The Libertarian Standard » Jeffrey Tucker Property - Prosperity - Peace Mon, 02 Mar 2015 18:15:59 +0000 en-US hourly 1 A new website and group blog of radical Austro-libertarians, shining the light of reason on truth and justice. The Libertarian Standard clean The Libertarian Standard (The Libertarian Standard) CC-BY Property - Prosperity - Peace The Libertarian Standard » Jeffrey Tucker TV-G The Anarchism of Milk and Cereal Mon, 24 Mar 2014 16:14:35 +0000 capncrunch-12p.blocks_desktop_large

Julie Eva Borowski has done it again with a solid video on the issue of libertarian in-flighting. The caricature has me saying something wonderful about the decision to pour milk in my cereal. “Beautiful anarchy!”

Well, it’s not entirely absurd. The decision to pour milk or not to pour milk is an illustration of human volition that is embodied in all our decisions. There is no police present at the moment of choice. There is no plan in place that makes us pour or not to pour. Even if there were a plan, it is likely to be ignored. It would be destined to fail.

Actually, as I think about it, there is something of a plan. According to the government, cereal is only part of a “nutritious breakfast.” You know, the pictures on the ads. There is a big glass of orange juice, a piece of toast with butter, probably another glass of milk, and probably a half slice of grapefruit. It’s absurd. I’ve never seen anyone eat all that on a regular basis with cereal. On the contrary, we shake the box in the bowl and eat. We are defying the plan, even that urged on us by manufacturers.

So yes, there is a core of anarchism in the decision to pour and eat.

And it doesn’t just stop with the pouring and eating. The anarchist dimension of production is illustrated in the very existence of milk and cereal.

Humankind lived 6,000 without a reliable source for milk. Milk spoils. It must be transported before that happens. Before trains and refrigeration, you were pretty much out of luck, unless you owned a goat or cow, or someone close by did. We underestimate what a seminal moment it was in the history of civilization for milk to be delivered to your doorstep back in the 1930s and 1940s. It was wonderful practice and culturally significant commercial institution, displaced only with the mass spread of electric refrigeration in the 1950s. If you think about it, we are only a few generations into a period in which people could reliably keep things cold in all months of the year. Milk was and is a luxury good.

There was no plan. There was no government push. It happened because of private enterprise operating in the spirit of freedom: “people need stuff so let’s get it to them.”

Now to the source of milk itself. It comes from cows. Modern socialists hate cows because they seem implausibly inefficient. They eat vast amounts of grain and grass, take up huge swaths of land that could be used for farming, and otherwise consume an enormous amount of resources. To keep one alive just to milk is a big expense, one requiring the accumulation of capital and long-term planning.

Think of this: no central planner, a person who assumes that he or she knows better than the market, would ever approve of a cow. On the face of it, there would be no way to know for sure, in absence of market prices and a profit-and-loss system, that a cow should be allowed to live.

Now to the cereal question. The variety and brands have delighted generations. No one person can make a box of cereal. It takes thousands, with ingredients that can come from all over the world. But there is an additional point here worth considering. Many brands have been around for decades and generations. They persist and persist. It is point of unity between us: we’ve all had Cheerios, Shredded Wheat, Sugar/Honey Smacks, Cap’n Crunch.

I was in the car the other day with some people I had not met and we were all fishing around for topics. Finally I brought up cereal, and the whole scene came to life. We talked and talked about the changes in Crunchberries, the shifts over the years in Lucky Charms, the yuckiness of puffed wheat, and much more. It was pure delight.

So within the cereal industry, we have authentic tradition at work. That’s an interesting observation about a market institution. Markets are said to be in constant upheaval and thereby always in a war against tradition. This is not actually the case. Cereal is a persistent tradition, even down to the original brand names. It has been done without any plans from government, any preservation boards and bureaus, or even hectoring traditionalists warning us against abandoning the permanent things.

We can therefore see how anarchism isn’t really about unrelenting unpredictability. Within cereal markets, we can see that anarchist-like production can preserve valuable traditions insofar as consumers — the real power behind the market — want it to be this way.

