Slashdot Mirror
Steve Forbes: Bitcoin Not Money
MouseTheLuckyDog writes "A brief editorial by Steve Forbes, one of our moneymeisters, on why bitcoins are not money.. Hint: For those who are too lazy to read the opinion,. Bitcoins are too volatile to be money."
From the article: "Money is most optimal when it is fixed in value just as commerce is facilitated when we have fixed weights and measures. When you buy a pound of hamburger you expect to get 16 ounces of meat. An hour has 60 minutes. A mile has 5280 feet. These measurements don’t 'float.' So too money best lubricates commerce when it has a fixed value."
The main premise in Judo is to use opponent's strength against them. Forbes knows he sounds snooty. Which is why he takes on a position contrary to the one he actually wants to advocate. Let's say he loaded up on Bitcoins and he wants them to go up. His choices are (1) stay silent; (2) promote it; (3) oppose it. Staying silent obviously will not help him cause. Promoting it will not help his cause because the kinds of people who would take him at his word are not the kinds of people to seek out an alternative currency (he is all about orthodoxy). But he can use the fact that anyone seeking to oppose orthodoxy would do the opposite of what he'd recommend (this is Judo). Oh, and if he really didn't think much of Bitcoin, he would simply not comment.
Any guest worker system is indistinguishable from indentured servitude.
One of my childhood friends does internal auditing for a large bank. One time I asked him what his biggest fears were (having been able to look at all the books) and he told me at the time it was actually price anarchy. This was around the 2008 time frame and he was trying to describe a situation where nobody knows how much money to charge for something. I later heard a This American Life episode that details life in Brazil when something like this happens.
... and you can go to the store management and they're looking at some graphs at the beginning of each day to set their prices but they're doing guesswork because the money fluctuates so quickly. So my friend's real fear was that there's some point where that swings wildly out of control and -- similar to the bank runs that happened before regulation -- weird swings cause people to act erratically and irrationally. And those actions cause the swings to get even wilder and suddenly you have price anarchy where nobody knows what anything is worth at a given point in time. The funny part is that on some days he would watch the terminals and freak out and go withdraw as much money as he could from the ATM to hedge into some liquid assets since he kept everything in the bank. That amused me because by using inside information he was performing what were erratic behavioral patterns ... but I guess that's another discussion.
... if you want some entertainment, keep this tab open throughout the day. So many people are gaming Bitcoin right now that it makes for an excellent show! Behold, the completely unregulated market!
So my friend told me that his biggest fears are when you go into a market one day and eggs are 68 cents a dozen and you go in the next day and they're $5.92 a dozen
Anyway, yeah, back to Bitcoin
My work here is dung.
Considering that one of their freelance journalists (Tim Lee) on forbes.com is one of the biggest supporters of Bitcoin.
Check out all of the articles he's written about how great Bitcoin is:
http://www.forbes.com/sites/timothylee/
I find it amusing that they let this one freelance writer attempt to pump up his personal Bitcoin stash on such a popular financial site.
Of course, this is Forbes... They'll post anything for page views and ad impressions. I still remember the crap they posted about the merits of SCO's pathetic Linux patent infringement case against IBM back in the day, mostly because they loved the negative attention from the Microsoft and Linux fanboys.
I'm sure the storm above this post has already pointed this out, but just because something is not the best form of it's kind does not automatically mean that it is not of that kind.
Gold, while extremely useful in many ways, is less useful for everyday transactions than our fiat dollar. That doesn't make it any less of a monetary base though for transactions. Bitcoin is no different.
Some people really can't get over the hump of intangible objects. You'd think with thousands of years of intangible religious experience behind humanity that virtual property wouldn't be that much harder either...
Patience is a virtue, but haste is my life.
Relative stability in value is a necessary property of any real currency to remain effective. This is true whether you tie supply to amounts of a particular type of dirt extracted (varies with mining of said dirt - which will kill the bitcoin ultimately just as it killed the gold standard) or determined by human thinking. Bitcoin has none of the properties of a currency - it's just a classic market bubble in a worthless commodity.
