Ponzi Argumentation: Gary North’s Rhetorical Mania

Ponzi Argumentation:  Gary North’s Rhetorical Mania

by John Mather

Gary North has responded to my article critiquing his assertion that Bitcoin is the largest private Ponzi scheme in history.  North’s response is instructive as a lesson in rhetorical tactics.  It doesn’t, however, redeem North’s faulty arguments against Bitcoin.

To summarize, North frames my article as a personal attack on him rather than a critique of his Bitcoin arguments.  Then, despite saying he doesn’t know me, he condescendingly calls me a “kid” (untrue), a programmer (untrue), ignorant of the basics of debate (untrue), and a “space cadet” (I will let readers judge).  He also uses the rhetorical device of repeatedly saying I’m digging a hole for myself.  Repetition is an old technique employed by advertisers and politicians.  Repeat a claim over and over in hopes that people will come to believe it’s true.  All this rhetorical arm waving amounts to playground bullying rather than a substantive response to my critique.

A Bit of Progress

To North’s credit, he starts off by making a large concession to my critique.  He drops the Ponzi scheme claim and titles his response, “Digital Tulips: The Bitcoin Mania.” He devotes the introduction to reframing the debate by giving historical context about tulip mania.  He expresses discontent that I’ve held him to the actual definition of a Ponzi scheme, but “to keep Mr. Mather happy,” he agrees to abandon the Ponzi scheme framework.  I doubt North is concerned about humoring me, but I’m delighted he has let go of the Ponzi scheme canard.  This allows the discussion to move past Bitcoin being a scheme based on lies and deceit to a discussion about whether Bitcoin’s price volatility will drive it to what North claims is its value: zero.  We are making progress.

Unfortunately progress halts after this concession, as North unfurls a raft of of rhetorical gambits which serve to distract rather than inform the reader about the substance of the debate.  I will call them out one by one.

A Personal Attack!

North from the outset attempts to frame this debate about Bitcoin as a personal attack on him.  He advertises his article on his home page by writing, “A young man decided to take me apart in full public view.  This affords me an opportunity to have a little fun. . . ”  I issued no personal attacks against North, and I have no need to do so.  North of course has no idea what my age is, but by calling me “a young man” he can set up a “watch the old pro whip a young buck” rhetoric.  North continues the personal attack frame-up in the body of the response: “His article is published on a site run by Jeffrey Tucker.  Mr. Tucker was wise enough to get a stand-in for this hatchet job.”  After characterizing my article as a “hatchet job,” North continues:  “He dismisses me as if I am an economic ignoramus.”  If I thought North an economic ignoramus, I would not have written the critique in the first place.  In fact I explicitly stated, “North is widely recognized as an expert on Austrian economics, and I make no claim to the contrary.”  The issue is that North does not understand Bitcoin, not that he does not understand Austrian economics.  His ignorance about Bitcoin and misapplication of Austrian analysis to Bitcoin are the sources of my criticisms.  His rhetorical maneuvers fail to refute them.

If North can reframe a substantive debate as a personal attack, then he can appear justified in taking a posture which is personal and aggressive.  This is his strategy.  By saying I’m a “stand-in” for a “hatchet job,” he is making a personal attack on me and Mr. Tucker.  The fact is that I submitted this article, unsolicited by anyone, to multiple publishers.  I did not know where it would be published, though Tucker’s role as former editor at the Mises Institute and publisher at Laissez Faire Books seemed like an appropriate choice given this issue is about Bitcoin and Austrian Economics.  North’s discontent that the article was published publicly – “in full public view” – is odd.  When people disagree with North’s public statements, are they obligated to respond only to him personally?

Argument from Age Fallacy

In addition to the personal attack framing, North several times commits the “argument from age” fallacy.  Namely, because he’s older, he is therefore wiser and correct.  For this trick to work, though, he must first frame me as being young.  Hence he refers to me as “a young man” and a “kid” despite saying he’s never heard of me.  I have far more gray hair than not, but that of course has nothing to do with the substance of the debate.  I could be a teenager and be correct, or I could be older than North and wrong in all my arguments.  North goes back repeatedly to the argument from age fallacy, ending his article with “Old timers can see what’s coming.”  Old timers…. So that must settle it then?  It would be equally silly to say old timers didn’t see the car replacing the horse and buggy, or word processors replacing typewriters.  None of this is valid argumentation.

