Menger, Mises And Bitcoin – Beyond Bitcoin Episode 23

it’s the 17th of the 12th I’m Arthur falls and this is beyond Bitcoin nothing you hear on today’s episode is investment advice a few days ago I was privileged to speak with Jeffrey Tucker the man behind Liberty dot Hemi the executive editor of lazy fair books Distinguished Fellow of the foundation for economic education the list goes on and on only fitting then that during this deep and comprehensive discussion my recording software should crash surreptitiously ignoring half an hour of the most thought-provoking discourse I’ve been lucky enough to engage in but what remains is published here in full then serves as a cutting edge perspective on how developments and cryptocurrency I’m changing how we understand money the world that inhabits and also bowties while the lost content is a small tragedy Jeffrey’s prolific writings are a fantastic source of informed commentary which I suggest everyone who is interested in the subjects discussed in today’s episode should explore at the top because you want to do but I thought was very intriguing in particular do you think you could compare Mises and mangas views on how money first derives value yes you want to take a let’s take a month’s at one at a time because they are kind of different they evolved maybe obviously Mises learned a lot from anger bit manga really lays out the first clear modern explanation of where money comes from and his idea is that it’s a gradual and evolutionary process that emerges that a regular trade in the real world so as you move from barter to indirect exchange you’ve you there’s a commodity that gradually emerges as being more valuable than all the other commodities and it does so because it has particular properties that are associated with with money fungibility meaning that you can that one unit is just the same as any other unit a certain durability so it doesn’t just die full of fall apart the visibility is a hugely important thing a scarcity is also important there’s a lot of things that sort of sort of you constitute these these various have these various features throughout history and you know put up have you seen salt emerge as many seashells be repelled to all these things but the more a commodity approaches these kinds of features the more likely it is to be chosen for money and the Graduate over time golden silver become that and so minger describes this this process as as essentially entrepreneurial so you have people trying out various monies to see if they work and sometimes I’m something could be money for a little while and then be needy monetized replaced by another money sometimes that money can be used in a particular geographic area you know for particular kinds of trades and not other kinds of trades and this is all this happens as as as a particular commodity develops a sort of the the property of money nests so mango didn’t see it as either money or non money it was just something that was an evolving emerging process to discover what money is and eventually as the process sort of runs itself through the range of applicability or usability of the currency grows and becomes more generalized but this is a long process I think mango uses figures like ten fifty or a hundred years sometimes for something to emerge as a dominant money but nothing that ever becomes money sort of on a permanent basis so the evolution essentially never stops entrepreneurs are always busy finding other monies and either you see this sort of Nigerian process play itself out you know all the time really in black markets and sometimes things will emerge as money there was a few years ago where laundry detergent and Baltimore County in the u.s. became money and imprisons you there’s always a big struggle for what money is going to be I talked to a guy who is in spent spent a couple of years in jail and I talked about the monetary economy in jails and he said that ramen noodles those little packages of dried this is where we’re money you know that people would collect them so what distinguishes a money function the way you deal with it is that that instead of acquiring the good for consumption purposes you’re specifically acquiring the good in order to trade it for

another good so then it did it obtains the monetary value that goes beyond its cute pure commodity value it it obtains a new form of utility so so the ramen noodles not just viable because you can make noodles out of it be cut but because it actually serves an additional function in the human economy of being able to facilitate trade and money is important because it gets you out of the bart barter stage barter is very inconvenient to some level because you have to have what’s called a double coincidence of once I have to watch your eggs and you have to want my plywood in order to make the transaction take place but with money we have a kind of an independent unit that we both can agree on and and therefore we’re more likely to be able to figure out terms of agreement and you know serve our needs better essentially money also allows for accounting so you have a unit that’s outside of the pure bharatiya economy that now allows you to calculate profits and losses that’s extremely important so all of this is in menger and he explains it and great detail in his 1871 book i believe the principles of economics and it’s really a beautiful explanation I went back to when bitcoin came along I’m tried to understand whether or not Bitcoin you know really looks like a Megerian sort of sort of thing and I concluded that it that it does like people argue all the time is Bitcoin money I’m sure you’ve heard that argument right of course yeah and