Gold hasn't been the basis for our money in many, many, decades. And while there's some merit in having some common "thing" for currencies to be pegged to, gold has always seemed especially stupid. The US forced itself to do so from the 1950s until the early seventies, creating a situation where every country that was having financial problems could devalue its currency except the US itself, causing relatively substantial problems for the US itself.
(Why? Bizarrely, national pride. The 1950s-1970s version of the Gold Standard came because the major economies wanted a single currency to peg their currencies against. What they wanted was an independent currency called the "Bancor". The US vetoed this, as it felt it would diminish the importance of the dollar, and demanded they peg their currencies to the dollar instead, and in return would make sure the dollar was pegged to gold. More evidence, perhaps, that national pride can be a destructive, stupid, thing.)
You are not alone. This is not normal. None of this is normal.
Gold is, but a gold *standard* isn't. Or, rather, it doesn't have to be.
You just adjust the value assigned to the gold. Since there is no significant commerce valued in "ounces of pure gold", you adjust the value given to your medium of exchange.
See 1971, when Richard Nixon revalued gold from $21 to $35 per ounce, but only for non-American exchangers.
Learning HOW to think is more important than learning WHAT to think.
No, it doesn't. It's sort of like if I were paid in Euros and had all my expenses to be paid in USD, CAD or RMB, except that the relationship between the currencies were fluctuating by up to 50% on any given day with little or no predictability.
Bottom line is that the people who throw out fiat currency in relationship to the USD are being disingenuous when they suggest that USD is subject to the same level of instability. Sure it is slightly unstable, but we're not talking about hyperinflation or hyperdeflation, which is something that could definitely happen with BTC. And the amount of money you make tends to rise with inflation in general, assuming some sort of sane monetary policy.
What's more, since nobody is forced to take BTC for anything, you can very easily wind up in a situation where the BTC economy grinds to a halt because people think their money is going to be worth more the next day or in a month.
is the fact that bitcoins design explicitly resists things like command and control from a centralized banking institution. sure, it makes bitcoin far more volatile than other currencies, but the fact that one group of people cannot arbitrarily decide to revalue the currency means that risk inherent in bitcoin investment comes with it a monumentally more concrete level of consequence. The problem with the dollar, as we've seen, is that if ever we get too far in over our heads with irresponsible investment like 'credit default swaps' we can simply "hack" our way out of the free market by injecting a ton of extra cash and propping up institutions with lemon socialism (warren buffets choice of purchase price and terms for an auto maker, or a bank for example.) Bitcoin economies have the real potential to destroy houses of finance and investment that do not respect them. they also implicitly mandate a more even playing field for things like wealth and equality as free market capitalisms inefficiencies and dangers require not just tacid but overt acceptance and understanding. fairer prices for housing and the outright ban on deceptive lending would be nearly impossible to avoid, meaning many forms of credit might not continue to exist.
Good people go to bed earlier.
A few bits of actual value:
1. If you're a US citizen, you can use US dollars to pay your legally required taxes to the US government (and probably the government of your town, county, and state). If you don't have US dollars, you can't, and the IRS can and will seize your other assets, sell them for US dollars, and use that to pay your taxes. And if you try to stop the IRS from doing this, the police and courts will if necessary use force to make that happen.
2. On your US dollar bill, you'll see "This Note Is Legal Tender For All Debts, Public and Private". If you go to a restaurant, order a meal, and offer the appropriate amount of cash to pay for your meal, the restaurant owner cannot legally refuse to accept your cash and then have you arrested for not paying your debt to them. Again, this is enforced by the police and court system.
3. Because of points (1) and (2), most everyone in the US has US dollars to pay for things, so a business that doesn't accept US dollars is going to be at a severe competitive disadvantage.
None of this stops you from exchanging your RAM sticks for someone else's kumquats if you and the kumquat-seller both agree to it.
