Well good counter arguments. Thank you for a good response.
I'd argue that (a), (b) and (d) are why gold is useful for jewelry. There really are few materials that meet storage requirements. I think you may be underestimating the complexity of actually warehousing something for decades or centuries in terms of how important (a) and (b) really are. And (a) and (b) are very rare.
As for (e) it absolutely is vital at least in corollaries.
e1) Given a combination its easy to determine purity e2) There is only one type e3) Its easy to extract from impure mixtures
And yes people thousands of years ago knew this about gold. 6000 years ago people were playing around with metal alloys, inventing brass and bronze. 3500 years ago they were making poor versions of steel. Understanding metals was vital to survival then just as much as today.
[quote] that is why there are reserve requirments in every central bank. [/quote]
Actually, no there are not. In fact the largest central bank in the world, the ECB doesn't do bank regulation at all. Most central banks historically have not been responsible for reservere requirements. Generally central banks are just a large bank which handles the government's banking needs. It is rare that this gets combined with a regulatory function. The United States had a particularly terrible history of bank failures and panics due to our local banking system being so highly tied to agricultural expansion.
Further there is no bitcoin banking at all this point, so there is no need for a central bank. The existence of banking i.e. borrowing short and lending long, came millennia before central banks regulated banking. For that to exist there need to be goods that are primarily available in BitCoin that aren't available in mainstream currencies like dollars. I think you are putting the cart far far before the horse worrying about the lack of a central bank when there is no banking at all, nor any need for banking.
You are confusing multiple notions of "money supply".
Using traditional notation M = actual Bitcoins M1 = checkable deposits of bitcoins
without reserve requirements on a bank the M1 to M ratio can be infinite. But who cares? Why would you accept checks from a bank without reservere requirements?
Yes they would be tied to an economy just not an economy which is itself tied to an army.
Say for example currency X allows you to buy goods A,B,C,D and sell E and F currency Y allows you to buy goods C,E,G,H and sell A and D
In X there is a A::D, A::E, C::D, C::E ratio (among others) In Y there is a A::D, A::E, C::E, E:: ratio (among others)
If I want to acquire C and have E then I can: a) Sell E to get X, spend X to get C b) Sell E to get X, exchange X for Y, use Y to get C c) Sell E to get X, spend X to get A, sell A to get Y, and spend Y to get C
paths (a) (b) and (c) have to all be roughly equal otherwise people will make money arbitraging goods between currencies.
This is what is called Purchasing Power Parity in terms of real currencies and it would equally apply to artificial currencies.
Well gold is a uniquely good material for a store of value since it:
a) Doesn't corrode b) Doesn't decay c) Is extremely rare d) Isn't toxic e) Is uniform (i.e. its an element or simple molecule)
etc... It became a store of value because quite literally it was easy to store. You can keep a gold bar in the ocean, take it out 10,000 years later and have roughly the same amount of gold. So it useful historically but today... So several thousand years ago it was an obvious choice, today the common consent born of several thousand years of use.
As for the dollar and taxes. No that won't do anything, dollars can inflate away to nothing; though the governments ability to
a) Control the supply b) Tax in dollars
Does mean that they can stop it from become totally worthless. You are right about that. And also right that there is no similar floor for BitCoin. BitCoins started out as worth $.20 peaked at about $9 and could fall to thousandths of a penny or become worth hundreds of dollars each; the former more likely than the later certainly.
The rich can one time move but that really doesn't matter long term, the US taxes income not assets. The income can get taxed as the money goes abroad. We don't do that in the states because we gain from lots of rich people hiding their money here, but many countries do that sort of thing.
Of course you can borrow your way out of a recession. A recession in general, and this one in particular is a fall off in aggregate demand. Borrow and have the government buy bread, to use your analogy. Get GDP back up high enough to force re-employment.
In fact, this law [use taxes] would be simple to enforce and a few high profile prosecutions would encourage people to pay the use fees without significant expansion of the size or power of government
What makes you think use taxes are simple to enforce? To be able to effectively enforce this the government would need to be able to effectively track just about every good purchased. Further this sort of system is going to encourage people to create business and "purchase for resale" or "purchase for a non profit" to avoid sales / use taxes.
As for a few high profile prosecutions.... nonsense. They are high profile prosecutions for all maner of financial crimes every year. The people committing those crimes are highly incentivized to commit them, they are getting paid well. A minuscule probability of prosecution is generally not enough to stop the activity. And if the penalties are high, prosecution can become very expensive. Financial crimes are committed by people who can hire lawyers and tend to be effective in dealing with bureaucracy.