so if you read manga what you discover is that it’s money in some ways and and not many and otherwise so it’s got money pneus about it but it’s an emergent money that’s neither just a direct mounted for that for it’s not a consumable commodity but neither is it a universal medium of exchange so we’re somewhere in between and there’s nothing wrong with that and that’s good that sounds a little ambiguous but you know the world of economics is it can be a little bit ambiguous so that’s that’s mega and I and I think I think the big winners we want to discover where Bitcoin comes from and you need to go back to menu to understand how it is that it went from from being just a poor bundle of titled and commodified information bits to actually acquiring money because it has all the properties of money I like to say to that that Bitcoin has an advantage over every other money that that that people have ever discovered because this weightless and takes up no space so that makes it better than gold and better than silver actually because then if it’s weightless then it’s it’s almost cost free to transport you know there’s a service costs associated with it but the thing itself weighs weighs nothing and because it takes up no space whatsoever then every individual can have an unlimited amount and and just carry it around as a pure digital good so you don’t have to trust a third party to hold your gold for you for example that’s that’s gigantic I me that those are additional money properties that Bitcoin has shown the world or advantageous that we didn’t even know we’re advantageous until Bitcoin came along yeah that’s it’s interesting yet you point out those unique qualities and I guess it is that the real key to bitcoins or to money success as as that utility as a medium of exchange that sets it apart from other goods or or commodities and that really is the core of of what makes Bitcoin I mean that’s all but coins got really is that utility as a medium of exchange over other over other options yeah I think you’ve stated it exactly correctly actually because of the utility that it has and facilitate attend an exchange money obtains value and this is this is end I don’t know if we’re ready to move on to to me at timmys is here no by all means but meeses added an additional point here and he does it almost inadvertently in his 1912 book called the theory of mining credit so he’s kind of going through the Megerian explanation and it takes it like seven or maybe even eight chapters to get all the way through this explanation because he goes into much greater detail here and as a little more rigor to the story that that am Ingrid has made a kind of a conjectural history mango tried Mises tries to put it in a pure hardcore theory but now you get to chapter chapter 7 and chapter 8 and he’s dealing with the problem of the monetarists and the people attached to the equation of exchange and dealing with some critics that were around in 1912 that aren’t around anymore and attack of the problem where does money obtained its initial you not why is it valuable which I mean

that mangers sort of addressed that but but but how does it obtained its initial price that’s an interesting problem and manga was amazed at me Zeus was trying to address the circularity argument like money is valuable because it has utility it has utility because it’s valuable I mean you keep you keep explaining utility by by price and price by utility and you get into this endless circularity and what meas is proposed is that the initial value of money emerges historically out of the barter value of money so for example the initial money price of gold would be derived from Gold’s a price in terms of other goods and services on a pure barter market so that people are obtaining gold for you know industrial uses or for jewelry or whatever and and whatever kind of barter value it has then gets absorbed into its monetary value and amuses asserts this the theory but she later on and has 1940 book because the regression theorem which is just a fancy word really he doesn’t use that phrase and 1912 but he he asserts a serious way of kind of proving that there’s no other way that money can come about in other words a money has to have a kind of pre-existing value in an internet and a direct exchange economy or a broader economy in order for it to have any value in a monetary economy in an indirect exchange economy now this is where bitcoiners have gotten confused where decisions have gotten confused about Bitcoin because they’re looking at Bitcoin and going well here’s here’s a digital good that doesn’t seem to have any value apart from its money use this is my people all the time saying things like because up based in anything you know how can I be real it’s not it’s not it’s not it has no underlying value as how intrinsic value they’ll say what they’re really what taps into an intuition that’s that’s kind of true what the what they’re saying is that if bitcoin weren’t a money it wouldn’t be anything and that’s a little weird right so like like gold if it weren’t a money would still be gold you know our silver Sam same sort of thing bitcoin is it alarms people to some extent because it reminds me of like fiat dollars in the sensitive it’s the doll i want a dollar you know that you couldn’t do anything with it really it would just be a piece of flat linen paper so so I was kind of because I had written a before Bitcoin came along written so much about about the regression theorem and muses theory and and I thought I had it all figured out that you could simply could the market would not and could not create a money that wasn’t rooted in some sort of prior exchange relationships