exploring Bitcoin

JDH services jaydeeaich at gmail.com
Sun Mar 13 21:45:05 EDT 2011


In the so-called free-economy or capitalist economy, money has
acquired a privileged status over all other commodities. By the
definition arbitrarily given to it, it has become superior to man
himself, it implies some qualifications that are not supposed to be
within its jurisdiction and which have evolved and become as if they
were really genuine, despite the fact that they have no physical

Most of the economists define money by its four classical functions:
(a) means of exchange, (b) measure of value, (c) medium of deferred
value, and (d) store of value. [1] Day and Peza explain the nature of
money as follows: "The real significance of money is that it is a
claim which can be used by its owner to buy things". [2]

A. Means of Exchange

Accepting such definitions as correct, the fact remains that such
functions are not intrinsic or inherent in money. Practically
speaking, exchange, which is the main function, can be undertaken and
is taking place in many a case without the mediation of money.
Samuelson, stressing this fact, adds that money "is an artificial
social convention". [3] Originally, people intend to exchange goods
against goods, and utilise money as a medium to facilitate this
exchange. Yet, in barter, or direct exchange, nobody concedes his
goods to another person without getting some goods in return. When
money intervenes, the operation is split into two parts: selling goods
against money and buying goods against the withheld money. This split
enables the money-holder to sit on the withheld money for any period
he opts for without risk or cost - other things being equal. The
implication here is that by sitting on the proceeds of sales, the
exchange operation is interrupted and the function of exchange is
suspended incomplete. To keep such proceeds is actually to bar
somebody in the society from selling his products, which is a
violation of Samuelson's "social contract".

If this function of money is fully operative, i.e. whosoever exchanges
his products against other products through the mediation of money
without an unnecessary time gap between selling and buying, most of
the economic discrepancies experienced in liberal economies could be
eliminated. Hicks hinted at this, stating that:

"One of the advantages that is gotten from the use of money is that
people do not have to pass it on immediately; they can choose the time
of their purchases to suit their convenience. If they use this
facility moderately, it is useful to them: and it does not harm other
people." [4]

Hicks does not mention those who withhold money indefinitely and live
on it. Nor does he tell us what "moderately" means, and who is the
judge of moderation. What Hicks did not say was expressed by Prudhon
when he was asked:

"Why are we short of houses, machinery and ships? He answered: Because
money is a sentinel posted at the entrance to the markets with ,
orders to let no one pass. Money you imagine, is the key that opens
the gates of the market (by which term is meant the exchange of
products); that is not true - money is the bolt that bars them." [5]

And in fact one would ask: Why is it that money supply is on the
increase while recession is besetting the markets ? The answer is that
a great part of that supply is not used to meet the "transactional
demand" in the Keynesian sense. By holding the greater part of money
supply for precautionary and speculative purposes, people are checking
the main function of exchange and are rather incapacitating the role
of money.

We should like to emphasise from the very beginning that money per se
cannot be considered equivalent to fully-fledged goods, mainly because
all goods embody a utility which satisfies some human economic demand.

This innate natural property is artificial in money, as demand for it
- as a means of exchange - is a derived one imputed to the original
need for the exchange of products. If money ceases to function as such
means, i.e. if no exchange of real products takes place through the
mediation of money, its raison d'etre disappears. Without real
exchange through money - if it exists - money would be an illusion
causing harm and a lie distorting facts.

B. Measure of Value

This qualification is derived from the previous one, because the means
of exchange must determine the value of the exchanged goods as related
to itself. Thus, money acts as a common denominator to all economic
goods, and the value relationship of their exchange is expressed in
terms of money units. This implies that money is the standard measure
for all values.

However, this function is a feigned qualification, all known standards
of measurement are fixed in themselves except money. The metre, the
ton, the volt, etc., do not change in relation to what is measured by
them. Yet money does change. "From its use as a measure of value flows
the practical maxim that money ought to have a constant value, however
constancy may be defined. It is a strange fact that after so many
centuries of experience in so many countries man has not yet succeeded
in providing for himself a money with stable value." [6]

In my opinion, the failure is due to the malfunctioning of money as a
means of exchange, and to the artificial attributes bestowed on money,
allowing people to withhold it without charging them any cost for such
a violation of the "social contract". Creating money out of thin air
by means of creating credit has created what Irving Fisher called
"money illusion". [7]

C. Store of Value

"When money is held, it is a store of value whose ultimate worth
depends on the trend of prices." [8] This is a disputable statement,
because holding money is only holding a title or a claim to some goods
which we may opt to procure in the future. It is not storing any real
goods or real values. On the contrary, holding money is keeping half
the exchange transaction in abeyance. Thence, to qualify money as a
"store of value" is to vitiate the mam cardinal function of money as a
means of exchange. If it isTclaimed that money gives its holder the
choice of exchanging goods, at present or storing the value to be
acquired in future, our answer is that that exactly is the fallacy.
One acquires money by liquidating (selling) an asset or selling one's
goods - which means ridding one's self of the real value which would
have incurred some cost if one had wanted to store it. Having
exchanged his asset against money, such a person has procured a claim
on goods which can arbitrarily be stored without charge or cost - an
advantage bestowed on the person who has done harm to his society by
abstaining from buying from others.

D. Standard of Deferred Payment

Consequent upon the three previous functions, future transactions are
expressed in terms of money. Having explained to what extent money is
not a standard of value in practical life, we need not go into any
detail pointing out the risks and difficulties in deferred payments.
This function is necessarily tied up with the passage of time during
which the ratios among the relative values of goods change, and the
ratio among these and money changes, not only on account of the change
of the relative value of goods, but also because the "standard of
value" in itself is not stable. Such instability of the measurement
complicates all future economic transactions and gives vent to
illegitimate claims, the worst of which is the payment of interest.


On Sun, Mar 13, 2011 at 10:04 PM, Sebastien Bourdeauducq
<sebastien.bourdeauducq at lekernel.net> wrote:
> On Sun, 2011-03-13 at 14:49 -0700, Ron K. Jeffries wrote:
>> My mind is open, but it's not clear to me Bitcoin
>> will prove to be a practical method of making payments.
> Why not? It should be technically feasible to make a fairly secure
> Bitcoin wallet with a smart card.
> S.
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Panthera Tigris Altaica

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