What the milk and cereal market needs is more anarchism, not less. Raw milk should be completely legal here as most everywhere else in the world. People should be allowed more choice. It is the same with the regulations and taxes that make entry into the cereal market more expensive than it ought to be. Let there be more brands, more producers, ever more choice.

And yet, let’s return to Julie’s original example of the decision to pour milk. In the end, it is ours and ours alone. There is no force of the state that can successfully enforce a single choice in this area. States aren’t that powerful and they never will be.

So, yes, let us eat cereal, pour milk, and consider the great lessons of this event. It really does illustrate a beautiful anarchy.

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What Explains the Brutalism Uproar? Tue, 18 Mar 2014 13:35:47 +0000 Trellick Tower iconic sixties new brutalist architecture

“Best article I’ve read in decades.”

That’s the message I received from so many people when my article “Against Libertarian Brutalism” first appeared.

A day later, I started to receive a different message.

“This article is evil and you are evil for having written it.”

Actually, the critics didn’t quite say that in those words. Mostly the language of the article’s detractors is unprintable. If I had any doubts that my piece was necessary, the reactions, some of them give new meaning to the phrase “violent prose,” removed them all. In fact, many people said that they had no idea that brutalism was a big problem until they saw the egregious responses to my piece. Thus did the persistent and non-relevant question regarding against whom this article was written answer itself.

There was another reaction that I found amusing. It came down to: heck yeah brutalism! This reaction mostly stems from the coolness factor of the word. I can only assume that the people who said this didn’t really read the piece and hadn’t entirely understood just how precise, authentic, distorted, and fundamentally awful the brutalist worldview really is.

In general, I find the debate and frenzy to be great. A writer aspires to write a piece that achieves that.

Still, I’m still not entirely sure why the article excited such controversy. What worried me at first is that I had actually underestimated the influence of the brutalist perspective. But as I think about it, and look carefully at the opposition, it really does come down to about half a dozen people. They felt accused, from which I can only conclude that my description of the brutalist mind was more evocative than I knew.

This article began as a private study, a memo to myself, a reminder of why we are in the liberty business. We’ve all felt that need to tell the hard truth. Assert the raw and unadorned core repeatedly and dogmatically. React with righteous anger and fury, even without elaboration, to the point of being downright offensive. There is a role for this. Injustice in our midst — and there is so much of it — cries out for it.

I wouldn’t call this brutalist. I would call this righteous passion, and it is what we should feel when we look at ugly and immoral things like war, the prison state, mass surveillance, routine violations of people’s rights. The question is whether this style of argument defines us or whether we can go beyond it, not only to lash out in reaction — to dwell only in raw oppositional emotion — but also to see a broad and positive alternative.

What is the right balance? How can we cling to and rally around fundamental rights, even when the conclusions are discomforting, and, at the same time, maintain a broadness of mind to see the larger goal and dream of liberty itself?

I came to be intrigued at the analogy between a deeply distorted, but still interesting, school of architecture and certain trends and intellectual tendencies you see in the libertarian world.

It fascinates me because there are often parallels between the world of art and the world of political ideology. This was better understood in 19th century European politics, when political parties tended to rally around certain composers: in Germany, for example, whether you preferred Brahms to Wagner told you something about a person’s view of German territorial disputes.

In the case of brutalist architecture, a school of thought that lived for 20 years after 1950, we had an edgy ideology at work, one based on a truth gone mad. That truth is that a building serves a function. It exists mainly to serve that function. The brutalists believed that everything beyond that function is a distraction, an invasion, a corruption. A building should not be art. It is not marketing, it is not for human delight. It must only tell one truth and never elaborate on that one truth. Of course this view represents not only an attack on modernity but all of history. It is affected in the extreme. Even the caves had art.

That brutalist tendency can exist within politics too. You see it in every election season. Forget all subtlety, all reservation, all mental questioning: just vote for X because that will cause all wrongs to be righted. In this way politics is brutalist.

