If only the hot air of its supporters where as limited in supply as Bitcoin itself.
Correction: The original article mistakingly claimed that an LA Times quote used in the article was from anarchist-capitalist economist David Friedman, son of Milton Friedman, but it is a different author, David Friedman, a Senior Fellow at the New America Foundation.
I only have a few minutes for a post today, so this will be brief, to start with, I’ll be at Stammtisch late today, probably around 11pm.
Last week I wrote about Bitcoin and the Public Function of Money
What started as a trickle, grew into a gusher of economic quackery, as Bitcoin proponents came out of the woodwork to add their 0,00002 bitcoins to the discussion.
As I mention in the previous article, Bitcoin is a very significant development, I am pro-Bitcoin. But it’s remarkable how much zombie economics lurks in the Bitcoin trenches.
The most significant response, in terms of time spent typing, at least, comes from Erik Voorhees, “a Bitcoin entrepreneur” who concludes: “There were many other fallacies in Dmytri’s article, but this one on the nature of money’s origin and purpose is crucial. Money does not originate from the State, and does not derrive its virtues from compatibility with tribute. Indeed, as Bitcoin will prove, money functions best when the State’s coercive perversions are far removed.”
Never mind that that Erik does not appear to be familiar with the meaning of the term “fallacy” (hint: it does not mean wrong), but his article depends on the idea that the origin of money and money prices is barter, Erik is quite clear: “The origin of money is barter. In fact, money derives directly and unavoidably from barter.”
So, since I’m in a bit of hurry, I’ll just repost what I added to the comments section:
@Erik, I have to admit it’s a little tedious to respond to articles that depend on long discarded nonsense like the barter origin of money. We know from anthropology, most recently written by David Graeber, that money prices do not predate taxes, and that there was no barter before money, or even commodity prices defined in other commodities. The barter origin theory of money is well know to be false. So before you call other people’s understanding of money “misguided” you should perhaps update your own scholarship on the subject.
Anthropologists gradually fanned out into the world and began directly observing how economies where money was not used (or anyway, not used for everyday transactions) actually worked. What they discovered was an at first bewildering variety of arrangements, ranging from competitive gift-giving to communal stockpiling to places where economic relations centered on neighbors trying to guess each other’s dreams. What they never found was any place, anywhere, where economic relations between members of community took the form economists predicted: “I’ll give you twenty chickens for that cow.” Hence in the definitive anthropological work on the subject, Cambridge anthropology professor Caroline Humphrey concludes, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing”
a. Just in way of emphasis: economists thus predicted that all (100%) non-monetary economies would be barter economies. Empirical observation has revealed that the actual number of observable cases—out of thousands studied—is 0%.
b. Similarly, the number of documented marketplaces where people regularly appear to swap goods directly without any reference to a money of account is also zero. If any sociological prediction has ever been empirically refuted, this is it.
– David Graeber
Just to repeat for emphasis: Cambridge anthropology professor Caroline Humphrey concludes, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing”
I guess just like religious fanatics that don’t stop making ridiculous claims about history from the Bible just because they are disproved by material fact, the barter origin of money crowd are likewise determined not to know that money did not emerge from barter.
But beyond Erik’s incorrect anthropology of money, he makes the claim that “money functions best when the State’s coercive perversions are far removed.” and here I agree with him compeletely. However, we must understand what function money actually performs in society.
Erik and others would like to believe that functions like financing public goods and counterbalancing financial cycles and sectors are not necessary so that a pure-specie form of money will do, but that is not the case,
not even celebrated right-wing “anarcho-capitalist” economist believe it.
For instance, in the Liberation Technologies list I posted a quote from David Friedman.
In a 2002 article for The Los Angeles Times, Friedman wrote “Until U.S. economic growth is more balanced and its emerging public finance challenge more manageable, it’s likely that our economic prospects will fail to fire investors’ and consumers’ enthusiasm. An expanding public sector may be necessary at a time of global terrorism.” Ok, so he invokes Terrorism, but non-the-less, Friedman
, the anarcho-capitalist economist, is admitting that fiscal stimulus is needed to counterbalance sectors.
his father Milton Friedman, who did much to make Von Mises and his ilk better known in the mainstream, non-the-less also understood the need for counter-cyclical fiscal policy, as my original article explains.
The fact is, until we develop non-State ways to provide the socially necessary functions provided by State money to freely associating, networked communities, we will not move beyond the State form, because these functions are necessary and having a monopoly on them will keep the State in place. But that’s all in the original post, so even if Erik and co refuse to know this, I don’t need to repeat it here.
Now, the reason that many do refuse to believe that these functions are necessary come from two other incorrect views common among the zombie economics set, in addition to the false belief that money came from barter, they also usually believe in the quantity theory of money and the efficient market hypothesis.
The former, like the barter origin theory, is well known to be false, though there has been literally thousands of papers that prove this, a nice blog from Bill Mitchell comes to mind where he argues: “They trot out phrases like “too much money chasing too few goods” – a vision derived from the old classical Quantity Theory of Money, which via an identity (that is, an accounting statement) – MV = PQ (where M is the money stock, V is turnover or velocity of that stock in transactions per period, P is the price level and Q is real GDP) – links monetary growth to prices.
So it is a matter of accounting that the money stock (M) times the velocity of money – the turnover of the money stock per period (V) is equal to the price level (P) times real output (Q).
To render that a theory of inflation, the mainstream had to directly link M to P and they did that by assuming that V is fixed (despite empirically it moving all over the place) and claiming that Q is always at full employment as a result of free market adjustments.”
The Quantity theory of money depends on the idea that velocity in the economy is fixed, and that there is never unemployment. As both these assumptions are false, the theory is also false.
But underlining all this is a belief in the efficient market hypothesis. That is the real reason the faithful want to believe the barter origin and quantity theories so badly, because they want to deny that we need any public forms because they believe that markets are magical efficiently mechanisms that always allocate productive assets to the most productive use, and always justly reward participants according to their contributions.
This is, of course, also false. Just like bureaucratic processes, markets also have asymmetries of power and information, and the singular focus on profit fails to adequately address other issues like social and environmental justice.
Neither markets nor planning are inherently efficient, both are equally able to misallocate productive assets and result in unjust and unsustainable outcomes. And both will remain components of human society that we need to improve.
Ok, more on that later, but I need to run now, so see some of you in the wee hours at Cafe Buchhandlung.