To recap thus far, he’s framed my article as a personal attack by a naïve youth who doesn’t know better.  He pairs the argument from age fallacy with another effective rhetorical device: repetition.  He continually issues “rules” as if to patronizingly share some tips with the young buck who dared challenge him.  Saying over and over that I’m digging a hole for myself is not a valid rebuttal of my arguments.  It’s up to readers to decide who is in a hole.  Constant repetition by North that my arguments are weak, without actually demonstrating that they are weak, is not a refutation.  It’s just a repetition gambit, and it distracts from the truth seeking process.

North’s first patronizing “tip” is to save the “rhetoric of condemnation for your conclusions.”  Mr. North has not followed his own advice.  He’s already framed this debate as a personal attack launched by a kid who has stupidly poked his stick in a hornet’s nest of truth.  Now I must be schooled in a “let the old pro show you how it’s done” way.  It’s clever posturing, and he closes his piece with a cute Youtube of an Alka-Selzer commercial to reinforce it.  It all makes for good entertainment.  The problem is, it’s just rhetorical arm waving.

Fiat Money ≠ Bitcoin

North says the heart of his article is that “fiat money is ‘spoken’ into existence.  It is not money developed over centuries in market transactions.”  He then equates Bitcoin to fiat money, calling it “wanna-be fiat money digits” that were “spoken into existence.”

This is blurry language that results in blurry thinking.  Fiat money’s key distinguishing characteristic is that it is mandated for use by fiat.  By state decree it must be accepted as money.  Bitcoin is not issued by fiat, and it is not used by fiat.  North seems bent on ignoring this distinction, but it doesn’t change the reality that people are using Bitcoin by choice and as an alternative to fiat money.  Further, some fiat money in the past has been commodity backed and fully redeemable (alas no more), not “spoken into existence.”  The fact that fiat money in the digital age can be instantly created at zero cost in any quantity (witness Japan’s quadrillion yen public debt) contrasts starkly with Bitcoin, which cannot be created instantly, is mined at the cost of enormous computing power, and is limited in total supply to 21 million bitcoins.

The fact that Bitcoin hasn’t “developed over centuries in market transactions” is simply not the crux of what determines whether or not it is a currency.  People’s demand to use it as a currency is the crux of whether or not it’s a currency.  It’s bizarre that North readily says that the US dollar is money, as if the fact that it used to have a commodity backing is the reason it is valued now.  Most people today don’t know any monetary history at all, and they give no thought whatsoever about whether dollars (or any other fiat money) is commodity backed or not.  North raises no objections to the other fiat currencies I mentioned as being money either, some of which have short histories and no commodity roots.   How about the Euro, a total fiat creation hatched in 1999 with no history whatsoever of commodity backing?

“Out of Nothing”

North does not refute my point that Bitcoin is not made “out of nothing.”  Instead he makes a pun about “specie” backing to avoid the fact that he’s made a specious argument.  North wants to play word games by simultaneously defending fiat currencies as money while saying that any private alternative cannot serve as currency unless it has had centuries of market transactions.  It’s simply not true, and North has not demonstrated otherwise.  But to confuse matters more, he says, “I reject fiat currencies that are not the product of long years of use in the free market.”  So he rejects them how?  By refusing to use Euros in Europe?  He wouldn’t get very far, but he at least could survive over there by using Bitcoin.

He continues to dodge the “out of nothing” argument by repeating that “Bitcoins were created out of nothing to perform a service.”  At some point I hope he will recognize that the utility he derives from his website and his ability to write his articles and earn a living from his subscribers are all a function of software, none of which is made out of nothing, and all of which perform a service.  Further, his computer’s processing power and the electricity it consumes is not “nothing” any more than the processing power and electricity that is used to mine bitcoins is nothing.

Fiat Currencies:  Stable and Easily Used?

North makes the surprising claim that fiat currencies are stable:  “My point is this: the volatility of Bitcoins’ price is an indication of why they will not replace central bank fiat currencies, which are easily used in trade, and which are — so far — stable in purchasing power.”  North categorically ignores the numerous fiat currencies around the world which have imploded in his lifetime.  Countless people have been financially wiped out by assuming the mindset of fiat stability.  Here is a long list of examples.

Despite North’s US-centric frame of reference, he still ignores the 96+% devaluation my grandmother has suffered, and the 50+% devaluation since the 1980s.  And we’re only a few years into the age of quantitative easing, so we can reasonably expect things to get much worse.  Bitcoin has been more volatile than US dollars, as I’ve noted, but it doesn’t mean that fiat currencies are stable.  It also doesn’t mean Bitcoin has to be more stable than the US dollar to serve as a currency.