But as I read about brutalism, I couldn’t help but wonder if this tendency is alive in the libertarian world I know so well. This is why Ludwig von Mises addressed this problem at length in his 1927 book Liberalism. He was emphatic that the foundation of liberalism is private property. But he doesn’t stop there. With that comes peace, tolerance, prosperity, and the flourishing of the common good. These are foundational ideals. He says that liberalism is the only ideology that can consistently and correctly state that it is not a party, a faction, a special interest, a narrow concern, or a private bias. It genuinely believes in the whole: liberalism speaks to the destiny of humankind..

This is the spirit I sought to evoke in this piece. I recall when I first read this book, how it inspired me. Yes, it sought to defend the rights of people to do nonviolent but still ghastly things. That’s important. More than that, however, this book conjured up for me a vision of global order ruled by no one but participated in by everyone. The book has haunted me in so many ways. It was the last statement of the old liberal worldview, a glimpse of a vision that once was but could be again. It’s big, high minded, beautiful.

What if the theme of liberty becomes the slogan of sectors of life that are fundamentally anti-social? That is part of the price of liberty itself. Liberty can deal with it. But what if we take it one step further and the intellectuals who defend liberty become exclusively celebratory of such elements? What if the racists, sexists, and anti-semites become heroes in their minds because, for whatever is wrong with their view of the world, they are defying what they see as the prevailing regime? What if libertarianism becomes the great gloss to cover up the hidden desire to achieve personal power, malevolent longings, antisocial urges, and authoritarian ends? I view this as a distortion and a problem, one against which we need to steel ourselves.

The most persistent response to my piece was the demand to know about whom in particular the article was written. Of course my piece did not name names because no one fully embodies brutalism. The real point was to draw attention to a tendency or archetype that keeps rearing its head. It has done so in my own writings variously through the years — as if I had woken up on the wrong side of the bed. None of us is immune. This is the whole point of demons and ideals: not to describe perfect exemplars but to urge everyone to avoid the pitfalls and long for the best that is in our hearts.

We all need reminders of why we are in the business of studying and promoting the ideas of liberty. It is not really about hating the state, even if that is something we must do. It is not really about celebrating the rights of malevolent forces in our midst, even though they deserve a defense. Hate is not the theme. (When Murray Rothbard used to say that “hate is my muse,” he was being facetious; that man loved liberty like life itself.)

The reason to believe in liberty is actually benevolent, humble, and rooted in love: we believe in the possibilities of humanity. No state — forever freezing the world in place, presuming to know the unknowable, brutally suppressing dissent, regimenting behavior and ideas, robbing and murdering to realize its goals at the expense of society — can unleash the creative and service-oriented possibilities of the human mind. On the contrary, states, like all expression of power in society, cut off and destroy what society tries to create and self-correct.

The brutalist mind samples that of the state. It believes in its infallibility, separates the world into those who comply and those who do not, admits no error, sees no coloration, opposes all elaboration and emendation, rules through intimidation, tolerates no diversity, recoils from intellectual struggle, stamps out all uncertainty, opposes innovation, never admits error. You see this in the buildings that brutalist styling produced, and you see this in the ideological world too. You feel it when you wince at what they produce.

We need liberty for civilization to emerge, to be sustained, to improve. There is absolutely nothing brutalist about that goal. On the contrary, the longing for liberty is rooted in our most wonderful dreams for ourselves and everyone.

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It’s coming! It’s coming! Wed, 22 Jan 2014 03:27:02 +0000 ISFLC14_FB-cover_draft04All my feeds are filling up with a growing frenzy about the big event of the year, the International Students for Liberty Conference, Washington, D.C., February 14-16, 2014.

I’ve only been once but I completely get the frenzy. I stumbled in last year, having been brought to town for a different task (some recordings on business cycle theory). I saw that the ISFLC was happening and walked in.

Wow, amazed. A new world opened up to me. There were multitudes of students present, all learning about and celebrating the magnificence of human liberty. I had no intention to stay. Suddenly, nothing could pull me away.

This year is going to be bigger and better. I’m speaking. I’m fired up about that (thanks, Institute for Humane Studies!) but also happy that my own new company has a table and a fabulous party that we are throwing on Saturday  night. It’s for those who have signed up for at the presubscribe rate. You can pay now or pay at the event. I would love to see you.