As for suggestion for a flat tax without deductions is that its silly given states mostly already collect an income tax which is close enough. In terms of raising the income tax rate substantially, you run into the typical problems. The higher the state tax rate the greater the incentive to fight the state's collection efforts. High tax states have this sort of problem all the time where people maintain dual residency, 1099 to their own corporations and engage in other gimmicks so that revenue is lost. The Federal government is able to avoid many of these tricks since it monitors all persons / corporations. So really what makes the most sense in your proposal is higher income taxes and block grants to the states. Which is fine and the states would be happy to do it.
As for why a flat tax in general makes no sense... a) interest paid needs to be deductible for financial instruments or we lose our financial sector (i.e. we want to be able to have financial instruments where the net is very thin and the gross is very large, since this increases efficiencies substantially) b) to avoid transfer interest paid needs to be deductible for business (i.e. we don't want businesses setting up fake financial sub corporations) c) to avoid transfer interest paid for investment, needs to be deductible for households (i.e. we don't reintroduce 70's style tax shelters, everyone owning businesses)
So in reality either the flat tax ends up becoming a wage tax like social security rather than an income tax or it has deductions.
The point is the initial allocation of money doesn't really make much difference. Exponential matters because it limits profits that can be made by miners, of any type at any given point and time.
You certainly are correct that CPU theft it generally not treated very seriously by law enforcement. OTOH when I was a kid muggings weren't either. That changed in the late 1980s.
Remember the computational power needed increases exponentially. All you are describing is one time theft. People can hold up a liquor store today and get currency by theft.
Oh no, they would be very volatile based on demand relative to one another if there were strong markets that allowed you to move back and fourth. If there aren't such markets they might be stable. The Atlanta / NY situation was a risk premium issue, why high risk bonds have higher interest rates than low risk bonds.
No I didn't. I said you can use whatever currency you want with the understanding that it must ultimately resolve to dollars. You want to use a private currency, go ahead. People do that all the time:
-- employees trade labor for shares of stock in private companies or options on such stock -- people trade futures which are essentially commodity based currencies -- people use money market checks which are checks drawn against bonds
etc...
You can use a private currency. The only thing is the government doesn't have to use your currency, based on your "everyone should be free". Their currency is the dollar so in dealings with them you will mostly need to use dollars.
Gotcha. Though I'm thinking that moving away from the hypothetical what's likely to happen with these e-currencies is that start trading at fractions to one another. The situation starts looking a lot like mid 19th century USA where the Atlanta dollar traded for $.97 in New York dollars.
There are open source clients. The algorithms are public. And there is no way to tell who is compliant. And of course the bitcoin could run over tor, in which case you wouldn't even know who was using it at all.
The government has guns, they don't have magic math.
As for (b) you are misunderstanding stability. Gold based currencies are stable relative to one another not stable in terms of good prices. Stability in terms of goods is (a) not (b).
I understand this is a hypothetical. If you agree you can have bonds then why is it impossible to pool bonds together and offer a very short term bond fund that maintains a constant share price via. payouts, i.e. a money market?
Well if we are using commodity indexes, can I say that the dollar doubled between Aug and Dec '08? Excellent government management, deflation, responsibility....?
I think you are confusing inflation with interest.
Think about it in terms of a television. I'm willing to to sell you a television for $2k. I'm willing to rent you a $2k television for $500 / yr for 3 years. I can sell a used TV for $500 after 3 years.
Then it always make sense for you to rent to have use of the money.
Now if the price of the TV and the rental went up 10% per year that would be inflation. If the price of the TV and the rental went down by 10% per year that would be deflation. If the price of the rental were over $500 / yr with the TV still at $2k that would be interest.
or, you are making financial deals which are in the shadows on purpose, in which case you are actually ATTRACTING governmental interest, and giving them a starting point to make investigations, and a reason to sniff around
Well of course this system if it explodes is primarily going to be of interest to grey market, black market and criminal activities.
Governments are thrilled with the fall off in cash. That's why they weren't happy with poker sites since:
White market bank -> grey market bank -> poker site -> another player -> grey market bank -> check was a nice way to launder money. The poker sites agreed to stop doing that, and in exchange the government didn't crack down. We'll see what the next generation of poker sites looks like.
Slashdot Mirror
Well good counter arguments. Thank you for a good response.