North is also not giving a fair account about ease of use in trade compared to Bitcoin.  I bank internationally, and it is very difficult to do so.  Americans are barred from opening bank accounts in several countries due to FATCA and other reasons beyond the scope of this discussion.  And even when Americans find an international bank who will do business with them, it can take months to open an account.  Then once an account is open, you are charged fees for transferring money to the new account, and then fees again for exchanging your money to the local currency.  With Bitcoin, this is all completely avoided.  I can do business directly with any individual at any time, instantly.  Furthermore, if you walk into a bank and ask for, say, $10,000 out of your account, there’s a good chance you will be denied, questioned as to why you want the funds, and have a suspicious activity report filed.  This is not what I would characterize as “easily used in trade” when compared with Bitcoin.

False Dilemma:  Bitcoin or US Dollar

North continues, “The market has determined that the dollar is money. It has not determined that Bitcoins are money.”  Governments determine what is money by fiat, and the dollar is no exception.  There are a mountain of different fiat currencies in small geographic regions with transaction volumes that are a minute fraction of the US dollar.  I refer readers to this up-to-date list of 182 fiat currencies.

Yet North wants to make it seem like the choice is between the US dollar or Bitcoin, period.  North ignores the fact that Bitcoin is international, and its use is not by fiat.  Bitcoin may be in the same realm of the transaction volume of some of the small countries on that list of 182 currencies.  As time goes on, it’s possible Bitcoin will achieve a transaction volume that exceeds several countries on that list.  I don’t know, and neither does North.  It’s a false dilemma to say Bitcoin can’t be a currency unless it’s more used than the US dollar.  North does it anyway:  “Which is money: dollars or Bitcoins? The answer is obvious: dollars.”

Rule: Value is Subjective

North then goes on to issue a “rule” to me – another rhetorical device which is an argument from authority fallacy – I’m an expert, therefore I’m correct – which has nothing to do with the issue at hand.  He wrote in his original article, “Something that was valuable for its own sake, most likely gold or silver….”  This statement implies gold and silver have intrinsic value, but he takes offense that I call him on it.  He may have written a dozen books in the past on the subjective theory of value, but that is irrelevant to what he wrote in his article.  It would have been constructive to simply say his choice of words is not what he meant and move on.  Yet he says my criticism of him saying gold and silver are valuable for their own sake is an “attack on him” and “rhetoric” with “no supporting logic.”  Here is another of North’s diversionary tricks: when you can’t refute an argument, dismiss the argument as rhetoric.

Network Effect: Programmer Jargon?

North seems to enjoy making assumptions about me.  He appears to believe I’ve invented the term “network effect,” and that I am using it as a programmer.  Neither is true.  Network effect is a term used in economics.  I refer North to the externality Wikipedia entry in which network effects are discussed.  The entry also mentions Mises and Hayek, so I can assure North that no programming knowledge is necessary to understand it, despite him characterizing a network effect good as “programmers’ professional jargon.”  I also refer North again to the network effect entry which begins,  “In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a good or service has on the value of that product to other people.”

In my distinction about network effect goods (and how money is one of them), he says I’m “beating a dead horse” with no actual refutation.  I will take that as agreement.  I do commit the error of making a typo on Carl Menger’s first name, to which North says I’m confused, despite the fact that I hyperlinked the name to the correct Carl Menger.  My apologies for the typo.

Back to Ponzi-ville

Though North at first seemed content to drop the Ponzi scheme claim, he returns to it by saying that he never claimed Bitcoin was a fraud (“I said it was not a fraud”), despite calling it the largest private Ponzi scheme in history and saying the creator(s) of it have been “siphoning off” money.  He does not address my actual point, and instead pulls out the “rule” rhetoric again:  “I see. We should buy Bitcoins as money because Bitcoins’ creators imitated the State.”  He continues to refuse to acknowledge the fundamental divide between fiat money which can be created instantly in any quantity and is foisted on the public by force, versus Bitcoin which is used voluntarily, has a hard limit on its quantity, and cannot be instantly created with a keystroke.  The fact that I point this out in my original article he, amusingly, cites as proof that I’m using his argument against him.  Of course if he had drawn these distinctions between Bitcoin and fiat money in the first place, I may not have felt compelled to write my critique.