I am officially gone from
The value of Bitcoins is that they cannot be issued and they really cannot be confiscated (well, it's much harder to confiscate your Bitcoins than your fiat currency you have in a bank).
Bitcoins also allow for almost instantaneous transactions over the Internet that cannot be reversed, so one Bitcoin is in exactly one location at any one time. There is no tax a government can levy on movement of Bitcoins from one wallet into another.
For these reasons Bitcoins have value of their own. They are a way to move money around. They are really not money in the traditional sense, they are not a good store of value because they have no intrinsic value, it really is based on the size of the network that uses them I think, but they are a good way to transfer purchasing power.
You can't handle the truth.
To be money, a thing must 1. be a unit of account, 2. a store of value and 3. a means of exchange.
Forbes is arguing that BitCoin (today) kind of satisfies the “means of exchange” but not the other 2 because it's value fluctuates so wildly. So, currently, it is more of a speculative asset bubble then money. If you have hyperinflation of 100% a year you can kind of make it work – you know the direction and rough speed of inflation. With BitCoin it could be up 100% in one year and down 50% the next month.
A perfect currency (that's a spherical currency of uniform density in a vacuum for the physics crowd) would be static in value. That would enable it to function optimally as an exchange medium.
However it's actually better for the national economy to have very slight and very constant inflation, which encourages spending or lending enabling currency to move more efficiently which puts accumulated wealth to work growing the economy. The trick is keeping the inflation rate low enough that it doesn't need to be counter-balanced by periods of deflation as deflation is devastating to the economy (it encourages hoarding).
The problem with Bit-Coin is not that its value fluctuates with respect to other currencies, it's that it fluctuates way to quickly. Even during the height of the greaight rescission the US dollar didn't fluctuate anywhere near as much as Bit-Coin does every day. That sort of fluctuation means Bit-Coin is only really useful for speculation, which means it's pretty doomed as a currency.
True, but it's not all in humanity's possession, hence the interest in mining it (like you can do with BitCoin). And true, someday we will hit the limit (like we will do with BitCoin) and those who have it already will have power over those who desire it (ditto).
That's what's so odd to me about Steve Forbes' comments. He seems to be a proponent of the gold standard. Well, gold is very similar to bitcoins (i.e. a fixed total amount, people mining to get more, etc.) If anything, I view the wild fluctuations of bitcoin a function of it being new and people not knowing quite what to make of it yet, and to some extent the opposite of the natural fluctuation of fiat currencies like the dollar and the euro. There is a fixed amount of bitcoins. There isn't a fixed amount of fiat currencies. So if 1 bitcoin is worth $50 today and $100 tomorrow you could argue the bitcoin is the same value both days, but the dollar is worth LESS tomorrow.
But what do I know. I got Cs in Econ 22 years ago...
Steve Forbes is scared because Bitcoin takes the control away from existing institutions of wealth.
LOL
In as much as an ant picking up a grain of sand has taken over the US Federal Reserve or European Central Bank.
Bitcoins have contextual value - Steve never made it to president, so that should tell you he's not quite as clever as he thinks.
A feeling of having made the same mistake before: Deja Foobar
See 1971, when Richard Nixon revalued gold from $21 to $35 per ounce, but only for non-American exchangers.
Wrong. It wasn't Nixon who changed the exchange rate from US dollars to gold but the F.D.R. administration which changed the exchange rate from $20.67/oz to $35.00/oz. . Also it wasn't Nixon who stopped US citizens from exchanging gold to US dollars but again was the F.D.R. administration. To add further insult to injury the F.D.R. administration nationalized the gold holdings of the US and only allowed the private ownership of gold for industrial, jewelry, art, coins that had special collector status (not ones that would have them in the future), and foreign legal tender. This began the slow march to the end of the gold standard in the US. A good introductory piece on this period that I have found deals with the curious case of the 1933 gold Double Eagle over on wikipedia. Granted it isn't expansive on the gold standard but provides a good background on what the F.D.R. administration did and is a good jumping off point for other topics on the subject on the US gold standard of the time.