because otherwise there’d be no way to price out the initial value of the money once it became a money it was it wouldn’t be rooted in any kind of history so bankers theory makes sense according to Bitcoin but meeses is proof but yo suggests a little bit of a challenge and it took me like personally about 18 months to kind of like fully figure this out and the missing piece here and it’s thick is the key to understanding their how muses this theory relates to bitcoin is to understand that bitcoin is not just a currency but it’s also a payment system it’s a network it lives on on the blockchain and so the initial value of Bitcoin is derived from its utility as a on a block chain in the blockchain itself of course is this enormously valuable service it’s not a valuable commodity the way it may be gold or salt or something like that is but it’s still but it’s a service and it’s enormously valuable service because it for the first time in history we now have a way to bundle up title the commodify information bits and port them peer-to-peer around the world in a way that’s non for jable non reproducible where there’s no double spending where it’s time-stamped I mean now this stuff is amazing right that’s what the blockchain does so so i theorized in my mind well this must be the actual basically the barter value of Bitcoin is rooted in its its service provision of that are provided by the blockchain right so that’s that was my sort of operating theory and I thought in my mind well if that’s true we should be able to trace back the history of Bitcoin and see this happening we should be able to see the blockchain in use before there was any posted price of the

Bitcoin itself and the beautiful thing of course about about the whole Bitcoin economy is that everything is documented you can look at all the history as all open source right so I went back and checked it right so in my mind I thought okay then if this is my theory is right here we should be able to look at a period of time which the blockchain was constantly in use but Bitcoin had zero value you know a period of testing essentially going on a period of discovery to make sure the network works and and sure enough that’s what you look at when you look at the look at the use of the blockchain after the Genesis block and before the first posted price which was the first posted priced emerges now October fifth two thousand nine and the Genesis block was january nine am i right about that something like that so then you could actually look at the number of trades that were taking place I mean how often was the blockchain used over the course of those ten months and what you see is there’s I think I did the figures just kind of back away on the web looking at at act activity in the talk chain there about a hundred uses of the blockchain per day over the course of those of those ten months so what was going up what were people doing on the blockchain before Bitcoin had valuable what were they using it for I mean they were there just testing to see if it really was able to overcome the Byzantine generals problem they were able to try to figure out if blockchain really worked as advertised and then once it became really clear that you could you bundle up and commodify in title information but its transport them on geographically non-contiguous basis peer to peer in a way those time-stamped a non-portable nom reproducible there’s like hey this is freakin amazing you know so you know so that at some point then then bitcoin becomes a valuable commodity and so October fifth suddenly the first posted price emerges on some exchange somewhere and it’s about a fifteenth of a penny right but but that’s the first pricing of Bitcoin that we see so it complies exactly with mangers sort of story and and it also fits with meeses the story but you have to kind of tweak meeses a little bit this show was sponsored by pep 38 wallets calm your one-stop-shop for durable encrypted paper wallets I recently received a bunch of these in the mail and I was really impressed they’re obviously durable but still flexible enough to put in a legacy wallet almost like plastic notes for those from countries where they use them but not quite as foldable to be honest I wouldn’t have considered using a paper wallet over secure digital storage until these turned up good enough is good enough but with the multiplying number of counter body and master coin assets associated with Bitcoin private keys it’s more than just cash that many of us are securing and the near-perfect security offered by but 38 / wallet saves me worrying about long-forgotten copies of wallet files left on old hard drives or whatever but 38 supports multiple currencies so it’s good to know that my Dodge is as safe as my LT bc the clerk’s will walk up to you and the cursor always just impeccably dressed right it doesn’t matter your station in life somehow they’re better than you already and you feel a sense of intimidation and and they’re like you don’t really belong and and you have a sense that every suit hanging on the rack probably cost six thousand dollars you look at you see a tie you like you pick it up and it’s like three hundred fifty dollars you and you try not to reveal your shock in your face you just go well that’s okay you know but but you have this your set of sweating it out you and you can’t wait to get out of the store so just once once secret to get the gift that these bastards back for for having made you feel shabby about yourself it is just when the cells were walks up to you and says sir is there anything I can help you with all you have to do is say yes I’m actually um wanted to look at your callers I’m sorry so we don’t your collars yeah you know colors just to college and shirts I just I just want to look at colors well I’m afraid we don’t have those here you mean you don’t have a detachable collars here that are separate from the shirts at all like you don’t even have one in this