News Flash:  Bitcoins NOT Used in Market Exchanges!

North continues his argument from authority fallacy by offering up another rule, claiming I have erred by agreeing that money develops out of market exchanges.  I maintain that Bitcoin is being used in market exchanges.  He disagrees:  “Bitcoins are not being used in market exchanges.”  I of course can point to numerous market providers of products and services which accept Bitcoin.  North could do his Christmas shopping on this site alone.  I know people who exchange Bitcoin every day for various goods and services.  He, on the other hand, makes the proclamation that they aren’t being used in market exchanges without offering any evidence whatsoever.

Further, North ignores the fact that as the price of Bitcoin rises, its purchasing power for goods and services increases.  If you can acquire a desired good or service directly with Bitcoin, why exchange Bitcoin for a fiat currency to make the purchase?  The only way to ignore this is to hold fast to the delusion:  “Bitcoins are not being used in market exchanges.”  I know people who pay rent with Bitcoin, buy food with Bitcoin, buy books online with Bitcoin, et cetera.  North provides no evidence to the contrary.

“Nothing to Consume” and Circular Logic

North completely ignores my criticism of his statement that a good has to be consumed in order to serve the customer.  Neither Bitcoin nor gold are consumed.  Instead he falls back to repetition of the rule rhetoric.

Next North invokes a circular reasoning fallacy to avoid addressing the error in his statement that “the fundamental characteristic of money is its relatively stable purchasing power.”  I again refer to readers to this list and his claim that fiat currencies are stable forms of money.  Purchasing power of fiat money has and will continue to fluctuate, at times wildly and unpredictably.  So it bears repeating:  The fundamental characteristic of money is that it’s the most widely demanded good in an economy.  The rising price of Bitcoin indicates that it’s being demanded more and more.  North claims this is proof that it is destined to be worthless.

Gold and Price Volatility: Confusing Causality

North and I agree that gold is not money, but he implies that it’s because the price is volatile. My pointing out the move from $35 to $1,910 doesn’t dissuade him from recommending it as an investment.  (I agree.)  Yet he says the dollar is stable from year to year.  Could the trillions and trillions of newly created dollars over the past few decades be accountable for gold’s massive price rise?  What is stable, the ounce of gold which has forever been the same, or the US dollar as a measuring stick for that ounce of gold?

Bait ‘n’ Switch

North attempts a bait and switch regarding my explanation that because Bitcoin has no yield, we will only know in retrospect whether it’s in a bubble or in an adoption phase as a currency.  He mistakenly tries to tie Bitcoin to real estate, which is a yielding asset.  I wrote, “During the adoption phase of any good as money, the purchasing power rapidly increases from its initial value as a non-monetary good as more and more people adopt it.”  Notice how North swaps in the word “fiat” for “good”:  “He is making this up. There are no records of any such private fiat money in history. All fiat monies have been extensions of previous government money systems or a previous commodity standard.”

My point was straightforward, but I will step through it to dispel the confusion North attempts to create.  If a person in a given economy believes that a good will be adopted as money, he may act on that speculation by purchasing the good in advance of it becoming money.  If he is correct in his prediction, he will see that good rapidly increase in purchasing power as it becomes money.  Why?  Because that good is in the process of becoming the most widely demanded good in the economy, which is the definition of money.  Bitcoin’s adoption as a borderless medium of exchange by more and more people around the world would cause its purchasing power to rapidly increase.

Ignoring Arguments is Not a Refutation

My comparison of the monetary traits of Bitcoin vs gold and silver is unaddressed by North in any substantive way.  He quotes part of my comparison (and for some reason inserts “Conclusion” into my discussion of durability) without refuting any of it.  But by now it’s easy to spot the tactic:  do not address my actual arguments.  Instead he says I’ve ignored “the entire history of monetary economies” without offering any basis or citing a single example.  Rather than using this opportunity to discuss monetary history, as I did with the continual silver debasement of the Roman denarius, he avoids the entire discussion.

He then goes on to say that legal tender laws are irrelevant to the US dollar’s role as money.  “No one has to accept them,” according to North.  Here’s a dictionary definition of legal tender:  “currency in specified denominations that a creditor must by law accept in redemption of a debt.”

