case you think I'm a schmuck and not worth listening to): Knut Svanholm explains this in Bitcoin: Everything Divided by 21 Million too:
“Audio files were suddenly sharable among internet users because they had become small. A domino had fallen over that would soon make the entire record industry obsolete. And not only the record industry but the whole entertainment industry. Any computer file could now be shared with anyone on Earth over the internet for free.”
In this year’s The Inverse of Clown World (#670200 and #760879), he puts it even more bluntly: “Intellectual property laws literally retard the entire market.”
Me again:
One person’s use of nonexcludable, nonrivalrous intangibles doesn’t prevent another person from using them. You don’t deserve financial compensation for your hard labor of breathing, nor being a nice person to others. You deserve economic compensation when you used scarce resources to generate value for others.
Bitcoin exists because it's the reinvention of digital scarcity, lost about twenty-something years ago when music also ceased being an economic good.
(4)
IN SUMMARY,
Consider the wonderful picture I snapped on my walk today. I treasure it and value it; I sent it to friends and family to show them what it's like where I am, and spread some of the wonderful winter joy. I even threw it up on Nostr and received some zaps for it:
What I can't do—economically—is to make a profit selling this image. It's infinitely replicable, and even the concept of "owning" a JPEG makes no technological sense (insert any NFT convos you've had). Besides, even if I were to acquire rent-seeked value out of these pictures, those rents would quickly be competed away… by the other seventeen people standing around me, also snapping indistinguishable pictures of the same objects.
Images, like music, doesn't have economic value precisely because they are not scarce. They exist in infinitely replicable states, meaning that their (marginal) cost of production becomes zero and, in equilibrium, their market price is too.
Rivalroussness matters.
"Value" is horribly misunderstood.
That's today's massively oversized MONEY CLASS.
Peace,
/J