entire store and the syrups I’m sorry all of our collars for as i know are entirely attached to our shirts you go well if that’s what it’s gonna be thanks very much so that’ll that’ll cause him to wither but the next time I need a store clerk to wither I’ll be sure to ask about I’ve a detachable colors I’m sure they will really I’m sure they will you’ll be legendary right yeah I thought I guy just asked for tell me I think they would that would get around New Zealand pretty quick yeah the manager will be like got it I don’t think I’ve ever seen those even at the market what the heck you know so you’re so fortunate to live in New Zealand it’s the greatest place in the world as far as I can tell yeah yeah it’s pretty crazy you know of course we take it for granted sir I just found love I mean I guess everybody does right you get a new zealand there’s a perception that it’s a relatively free economy you know it’s compared to the US and you’re all the scenery looks like it was done and hollywood with using cgi there’s a beautiful spirit of all the people the way people handle time and sociability and I mean just everything’s just it’s just such a lovely place and I take this something else that’s a little bit funny about New Zealand because the time is so strange I mean like New Zealand runs it’s like a day ahead or something like that yeah yeah but it’s uncertain like so so for a say for example you know like in the u.s. today it’s Wednesday morning but for you it’s probably like thursday night or something i don’t know how this works for a.m. thursday friday a 3m it’s fri okay so this is thursday morning I guess so it’s 4am friday for you yeah so when you’re in New Zealand you have some illusory sense that you’re actually you’ve got a day on the rest of the world so because you’re kind of living in the future you really don’t have to do that you don’t have to worry about much everything’s right you know so you sort of detach yourself mentally from from the stream of events from the rest of the world it’s quite liberating in some way I know that this is an illusion like there’s no such thing as it’s not like you’re living tomorrow and I’m living today that’s not it obviously this is there’s only now but still the way the way that the time works it creates this sort of beautiful mental state when you’re in New Zealand that you’ve got you guys still got a day you know ahead of the rest of the world you know to completely finish your work or whatever it’s it’s it’s it’s exceedingly dangerous you know and at some level you lose all sense of anxiety and you know probably probably people live long lives in New Zealand because you know they don’t have heart attacks and stuff like that bad I don’t know but but I felt a tremendous sense of liberation while i was there i just i did i could have just had so many people are ran into a new zealand so that they haven’t you come and they said well it was about 10 years ago i came for like a trip and I just never left that’s really common it’s pretty funny I really had that sense and and and then friend you know why was there he has this really beautiful house so you know that we were hanging around in and stuff like that and I had like five bedrooms or something and he said to me look more than welcome to stay you can stay for four months really it’s fun to me and I briefly like toyed with the idea you know I just thought wow what if I didn’t hail a cab tomorrow morning to go to the airport what if I just stuck around you know I was I was wildly to attempted by this the only thing it really stopped it was that well the first of all the fact that I had to be back but beyond that the prices of international tickets are so exorbitant I thought you know the this would end up costing me a tremendous amount of money and but it’s just so tempting you just don’t want to leave and I guess you know about my helicopter ride which i paid with yeah I was gonna bring that up actually yeah yeah yeah so i paid i bought a helicopter ride with bitcoin that was the first time in New Zealand and I was I was thrilled to be part of that little expedition so that was exciting to use Bitcoin over zis is a really interesting thing because i’m not entirely sure that i realized until that moment the implications of the fact that bitcoin is a global currency you know it’s not a national currency it’s it’s a universal it’s a global currency so a helicopter ride and new zealand and a helicopter ride in Houston Texas or in Anchorage

Alaska or whatever can be priced in terms of Bitcoin in a way that’s that’s thoroughly consistent and you technically don’t need to deal with the problem of exchange rates anymore and and I you know I got some kind of like an experiential person a while I didn’t entirely realize the implications of this but what I went to pay they gave me the new zealand dollar bitcoin exchange rate and priced in terms of bitcoin and my my first response was well ok how does this work in terms of dollars right so i’m looking at my wallet I wanted to kind of price that out in terms of dollars and I thought I’d had to convert the helicopter ride price from the zealand dollars to US dollars and then into bitcoin do you follow what I mean yeah absolutely right and then I said it just like hit me like wow wait I don’t have to do that actually I only need to know the Bitcoin price and give you that amount of Bitcoin I don’t even