Conclusion

Despite the barrage of rhetorical sound and fury pointed at me, the only valid criticism North offers of Bitcoin is its price volatility.  Because it’s been volatile, he reasons, it’s not being used for market exchange, and therefore can never be currency.  And because it can never be currency, he concludes, it is worthless and destined to collapse.  (Interestingly, because of fiat price volatility, he doesn’t believe he’ll ever see gold used as money, despite serving as currency for centuries.  He does not discuss why the price of gold has been so volatile in recent decades.)  North also does not mention the long history of defunct fiat currencies which he would have designated as money before their implosion.

I maintain that we cannot know Bitcoin’s future.  Its price ascent could be because it’s in a bubble, but it could also be indicative of its increasing adoption as a borderless currency alternative.

North criticizes me for not offering proof of the number of Bitcoin exchanges which take place, yet he claims without offering any proof that none are happening.  I suggest he inspect the public ledger of Bitcoin transactions, and I suggest he Google vendors who are offering goods and services using Bitcoin.  Perhaps he will also hear from readers who are using Bitcoin for market exchanges.  To wit North, in one of his personal swings at me, says I’m a “space cadet,” perhaps without being aware that Richard Branson will be accepting Bitcoin on Virgin Galactic space flights.

My point after all this remains the same, and I repeat it as a non-programmer, non-kid, long-time investor in gold and silver:  Gary North may claim the fate of Bitcoin is already sealed, but his arguments are not compelling.  As I said in my original article, if Bitcoin becomes defunct, the cause will not be explained by North’s faulty arguments against it.  For example, states could attempt to regulate Bitcoin out of use, even outlaw it.  This a risk factor North does not mention.  I’m open to changing my views, as we all should be, if shown better reasoning.  Until then, North’s rhetorical bluster remains hollow.  Here is my question for North:

John Mather is a fan of technology, gold and silver, Bitcoin, and Austrian economics.

Email him at john.mather182 [at] gmail.com.

 

11 comments… add one

  • Good series. I predict he’ll declare victory and drop the subject :)

    Reply
  • Massive pwnage.

    Reply
  • A tour de force of absolute, comprehensive, damning, devastating, eye watering, first class pwnage. Who is John Mather?!

    Reply
    • That is a $1e6 question. Thanks, Mr. Mather, I enjoyed your writing. What a pity you are not an economist, but, in that case, having a Nobel prize would be a handicap, I think ;-)

      Reply
  • Gary North has posted his “interview” with an imaginary Bitcoin advocate: http://www.garynorth.com/public/11854.cfm

    That’s right. Now he ignores John Mather, makes up his own “adversary”, and “destroys” him. Talk about losing a debate!

    Perhaps Mather will address the remaining fallacies in this “interview” and in this recent post: http://www.garynorth.com/public/11857.cfm

    Reply
  • This needs to end, Gary North is embarrassing himself

    Reply
  • Mr mather, you wrote:

    To summarize, North frames my article as a personal attack on him rather than a critique of his Bitcoin arguments.

    I quote from your previous article:

    Gary North is no stranger to predictions. Perhaps his most famous one is his widely publicized prediction that Y2K would end civilization as we know it. (…) North’s article is riddled with false premises and faulty logic demonstrating that he does not understand Bitcoin. (…) North is widely recognized as an expert on Austrian economics, and I make no claim to the contrary. North purports to base his critique of Bitcoin on Austrian economic theory. However, his arguments are so weak that he makes Austrian economics look bad (…) North was spectacularly wrong about his technological prediction that Y2K would be the downfall of civilization. Nobody knows if his prediction that Bitcoin is destined for worthlessness will come to pass. But if it does, the cause of Bitcoin’s downfall won’t be because of the empty arguments North has made against it.

    What do you think you did there, if not getting personal? You continue:

    To North’s credit, he starts off by making a large concession to my critique. He drops the Ponzi scheme claim and titles his response, “Digital Tulips: The Bitcoin Mania.”

    This is incorrect. As Mr North pointed out in his reply, he had defined his use of the term “Ponzi” in his original article: The creators and early adopters promise future gains and siphon off the incoming money. The promise however will not be fulfilled. You referred to the Wikipedia definition instead and by trying to show how Bitcoin doesn’t conform to it – as opposed to show that it didn’t conform to Mr North’s – completely missed the point. Mr North did not drop his claim that Bitcoin is a Ponzi scheme by his definition, but accommodated your insistance on semantics. Nor is this a large concession and you are not winning ‘debate bitcoins’ by pointing it out.

    He devotes the introduction to reframing the debate by giving historical context about tulip mania.