This is only one of many private gatherings (of course I hope it is the hottest ticket of the event). I’m also happy that The Students for Liberty is able to work directly with in a cooperative venture to get students access to the libraries, forums, social networking, classes, and publishing opportunities that are the core of’s service. In many ways, it is the ideal digital home for this generation.

Here’s the thing. Most of the year, liberty-minded people tend to go around rather glumly, regretting the state of the world. This attitude is blasted away at the ISFLC. What you experience is hope, exuberance, love, optimism about the future. It is infectious. And there is great reason for it too: liberty is positioned to rule the world in our times as never before.

I’ve been in this liberty “movement” for a bit of time, and I can tell you that everything is changing. And changed. If you don’t believe it, come to the ISFLC and see for yourself.

See you at cocktail hour!

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The Freedom of Rose Wilder Lane Tue, 14 Jan 2014 23:07:20 +0000 rose2

People schooled in the libertarian idea are prepared for the thesis that freedom is productive and protective of human rights, whereas despotism is neither. Many years ago, I first glanced through Rose Wilder Lane’s The Discovery of Freedom and assumed that it was an eloquent statement of known truths, so surely there was nothing much to learn here. Maybe it was right for beginners.

In my second reading, some ten years later, I was struck by the depth and sweep of her argument and how it goes far beyond conventions. The problem, as she sees it, is not just the state, but rather, the universal penchant for repressing the human spirit. The state is only the most egregious form of authority.

Finally, on my third reading, I got it. This is a supremely radical and challenging work, one that essentially turns the world upside down. Nearly every expert on the topic of the history of civilization will tell you that the regime is what makes the difference between whether a nation rises or falls.

Lane takes another view entirely. She says it is not the regime but the absence of the regime that sets the human spirit in flight and permits it to create and make beautiful things out of the uncivilized world of the state of nature. She pictures the whole history of humanity as a struggle to be free of authority — not just this or that authority but all authority.

The problem as she sees it is that men have a penchant to want to rule others. This expresses itself in every area of life in which we allow it to happen. In the voluntary sector of society, we are at least free to flee the impositions, and flee we must if we hope to create and build and prosper. But when authority grabs hold of the law, matters change, and we are no longer free to get away. That’s when the human spirit is most threatened with death.

Lane tracks the struggle from the ancient world through modern times. The first attempt she identifies with begins with the prophet Abraham, who asserts a law independent of civil authorities and yet serves as a basis for judging all authority. This culminates with the arrival of the Christian faith, which heralded the individual and recognized his rights, not by virtue of membership in a tribe or political unit, but universally by virtue of one’s very humanity. This attempt was subverted, however, with the union of church and state.

The second attempt that she chronicles will astound most every reader without exception. She marks it with the life of Muhammad, founder of Islam. Here was another attempt to free humanity from the chains of earthly authority, and the results (as she sees them) were the flowering of civilization in arts, commerce, science, and scholarship. It is through Islam that Christendom discovered the writings of the ancients, derived its number system, found its technology, and cast off its forming bias against commercial dealings.

It goes without saying that this section, probably more than any in the book, will come as a revelation to readers raised in the current epoch, in which we Americans are constantly told about the inherent dangers of Islam. Why don’t we know about this side of history? Lane’s explanation is rather plausible: Our official history is Christocentric in the extreme, and we are thus denied much information about the period between the 7th and 12th centuries — a gigantic swath of time in which most of the action took place outside the parameters of Christendom.

But of course, we know what happened to Islam. Its free spirit didn’t last; it became consumed in war and war preparations — and finally relented to authoritarian institutions. Its promise died.

What is the third great epoch? It began in the New World with the American colonies. In this section, Lane’s prose soars to all-new heights. Her love of America has nothing to do with the jingoism we know all too well. It is a love of individualism, experimentation, risk, entrepreneurship, creativity, reward, and the inspiration that comes with building a new civilization itself. What a hymn to our history she writes!