What Nixon did was close the international gold windows that other countries were using to exchange US dollars for gold. This was being used by Charles de Gaulle to exchange France's dollar holdings for gold thus diminishing the US's economic power in the region. Add to it the deficit spending because Vietnam and it was necessary (from the Nixon administration's perspective) to remove the US dollar completely from the gold standard. What the Nixon administration did was put the final nail in the coffin of the US gold standard.
Just because Nixon put the final nail in the coffin for the US gold standard doesn't mean he was bad in this regard. All Nixon did was end the Bretton Woods Agreements, he didn't confiscate anyone's private property. His role was actually quite small and the abuse he committed in regards to this issue were small especially compared to those of F.D.R. There are plenty of things to beat up Nixon on but this really isn't one of them.
Time to offend someone
Steve never made it to president, so that should tell you he's not quite as clever as he thinks.
Or maybe the American public is not as clever as we think, or just doesn't like clever people as much as we think.
True dat. California had Ahnold, not once, but twice for guv, Minnesota elected Jesse "The Mind" Ventura for guv and the people put mental lightweight and frat party boy W. into the Whitehouse for 8 years and several trillion dollars of debt, rampant business abuse of the public and two wars, one justified by cooked intelligence.
I'm horrified how easily people will vote against their own best interests in this country. Clearly we are not the great nation we think we are.
A feeling of having made the same mistake before: Deja Foobar
"Also it wasn't Nixon who stopped US citizens from exchanging gold to US dollars but again was the F.D.R. administration. To add further insult to injury the F.D.R. administration nationalized the gold holdings of the US and only allowed the private ownership of gold for industrial, jewelry, art, coins that had special collector status (not ones that would have them in the future), and foreign legal tender. "
This is a bit disingenuous. As you say, F.D.R. nationalized gold, in the sense that the Reserve banks had to turn their gold over to the treasury. However, he did not prohibit private ownership or sale of gold; only gold that was used as money.
It was indeed Nixon who halted just about all citizen gold trade. With pretty disastrous results.
By the way, just as an aside: by tossing out Bretton Woods, Nixon also effectively defaulted on U.S. debt. Quite intentionally. The people who said the "fiscal cliff" or not raising the debt limit would be the first time the U.S. defaulted on its debt are WAY off, by more than once.
YOU might not consider government defaulting on debt to be a bad thing. But other countries most definitely did.
"There are plenty of things to beat up Nixon on but this really isn't one of them."
That is VERY debatable.
Yeah I heard that Intelligence Squared program. Steve Forbes wasn't very convincing. He said "A foot is twelve inches and that should never change. We need consistent measures so why do we allow the value of a dollar to change?" And I thought, uh, if a foot is twelve inches then a dollar is one hundred cents, you disingenuous asshole. Inflation doesn't mean that a dollar loses its mathematical soundness, like suddenly a dollar is ninety-eight cents. To say that a dollar should be pegged to an amount of gold is to say that we should use gold instead of dollars, which is fine, but the dollar then is redundant. To me it is obvious that a dollar is not an amount of gold, it is a different thing, so its value shouldn't be pegged to gold. Would he suggest pegging the price of gold to the price of a Big Mac? The price of his salary to the price of celery? Why would we do that, that would be nonsense.
The reason Steve Forbes is pissed off about inflation is because inflation is good for people who work and bad for people who don't work, and Steve Forbes doesn't work. Like most ultra-rich people very little of his income is payment for "working", for making something. When inflation rises wages rise because they have to, but "savings" (what I charitably call Forbes' billions) loses value so Steve gets less rich. Boo hoo hoo.
Middle class people also have savings, ten thousand times smaller than Steve's, but even a middle class person derives most of his income from wages, compensation for work. In an inflation economy, people in debt get ahead, people who work keep apace, and people who coast on riches fall behind. And that is bad for Steve, so Steve opposes it.
Fuck that guy. Also I have a personal anecdote: when he ran for President he came to my school and ended up promising a keg to my fraternity. We never got that keg! Fuck that guy.