    That is not reframing the debate. You may have missed it, but he used your insistence on semantics to choose a well-known historical analogy and illustrate his previous claim – and making you look none the better for it. You carry on:

    North from the outset attempts to frame this debate about Bitcoin as a personal attack on him. (…) I issued no personal attacks against North, and I have no need to do so.

    I think this is something we can judge for ourselves, can’t we? You continue:

    North continues: “He dismisses me as if I am an economic ignoramus.” If I thought North an economic ignoramus, I would not have written the critique in the first place.

    Then why did you originally write the following:

    This article attempts to rectify this unfortunate situation by calling out the faults in North’s arguments and showing how his arguments diverge from Austrian economics. (…) Nothing is valuable for its own sake. All value is assigned. This is Subjective Theory of Value 101. North doubtless knows this, but it appears he’s attempting to imply gold and silver possess some sort of intrinsic value.

    Then you decide to pronounce the following:

    Anyone who wishes to show that a good is a Ponzi scheme must demonstrate how it differs from a market network effect good. As the Austrian economist Karl Menger argued, money itself replaced non-money as a market network effect good.

    Carl Menger did nothing of the sort, as had been pointed out to you. I shall skip over the next paragraphs, as they just contain bitter complaints about Mr north not taking you as seriously as you deem yourself worth. The first of his points you address is the following:

    North says the heart of his article is that “fiat money is ‘spoken’ into existence. It is not money developed over centuries in market transactions.” He then equates Bitcoin to fiat money (…) This is blurry language that results in blurry thinking. Fiat money’s key distinguishing characteristic is that it is mandated for use by fiat. By state decree it must be accepted as money. Bitcoin is not issued by fiat, and it is not used by fiat.

    Again Mr North defines his term, in this case ‘fiat'; and again you redefine it and attack his choice of words while utterly missing the point. And having accused him of ‘blurry language’ you go on and equate ‘fiat’ with ‘state decree’. Next you claim:

    Further, some fiat money in the past has been commodity backed and fully redeemable.

    You know, there are certain people, otherwise known as economists, who would find the terms ‘fiat’ and ‘commodity backed and fully redeemable’ mutually exclusive. But next comes an argument that is to the point:

    The fact that Bitcoin hasn’t “developed over centuries in market transactions” is simply not the crux of what determines whether or not it is a currency. People’s demand to use it as a currency is the crux of whether or not it’s a currency.

    And as Mr North and before him Carl Menger had argued, the first (developed over centuries in market transactions) is a strong point for the second (people’s demand to use it as a currency). Bitcoin fails on the first point. That some transactions have been completed using Bitcoin is little proof that it will be widely regarded as useful.

    It’s bizarre that North readily says that the US dollar is money, as if the fact that it used to have a commodity backing is the reason it is valued now. Most people today don’t know any monetary history at all, and they give no thought whatsoever about whether dollars (or any other fiat money) is commodity backed or not.

    You misrepresent Mr North’s point. He points out that the Dollar is being used as money because it was successfully used so in the past, not because everyone remembers that at one time it had a commodity backing. Bitcoin is very little being used as money; given its volatility, which I see you do not dispute, this is unlikely to change.

    North raises no objections to the other fiat currencies I mentioned as being money either, some of which have short histories and no commodity roots.

    Of course he doesn’t, because it would be completely beside the point: Bitcoin was rising in price, thus attracting buyers. But it rose without any fundamentals explaining its value. In fact, its volatility precludes its usefulness as a stable store of value and thus a useful medium of exchange. But being useful medium of exchange is exactly the promise that Bitcoin makes; thus, in the long the value of Bitcoin can only go in one direction.

    North does not refute my point that Bitcoin is not made “out of nothing.”

    And why should he enter a semantic argument? It would do nothing to further his point.

    North makes the surprising claim that fiat currencies are stable: “My point is this: the volatility of Bitcoins’ price is an indication of why they will not replace central bank fiat currencies, which are easily used in trade, and which are — so far — stable in purchasing power.”

    Again you are missing the point: Even if the dollar is slowly losing value, it is still less volatile than Bitcoin and thus better suited as currency.

    North categorically ignores the numerous fiat currencies around the world which have imploded in his lifetime.

    Just because many government-mandated fiat currencies imploded, a free-market fiat currency does not necessarily have to be stable. In fact, Bitcoin isn’t. However, when you concede this, you again miss the point:

    Bitcoin has been more volatile than US dollars, as I’ve noted, but it doesn’t mean that fiat currencies are stable. It also doesn’t mean Bitcoin has to be more stable than the US dollar to serve as a currency.