have to deal with dollar exchange rates at all that’s amazing hmm yeah it’s eerie actually to use to use but going to pay for things I find especially online just paying for things like web development or or something like that or you don’t like I had a logo designed recently and it’s just so easy you know it just goes like that you can just bounty this little task off online and someone can pick it up and do it in an afternoon or her and well in the 19th century god this interview has given me so many things I want to write about but and when 19th century national currencies were just different names for the same thing and that same thing was gold it’s particularly late 19th century so so we had a universal currency called gold it’s just that but you know the money substitutes basically were were created by the by the individual nations and they were different given different names but but the Renault real exchange rates between currencies there was all that sort of underlying specie value of gold itself well now you know that was suspended basically in world robe on and we never really got back a decent a universal system after that and here we are in the 21st century now we’ve got a kind of a new gold so the bitcoin becomes this universal currency and the exchange rates into national monies are just different expressions of that same of the same underlying commodity value called Bitcoin so it’s very interesting the ways in which I’m always intrigued by this that the Bitcoin isn’t on one hand at like a restoration of of a kind of an early modern currency maybe from the Renaissance or the period of the Enlightenment in the sense that it’s it’s this universal fundamental thing that you trade peer-to-peer combined with is this outrageous you know 21st century technological invention it’s like you get you get like five hundred years of history all crammed into into one little protocol yeah so lovely nine pages a yeah so um some I don’t think anybody’s written about about the subject and I might end up having to be the one to do it unless there’s somebody more competent that can do it to explain the implications of Bitcoin per international currency trading because we face the problem of exchange rates now for going on 40 years ever since Nixon you know sort of finally ended close the gold window and ended the period of Britain woods and so you know it’s just inefficient for all business all over the world to constantly deal with these floating exchange H all the time it interrupts business dealings and hobbles the division of labor makes a difficult for us to communicate and do business abroad really we used to it but it’s a tremendous cost Bitcoin actually will take that away from us so we can just you know we can all this deal and Bitcoin rather than having to go through these national currency floating exchange rate problems well that’ll be the day yeah so the implications that are really so is something it was really interesting to think about me economists have not liked a floating exchange rates for a very long time but I think there’s a good reason not to they’re not a natural state there’s no such thing as a as a national currency zone and in a peer market environment they’re really there’s no reason for

Canada Mexico us New Zealand and the UK and Europe and all have separate currencies it actually doesn’t make any sense work for global economy we should all be using currencies that we all understand and it shouldn’t have this constant floating floating between curtsies it is that it’s actually an unsustainable and strange situation that’s that doesn’t fit with history and and it’s not what efficient good economies want to have happened it’s just a kind of an accident of history and maybe maybe in 50 years or one exists but the purpose is to give us central control over our economy they over the purpose of national currencies yeah I think that that that’s that’s basically what happened and the ability to deflate our way out of debt or to inflate our way out of debt yeah that’s right the purpose of the monetary system is to serve the the nation-state that’s that’s the primary purpose today that’s the purpose that’s not the original purpose of money but that’s what it’s been it’s what is used for today it doesn’t make any sense because because the we live in a radically globalized economic structure that being the case how do you see the relationship between between Bitcoin and a state it’s necessarily and structurally a part of the market and you could say the same things that was true of gold in the 19th century were in the 17th century for that matter but but government took over the gold standard and used it for their own purposes and eventually destroyed it it’s a question of whether or not governments could do the same thing to Bitcoin but i think that the protocol has sort of thought this through the fact that lives on a distributed network and as an open source protocol immunizes it to a great extent from from government control of course they can regulate the use of bitcoin insofar as relying on these kind of ongoing conversions between Bitcoin and the national currency you know the coming and going is what they’re most interested in and that’s where they can really get there to sink their teeth into the whole thing and they they can and they will but the more heavy-handed the regulations become the more they incentivize people to leave the national currency market and enter into the Bitcoin space exclusively that’s what I’m looking forward to you know the more they regulate it and the more they they penalize in and structurally try to control the exchanges the more they just be a incentivize people