And note the date. This was written in wartime. There were censorship rules at the time, things you could and couldn’t say. What might she have written about war authoritarianism that she did not dare to write? I think we can imagine. In fact, you can read between the lines. She saw America betraying its history, principles, and destiny. And what would she write today?

There is so much wisdom in this work, so much to challenge and surprise us. Lane was learned, passionate, and remarkably creative, and her prose is that of a well-honed professional writer and researcher. This book is a gift. Its lessons are for our time and all time.

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Power Has Failed Us Thu, 02 Jan 2014 22:34:58 +0000 The morning after I saw “Catching Fire,” part two of the film series based on the Hunger Games novels, I was scheduled to give a lecture on the nature and functioning of the state. I had vast notes I had prepared over the previous six months for it.

After seeing the movie, I was tempted just to toss them out; in fact, I nearly suggested that we all just leave the lecture hall and go to the movies. That’s because this one movie reveals more about the state than practically any book I could suggest.

It’s a great thing when popular culture becomes a teacher of truth, and I believe this is precisely what is happening in our time. Not every movie and not every show, but the biggest grossing of them are all centered on a theme. That theme is this: powerful people are not our friends but our enemies – so if we want to have a free and flourishing life, we are going to have to get busy and figure out how to make it happen.

The fictional government in the Hunger Games wants a static and unthinking population that is dedicated to compliance as a first principle. Everyone must stay in his or her assigned district (there are 12 remaining “districts” in Panem, the country that was once the United States); there is no social mobility; and the citizens are told to be grateful for this because, after all, there is no revolutionary threat anymore. To keep that possible, the people must be constantly punished for the last time anyone challenged the central authority. That punishment consists of an annual lottery that sends children to their death in fights that pit district against district in a highly televised gladiator event know as the Hunger Games.

In Catching Fire, we see a population beginning to discover that the real enemy is not the other districts; but the people at the top of the heap in the Capital – the capital city of Panem that belongs to no district, is disproportionately wealthy compared to the districts despite not producing anything themselves, is excluded from the Hunger Games lottery, and is where opulence prevails and whose people live without a care for the well-being of the rest of the population. The Capital sounds a lot like our non-fiction capital.

Here’s the thing: the command-and-control apparatus that was given life in the 20th century is in the process of falling apart. It can’t do anything right. As David Wiegel has pointed out in his blog on, “Americans are rarely in love with our government, but rarely have we despised it like we do right now. A December 5-8 Gallup poll found that 72 percent of us consider ‘big government’ the greatest threat, the highest in 48 years.”

This is completely rational: the last several wars have yielded horrible body counts, but not improved lives; public services are nearly universally shabby compared with private ones; and people are starting to look at their taxes and scratch their heads, wondering what they are paying for.

The NSA spying scandal was a PR disaster for government. Did they really expect that the people would discover that all our phone calls, and emails, and even our browsing habits are being monitored and say in a collective voice “Oh thank you, big brother, for protecting us from bad things”? The nearly universal response was outrage, so much so that even the Obama administration has had to back away from responsibility.

Then there’s Obamacare. It was just last year that the now-president was bragging about having his name attached to it; after all, this was the “progressive” dream dating back many decades. The idea is that if we just let government run the system, we’ll get fabulous healthcare for next to nothing. The experts worked diligently to think through every contingency.

Finally the great day arrived where the dream could finally be translated into reality. What followed is routinely described as disaster. Fewer people are insured today than before the program was implemented. This was a mess made in D.C., but D.C. cannot and will not fix it. That’s the essence of the issue. Our problems have mostly been made by a bad idea that wasn’t ours to begin with, and now it is up to us to make the difference in our own lives and get out from under Panem’s – I mean Washington’s – control.

This is an idea that is indeed catching fire. The world of markets and the information they disseminate are breaking down the structures of power, and the great dream of is to push this trend further and provide a crowdsourced clearing house for chronicling and encouraging this great trend. We need this space and we are making it happen.

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Ponzi Argumentation: Gary North’s Rhetorical Mania Wed, 04 Dec 2013 16:09:25 +0000 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.”