    As long as Bitcoin isn’t more stable than the US dollar, most people would find it less useful as a currency instead of the US dollar.

    North is also not giving a fair account about ease of use in trade compared to Bitcoin.

    And why should he? His argument is not from ease of use, but from stability of value.

    North continues, “The market has determined that the dollar is money. It has not determined that Bitcoins are money.” Governments determine what is money by fiat, and the dollar is no exception. (…) North wants to make it seem like the choice is between the US dollar or Bitcoin, period. North ignores the fact that Bitcoin is international, and its use is not by fiat.

    Coming from someone who banks internationally, I find this statement surprising. Billions of people perform transactions in dollars outside the domain of the US government. There are whole countries where people avoid their national currency in favour of the dollar and there are whole global markets that use the dollar for their transactions. This is what Bitcoin must compete against. To do that, it must win the confidence of Billions. A value development that looks like an asset in a bubble does not inspire confidence.

    (North) wrote in his original article, “Something that was valuable for its own sake, most likely gold or silver….” This statement implies gold and silver have intrinsic value, but he takes offense that I call him on it. He may have written a dozen books in the past on the subjective theory of value, but that is irrelevant to what he wrote in his article.

    No. You choose to interpret the statement that way. It was clear from the context what he meant: Assets like gold and silver have other uses than a medium of exchange, but Bitcoin hasn’t.

    It would have been constructive to simply say his choice of words is not what he meant and move on. Yet he says my criticism of him saying gold and silver are valuable for their own sake is an “attack on him” and “rhetoric” with “no supporting logic.”

    And he is right: By twisting his words and painting him as ignorant on economic theory you ARE attacking him – as opposed to attacking his arguments. And there IS no logic being used but merely words are being played rather than a valid point being made. The very same goes on your insistence of using the term “network effects”; to your insistence on the Wikipedia definition of a Ponzi scheme: It does nothing to address Mr North’s point.

    I maintain that Bitcoin is being used in market exchanges. He disagrees: “Bitcoins are not being used in market exchanges.” I of course can point to numerous market providers of products and services which accept Bitcoin. North could do his Christmas shopping on this site alone.

    Bitcoin transactions are at 80 000 per day. Can you guess what fraction this is of daily dollar transactions? For all practical purposes, Bitcoins are nonexistant in the market and exceptions just prove the rule.

    North completely ignores my criticism of his statement that a good has to be consumed in order to serve the customer. Neither Bitcoin nor gold are consumed.

    And rightly he does ignore it, since you confused the economic term of “consumption” with “physical consumption”.

    However and finally, you come to Mr North’s point:

    I wrote, “During the adoption phase of any good as money, the purchasing power rapidly increases from its initial value as a non-monetary good as more and more people adopt it.” Notice how North swaps in the word “fiat” for “good”: “He is making this up. There are no records of any such private fiat money in history. All fiat monies have been extensions of previous government money systems or a previous commodity standard.”

    I find the exchange to be very clear: You attempt to explain Bitcoin’s rise in price by more and more people adopting it as currency, thus increasing its demand. North correctly points out that there are no records on which you could point as example for your claim as opposed to a Tulip Mania effect. You then explain:

    If a person in a given economy believes that a good will be adopted as money, he may act on that speculation by purchasing the good in advance of it becoming money.

    So far, you are presenting speculation as an explanation of the demand for bitcoins. So far, all agree. Then you go on to assert:

    If he is correct in his prediction, he will see that good rapidly increase in purchasing power as it becomes money. Why? Because that good is in the process of becoming the most widely demanded good in the economy, which is the definition of money.

    What you are saying here is that if Bitcoin is being demanded more and more, it will eventually be used as a medium for exchange. That is what is known as a non sequitur: Bitcoins current price increase does not mean it will continue to rise. It may be a bubble. Simply asserting it isn’t one does not make it so.

    Bitcoin’s adoption as a borderless medium of exchange by more and more people around the world would cause its purchasing power to rapidly increase.