I'd argue that (a), (b) and (d) are why gold is useful for jewelry. There really are few materials that meet storage requirements. I think you may be underestimating the complexity of actually warehousing something for decades or centuries in terms of how important (a) and (b) really are. And (a) and (b) are very rare.
As for (e) it absolutely is vital at least in corollaries.
e1) Given a combination its easy to determine purity
e2) There is only one type
e3) Its easy to extract from impure mixtures
And yes people thousands of years ago knew this about gold. 6000 years ago people were playing around with metal alloys, inventing brass and bronze. 3500 years ago they were making poor versions of steel. Understanding metals was vital to survival then just as much as today.
[quote] that is why there are reserve requirments in every central bank. [/quote]
Actually, no there are not. In fact the largest central bank in the world, the ECB doesn't do bank regulation at all. Most central banks historically have not been responsible for reservere requirements. Generally central banks are just a large bank which handles the government's banking needs. It is rare that this gets combined with a regulatory function. The United States had a particularly terrible history of bank failures and panics due to our local banking system being so highly tied to agricultural expansion.
Further there is no bitcoin banking at all this point, so there is no need for a central bank. The existence of banking i.e. borrowing short and lending long, came millennia before central banks regulated banking. For that to exist there need to be goods that are primarily available in BitCoin that aren't available in mainstream currencies like dollars. I think you are putting the cart far far before the horse worrying about the lack of a central bank when there is no banking at all, nor any need for banking.
You are confusing multiple notions of "money supply".
Using traditional notation
M = actual Bitcoins
M1 = checkable deposits of bitcoins
without reserve requirements on a bank the M1 to M ratio can be infinite. But who cares? Why would you accept checks from a bank without reservere requirements?
Yes they would be tied to an economy just not an economy which is itself tied to an army.
Say for example
currency X allows you to buy goods A,B,C,D and sell E and F
currency Y allows you to buy goods C,E,G,H and sell A and D
In X there is a A::D, A::E, C::D, C::E ratio (among others)
In Y there is a A::D, A::E, C::E, E:: ratio (among others)
If I want to acquire C and have E then I can:
a) Sell E to get X, spend X to get C
b) Sell E to get X, exchange X for Y, use Y to get C
c) Sell E to get X, spend X to get A, sell A to get Y, and spend Y to get C
paths (a) (b) and (c) have to all be roughly equal otherwise people will make money arbitraging goods between currencies.
This is what is called Purchasing Power Parity in terms of real currencies and it would equally apply to artificial currencies.
Well gold is a uniquely good material for a store of value since it:
a) Doesn't corrode
b) Doesn't decay
c) Is extremely rare
d) Isn't toxic
e) Is uniform (i.e. its an element or simple molecule)
etc... It became a store of value because quite literally it was easy to store. You can keep a gold bar in the ocean, take it out 10,000 years later and have roughly the same amount of gold. So it useful historically but today... So several thousand years ago it was an obvious choice, today the common consent born of several thousand years of use.
As for the dollar and taxes. No that won't do anything, dollars can inflate away to nothing; though the governments ability to
a) Control the supply
b) Tax in dollars
Does mean that they can stop it from become totally worthless. You are right about that. And also right that there is no similar floor for BitCoin. BitCoins started out as worth $.20 peaked at about $9 and could fall to thousandths of a penny or become worth hundreds of dollars each; the former more likely than the later certainly.
The rich can one time move but that really doesn't matter long term, the US taxes income not assets. The income can get taxed as the money goes abroad. We don't do that in the states because we gain from lots of rich people hiding their money here, but many countries do that sort of thing.
Of course you can borrow your way out of a recession. A recession in general, and this one in particular is a fall off in aggregate demand. Borrow and have the government buy bread, to use your analogy. Get GDP back up high enough to force re-employment.
What makes you think use taxes are simple to enforce? To be able to effectively enforce this the government would need to be able to effectively track just about every good purchased. Further this sort of system is going to encourage people to create business and "purchase for resale" or "purchase for a non profit" to avoid sales / use taxes.
As for a few high profile prosecutions.... nonsense. They are high profile prosecutions for all maner of financial crimes every year. The people committing those crimes are highly incentivized to commit them, they are getting paid well. A minuscule probability of prosecution is generally not enough to stop the activity. And if the penalties are high, prosecution can become very expensive. Financial crimes are committed by people who can hire lawyers and tend to be effective in dealing with bureaucracy.