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]


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Ponzi Logic: Debunking Gary North Sun, 01 Dec 2013 21:34:17 +0000 Many people have asked me to respond to Gary North’s article on Bitcoin but I’m pretty much over giving detailed responses to people who haven’t done basic homework on the topic. Still, I was thrilled to receive this nice point-by-point rebuttal, which I publish here:

Ponzi Logic: 

Debunking Gary North’s “Bitcoins: The Second Biggest Ponzi Scheme in History

by John Mather


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.  In his Bitcoin article, North makes another technology related prediction:  after Social Security, Bitcoin will go down as the biggest Ponzi scheme in history.  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, to the point that someone unfamiliar with Austrian theory could finish his article doubting the validity of Austrian theory.  One reader who linked North’s article on a message board even commented that the article made him want to stop referring to himself as Austrian.

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.

Is Bitcoin a Ponzi Scheme?

Given that the market of freely choosing individuals has placed a value on Bitcoin, the burden of proof is on North to show that Bitcoin is a Ponzi scheme.  However, the Ponzi scheme Wikipedia entry shows that the very definition of a Ponzi scheme does not apply to Bitcoin.

There are several key differences between a Ponzi scheme and Bitcoin.  First, Ponzi scheme vehicles are inherently fraudulent.  When running a Ponzi scheme, the promoters lie to participants and conceal key information about the where their funds go.  Bernie Madoff, who claimed his firm’s consistently high returns were based on investments which he in fact never made, is a prime example.  The issuance by Allen Stanford of phony certificates of deposit to unwitting customers is another example.  In contrast, Bitcoin is not based on fraud or deception.  Bitcoin is an open book, literally.  The open source model Bitcoin employs means that it cannot claim to be one thing while in fact being another.  Anyone is free to inspect the Bitcoin code base to determine for himself what it is or is not.  This difference alone starkly distinguishes Bitcoin from a Ponzi scheme.

The second key difference between Bitcoin and a Ponzi scheme is revealed in Wikipedia’s differentiation of a Ponzi scheme from a pyramid scheme.  A Ponzi scheme requires an operator.  “In a Ponzi scheme, the schemer acts as a ‘hub’ for the victims, interacting with all of them directly.”  Bitcoin is not run by anyone.  It is a decentralized system – in Hayekian terms, a spontaneous order.  Anyone can mine, buy, or sell bitcoins.  And unlike Charles Ponzi, Bitcoin has no promoter acting as a hub. The creator(s) of Bitcoin are anonymous.  (Note: Bitcoin is capitalized when referring to the software and network as a whole, and uncapitalized when referring to individual currency units.)

The third difference is this: “A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors….”  Bitcoin is the opposite of esoteric.  It is open source, and all are free to use it at their own chosen level of participation.  Computer programmers can read and even modify the source code.  Crytographers can study, and even try to crack, the mathematics of the system.  And everyone, techie and non-techie alike, can buy and sell BTC (the abbreviation for bitcoins) without understanding Bitcoin’s inner workings.

There is a single trait that Bitcoin can be said to have in common with highly successful Ponzi schemes:  a dramatic appreciation in price.  But if that trait is all that’s required to make something a Ponzi scheme, then countless stocks which have soared from a penny per share at corporate founding to hundreds of dollars per share would be considered Ponzi schemes.

North’s Ponzi Logic

Now that the fundamental premise of North’s article has been dispatched, let us address several statements North makes which contain faulty logic or false assumptions.

1)  North says Bitcoin is made “out of nothing.”  This is a specious argument.  The fact is that the Bitcoin currency and payment network is comprised of computer code.  Is the web browser you’re using to read this article made out of nothing?  That Bitcoin is not a physical good doesn’t mean it is made out of nothing.  Billions of people, including North, assign economic value to all sorts of things which have no physical form.  The most obvious example aside from the computer code of companies like Google or Apple is the vast supply of US dollars, the majority of which exist only in digital form.