    But that is not the only explanation for Bitcoin’s price increase. Bitcoin’s adoption as a speculative asset by more and more people around the world would also cause its purchasing power to rapidly increase – and then to fluctuate and rapidly fall. Mr North has argued that use as a speculative asset as well as strong price fluctuations preclude Bitcoin’s use as a medium of exchange: An asset that is expected to apperciate will be hoarded, not sold. You then come to his point:

    Because it’s been volatile, (North) reasons, it’s not being used for market exchange, and therefore can never be currency. And because it can never be currency, he concludes, it is worthless and destined to collapse.

    That is his point. And here is your refutation:

    Gary North may claim the fate of Bitcoin is already sealed, but his arguments are not compelling.

    I leave it to the reader to judge whether you thus convincingly addressed Mr North’s point.

    Reply
    • I will not do a point by point critique of this rather long and pointless defense of Gary North. However, I do want to ask what I think is a valid question and one that has been mentioned quite a few time by both Gary and his defenders. That is the question of a personal attack. In your critique you mentioned the following quote from Mr Mathers:

      “Gary North is no stranger to predictions. Perhaps his most famous one is his widely publicized prediction that Y2K would end civilization as we know it”

      And rather then point out HOW this is “getting personal” you just use the same kind of rhetorical tactics the Mr North uses. You in fact just ask “What do you think you did here if not get personal?”
      So pointing out that Gary North made a predictions that the tech infrastructure of the entire world would go down as of 12:01 am, 2000 AD is somehow making it personal? The prediction turned out to be wrong. That is a fact. Furthermore, Mr. Mathers doesn’t make any judgments about the prediction itself, he merely mentions it because it was a prediction that Mr. North spread far and wide in the media and it is possibly the prediction that he is most associated with. Similarly, Mr. Norths predictions about Bitcoin are based on assumptions and arguments that are based more on his philosophical outlook than by the actual facts of what bitcoin is or isn’t.
      So how about you explain your first critique. How is mentioning that Gary North made a such a prediction somehow making it personal or a Mr. North characterized it “A personal attack”? Mr Norths entire article about the imminent failure of bitcoin as a currency is also a prediction, so I would assume that it would be appropriate to at least mention one of his most famous predictions that turned out to to be unfounded?

      The rest of your defense of Mr. North and your criticisms of Mr. Mathers rebuttal are equally rhetorical and lack the specificity necessary for a valid logical critique.

      Reply
      • Hello Mr Ellis, you wrote:

        I do want to ask what I think is a valid question (…). That is the question of a personal attack. In your critique you mentioned the following quote from Mr Mathers:

        “Gary North is no stranger to predictions. Perhaps his most famous one is his widely publicized prediction that Y2K would end civilization as we know it”

        So pointing out that Gary North made a predictions that the tech infrastructure of the entire world would go down as of 12:01 am, 2000 AD is somehow making it personal? The prediction turned out to be wrong. That is a fact.

        IIRC a personal attack is an attack on the person making an argument rather than on the merits of the argument itself. To illustrate: If one million Keynesians randomly hacked away on typewriters for an infinite amount of time, one of them would eventually come up with the complete works of Mises and another with Mr North’s article. The fact that they are Keynesians would not invalidate the arguments made neither in the complete works nor in the article.

        Mather’s attack on North IMHO is particularly disingenuous: Mather asks us to disregard North’s point because thirteen years ago, North had been wrong. Do I need to spell out the problem with that attack?

        However, for the sake of the argument I shall assume that you are correct and Mather did indeed attack North argument rather than his person. The topic under discussion is bitcoin’s future. In Mather’s own words, North’s argument goes as follows:

        Because it’s been volatile, (North) reasons, it’s not being used for market exchange, and therefore can never be currency. And because it can never be currency, he concludes, it is worthless and destined to collapse.

        Could you help me understand how pointing out Mr North having been wrong in the past adresses the point that bitcoin’s volatility precludes its general acceptance as currency?

        Reply
  • Jörg+Janssen:

    Well done. Your defense of North and his take on bitcoin won’t be popular, but nevertheless, your comments strike me as accurate and well reasoned, and based in a solid understanding of the Menger/Mises understanding of money.

    Thanks.

    Reply
  • Mr. Mather, you wrote: ‘condescendingly calls me … a “space cadet” (I will let readers judge)’
    Well, being asked to judge, I am looking at a photograph of a skinny, silver-haired, bespectacled, good-looking smiling man. I feel quite amused reading the text next to the photograph, however, I would call the “space cadet” characterization close but no cigar.

    Reply

Leave a Comment

Current ye@r *

Notify me of followup comments via e-mail. You can also subscribe without commenting.