to move into a pure Bitcoin environment where I don’t think that governments really have anything like the control over Bickman that they that they currently have over the monetary system I think they can have some to some extent but and it’s it’s incomparable really to the ways which governments took over gold and curly manage the national economies you know sometimes people say that that that I’m the the key theorist or the the push of this idea that Bitcoin will destroy the nation-state and I do believe that I just don’t think it’s going to happen directly I think it’s going to happen gradually over time the reason I said that is that control money is really really essential to Leviathan as we’ve come to understand that the course of 20th century once you take money out of the hands of the state you really rolling back the system and in a major and big way I don’t see the vice and is being sustainable and in light of a crypto world you’re having its central control over over money which is that the economic representation of your labor and and your effort and in your wealth you know and your influence on the world if you bottleneck that you know to this you know if you create this bottleneck of the state which has which has central control over that representation you really do give them total control you really do a little cliche is that money is half of every transaction and yeah there’s this truth and what’s not can you say you live in a real capitalistic market economy where half of every transaction is controlled by the state and its direct control I mean is the state manufactures the money they produce the money the regulating the use of money they ultimately control its value through its policies of inflation it really is economist socialistic Lee provided good or really I don’t know if socialism’s right word but it’s got a kind of nationalization that’s taken place over the course of the 20th century so liberating money from that is

you know there’s profound implications for politics for economics for culture and society really the cultural point is a very interesting one because we’re so used to money losing value all the time generally I think in the Bitcoin world we can expect the value of Bitcoin to increase relative to goods and services so its purchasing power will will tend to be always intensified and growing over time rather than falling and that has really interesting implications for how we approach our economic laws people are very inclined to want to save Bitcoin rather than spend it actually because of the anticipation that’s going to be more valuable in the future than it is in the present and that changes are our decisions you it changes our relationship to the material world a lot of sort of materialism of our times has been subsidized by this perception of an inflationary currency like it’s better to have a house and a car and fill your house with a lot of stuff and spend your money than it is to hold on to money and to save it because you just can’t make a lot of money when you say we’re your dollars going to earth less in the future than it is today so it disincentivize the saving and subsidizing subsidized is a kind of a consumerist materialist mentality if we move into a Bitcoin world we’re going to see that whole thing reversed people are going to reassess the value of the physical property and we think the value of savings so it’s going to kind of and that in turn will lead to a greater degree of capital accumulation which subsidizes development and general prosperity down the line so the implications that are actually really dramatic for / culture and economy and then of course for politics it is sometimes when I think about the implications of all this stuff I’m just it blows my mind really it feels like the like the kind of the harbinger of a new age yeah I think I think it does and and we’re all go after waiting that wait and see what do you what the effects of this is going to be here but I think what essentially we’ve underestimated the damage that government based fiat central banking has has done to the world and I think we also underestimate the implications of cryptocurrency and how’s it going to shape our lives on there in the future well on that note I’ve got to get back to bid okay thank you for getting up at 4am you’re very sweet to get up and conduct this interview with me I really really enjoyed it and i look forward to sending it out if anybody wants to come in anywhere and see my work i right almost every day at liberty dot me which is my kind of social and publishing platform that i would encourage all the listeners to join its i think we’re running a special right now for five dollars a month and you can get in and it’s a wonderful place to hang out and talk to a lot of crypto people and it’s a kind of a global liberty-minded community and and also i also work for the foundation for economic education few org and i have a lot of my writings up there and I’m having for people to go visit that that beautiful institution all right actually i’ve i’ve used mises org a lot that’s that’s one of my primary resources when it comes to anything that goes beyond beyond white papers and in forums sure advisement you know 15 years uploading books and primary stuff their readers the medians and all sorts of things that’s a extremely valuable resource as well yeah Cheers okay thank you so much and that’s us Thank You Geoffrey for the great conversation but 38 wallets con for your sponsorship it also ceases for the music for the let’s talk bitcoin community today’s magic word is Austrian that’s a you str I a in thanks for listening I’ll see you next week or the week after