2)  North writes, “Something that was valuable for its own sake, most likely gold or silver….”  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.  It may feel good to believe (especially if you own gold and silver), but it’s just not true.  Gold and silver have many uses, for example in electronics or silver in water filtration.  But most of the value of gold in particular is due to its marketability, meaning, the acceptability of gold by other market participants.  This acceptability is a mutually reinforcing process by which people are more willing to accept gold because others are more willing to accept it.  The existence of a mutually reinforcing cycle of demand is known as a network effect.  Some examples of other network effect markets are cell phones, fax machines, web browsers and web servers, cars/roads/gas stations, and fiat money.

The difference between network effect goods and direct use goods is that, for example, the enjoyment of a steak dinner does not depend on its acceptability or adoption by others.  A direct use good directly meets an individual’s needs, while a network effect good derives a significant part of its value from the network.  Most goods we use today have some combination of both.

It should be clear from the arguments made above that network effects alone are not sufficient to identify a good as part of a Ponzi scheme.   Most network effect goods are not based on fraud, and most of them do not have a central operator who extracts profit out of the system.  Successful network effect goods achieve their success by market adoption based on consumer choice.

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.  Gold and silver emerged due to a combination of traits which are desirable to have in a money commodity, namely scarcity, portability, uniformity, divisibility, and durability.  Other commodities which have historically served as money, such as salt or cigarettes in prisons, only possess a subset of these traits.

Network effects can come and go.  An example is the adoption of fashion.  A particular look can go in and out of style either very quickly or over a much longer time frame.  During the time that a fashion is popular, many clothing and shoe retailers can increasingly profit by serving consumer tastes.  When that look goes out of style, garment producers must shift to producing something else or go out of business.  Is fashion a Ponzi scheme, or simply a market following shifting consumer tastes?  Almost nothing is permanent in the market.  Any time a once-popular good falls out of favor, does that mean it was a fraud?

3)  North writes, “But Bitcoins are unique. The money was siphoned off from the beginning.”  By calling it money, North is contradicting himself.  And unique?  With every fiat currency, the state siphons off a portion of the money it prints.  It’s standard operating procedure.

With market money, early adopters have always profited from their foresight.  The creator(s) of Bitcoin may be sitting on lots of them; I don’t know.  But there’s nothing unique about that.  Early adopters also take on a lot of risk.  The founder of every multi-billion dollar company had mountains of stock at the company’s inception.  That doesn’t mean money was siphoned off.  What is unique about Bitcoin compared to all fiat currencies is that there is a hard limit on how many currency units can be created/mined.  Fiat money can be replicated instantly without limit on central bank computers.

4)  North observes, “Money develops out of market exchanges.”  Yes, and that’s what is happening with Bitcoin.  People began using it from the beginning knowing it was not money by the Austrian definition as the most widely demanded commodity.  Yet they kept using it for market exchanges.  They could do so because Bitcoin is also a payment system which allows secure peer-to-peer transactions with no third party fees.  That feature in and of itself has great utility.  If Bitcoin becomes money by the Austrian definition, it will be because it developed out of countless market exchanges.

5)  When North proclaims, “Bitcoins cannot serve the consumer. There is nothing to consume,” he makes an absurd statement.   As if a customer cannot be served without consumption!  When was the last time North consumed a gold coin?  Never, because gold is not consumed.  Even if it’s made into jewelry, it can be refashioned into coins or any other form.  A commodity doesn’t need to be consumable in order for it to be a useful currency.  While it’s true that market forms of money in the pre-digital age originated from consumption goods, billions of people today have only known money in their lives as completely unbacked fiat.

6)  North continues with more nonsensical statements:  “But the fundamental characteristic of money is its relatively stable purchasing power.”  Stable purchasing power is desirable in a money, but it is most certainly not the fundamental characteristic of money.   Rather, the fundamental characteristic of money is that it is the most widely demanded commodity in a given economy.

North keeps pointing to the US dollar as money, yet even the US government’s inflation calculator (which statistically “adjusts” the real figures lower) shows that since 1988, the US dollar has lost half its purchasing power.  In my grandmother’s lifetime, the US dollar has lost over 96% of its purchasing power.  Several goods over those periods have had more stability in their exchange power for other goods than the US dollar.  If stable purchasing power were the fundamental characteristic of money, then the US dollar would no longer be money.