As for suggestion for a flat tax without deductions is that its silly given states mostly already collect an income tax which is close enough. In terms of raising the income tax rate substantially, you run into the typical problems. The higher the state tax rate the greater the incentive to fight the state's collection efforts. High tax states have this sort of problem all the time where people maintain dual residency, 1099 to their own corporations and engage in other gimmicks so that revenue is lost. The Federal government is able to avoid many of these tricks since it monitors all persons / corporations. So really what makes the most sense in your proposal is higher income taxes and block grants to the states. Which is fine and the states would be happy to do it.
As for why a flat tax in general makes no sense...
a) interest paid needs to be deductible for financial instruments or we lose our financial sector (i.e. we want to be able to have financial instruments where the net is very thin and the gross is very large, since this increases efficiencies substantially)
b) to avoid transfer interest paid needs to be deductible for business (i.e. we don't want businesses setting up fake financial sub corporations)
c) to avoid transfer interest paid for investment, needs to be deductible for households (i.e. we don't reintroduce 70's style tax shelters, everyone owning businesses)
So in reality either the flat tax ends up becoming a wage tax like social security rather than an income tax or it has deductions.
The point is the initial allocation of money doesn't really make much difference. Exponential matters because it limits profits that can be made by miners, of any type at any given point and time.
You certainly are correct that CPU theft it generally not treated very seriously by law enforcement. OTOH when I was a kid muggings weren't either. That changed in the late 1980s.
Well yes, the Fed has a policy of mild inflation i.e. "down relative to commodities". That's policy its not accidental.
But at least you are being consistent.
Though nothing like 50% was destroyed: M1, MZM
Remember the computational power needed increases exponentially. All you are describing is one time theft. People can hold up a liquor store today and get currency by theft.
Oh no, they would be very volatile based on demand relative to one another if there were strong markets that allowed you to move back and fourth. If there aren't such markets they might be stable. The Atlanta / NY situation was a risk premium issue, why high risk bonds have higher interest rates than low risk bonds.
No I didn't. I said you can use whatever currency you want with the understanding that it must ultimately resolve to dollars. You want to use a private currency, go ahead. People do that all the time:
-- employees trade labor for shares of stock in private companies or options on such stock
-- people trade futures which are essentially commodity based currencies
-- people use money market checks which are checks drawn against bonds
etc...
You can use a private currency. The only thing is the government doesn't have to use your currency, based on your "everyone should be free". Their currency is the dollar so in dealings with them you will mostly need to use dollars.
Gotcha. Though I'm thinking that moving away from the hypothetical what's likely to happen with these e-currencies is that start trading at fractions to one another. The situation starts looking a lot like mid 19th century USA where the Atlanta dollar traded for $.97 in New York dollars.
There are open source clients. The algorithms are public. And there is no way to tell who is compliant. And of course the bitcoin could run over tor, in which case you wouldn't even know who was using it at all.
The government has guns, they don't have magic math.
Good point. The majority of the network can vote. My point was no central point can change the rules.
That creates a central point of regulation. The government can just stop any withdrawal until records are cleaned up. That's what happened to e-gold.
As for (b) you are misunderstanding stability. Gold based currencies are stable relative to one another not stable in terms of good prices. Stability in terms of goods is (a) not (b).
I understand this is a hypothetical. If you agree you can have bonds then why is it impossible to pool bonds together and offer a very short term bond fund that maintains a constant share price via. payouts, i.e. a money market?
Well if we are using commodity indexes, can I say that the dollar doubled between Aug and Dec '08? Excellent government management, deflation, responsibility....?
I think you are confusing inflation with interest.
Think about it in terms of a television.
I'm willing to to sell you a television for $2k.
I'm willing to rent you a $2k television for $500 / yr for 3 years.
I can sell a used TV for $500 after 3 years.
Then it always make sense for you to rent to have use of the money.
Now if the price of the TV and the rental went up 10% per year that would be inflation.
If the price of the TV and the rental went down by 10% per year that would be deflation.
If the price of the rental were over $500 / yr with the TV still at $2k that would be interest.
Well of course this system if it explodes is primarily going to be of interest to grey market, black market and criminal activities.
Governments are thrilled with the fall off in cash. That's why they weren't happy with poker sites since:
White market bank -> grey market bank -> poker site -> another player -> grey market bank -> check was a nice way to launder money. The poker sites agreed to stop doing that, and in exchange the government didn't crack down. We'll see what the next generation of poker sites looks like.
Huh? We've had about a 21x multiple since 1913 and nothing like that since 2003.
US dollars are backed in a big circle. There aren't backed in anything. That's the point of a fiat currency.