North frequently in his writings points to gold and silver as the most desirable money commodities.  Yet the price of gold went from $35 to $1,910/oz.  Perhaps upside volatility is acceptable to North, with the exception of Bitcoin of course.

7)  North goes on to set up a straw man argument, framing Bitcoin not as an open source international currency and payment system, but rather as a mania-driven, pump-and-dump investment.  He writes, “Whenever somebody tries to sell you an investment that is based on the economic analysis of a market – an analysis that cannot possibly be true – do not buy the investment. ”  Now that his monetary theory arguments regarding Bitcoin have failed, he points to the rapid price increase in Bitcoin as evidence that Bitcoin itself must therefore be fraudulent.  Perhaps Bitcoin is in a bubble and the price will crash.  Maybe it will be overtaken by another crypto-currency some day.  Perhaps the rapid price increase is pointing at an acute worldwide demand for a secure, borderless, person-to-person, expense-free form of payment.  The fact is nobody knows why the price of Bitcoin is what it is right now, or what it will be in the future.  For North to claim he does, and importantly, for him to use Austrian economics as the basis for his claim, is unfounded and misleading.

As noted above, most of the valuation of money comes from its marketability, which is what makes it money, so there is a circular and network effect component inherent in money.  When a good is adopted as money, its value goes up because it is adopted as money.   And unlike yielding assets, there is no way to say that it is over-valued because you can’t calculate a yield.  You don’t have to believe that Bitcoin is a good investment in order to use it for exchange.  Many people use US dollars every day knowing that their purchasing power will very likely continue to dwindle.

8)  A final piece of Northian Ponzi logic masquerading as sound argument:  “The mania has destroyed Bitcoins’ use as money. Bitcoins are too volatile in price ever to serve as a currency.  Which is money: dollars or Bitcoins? The answer is obvious: dollars.”  So to follow his line of thinking, US dollars are money.  Agreed.  Yet every single fiat currency throughout history that has hyperinflated into oblivion was money by North’s standard before its hyperinflation.  Going from money-status to worthlessness is the most extreme case of volatility – terminal volatility so to speak.  Bitcoin has not done that – quite the opposite – making North’s argument contradictory.  Once the US dollar has lost 99% of its purchasing power (rather than the 96+% my grandmother has suffered), will it still be money?  Further, if one defines a currency as a medium of exchange, we see that Bitcoin is used many thousands of times per day in exchange for thousands of different products and services.  So in that regard it already has been and continues to “serve as a currency.”

It is true that if the exchange rate of Bitcoin continues to be highly volatile indefinitely, bitcoins will be ill-suited as a currency over the long term.  But Bitcoin is still in its infancy.  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.  If we are in the adoption phase of Bitcoin as money, it would be normal for its purchasing power to rapidly increase.

It is also true that in bubbles, the purchasing power of an asset rapidly increases, so increasing price alone does not tell us whether we are in the adoption phase or a bubble.  Bubbles can be characterized by yielding assets, such as equities, stocks, bonds, and real estate, selling at very low yields and high valuations.  But money inherently has no yield; the investment of money has a yield.  Only time will tell if Bitcoin is currently in a bubble or undergoing adoption as money.  If it were to, say, triple from here and then stabilize, clearly this period would not be viewed in retrospect as a bubble.

Bitcoin vs Gold & Silver

Now that it’s obvious Bitcoin is not a Ponzi scheme, we can shift our focus to seeing that Bitcoin stacks up well against gold and silver as a network effect good.  We return to the desirable traits of a money  commodity:  relative scarcity, portability, uniformity, divisibility, and durability.

Scarcity:  Gold and silver are scarce. They have become increasingly difficult to find and extract.  There are trace amounts of gold in all of the earth’s crust and in sea water, but there is no extant technology that can cost-effectively extract it.  It may surprise some that aluminum used to be more highly valued than gold, but technological innovations in the 19th century made aluminum extraction more economic.  Bitcoin is inherently scarce by virtue of the underlying cryptographic math which sets a hard limit of 21 million bitcoins.  As the total already-mined supply increases toward the limit, additional bitcoins can only be mined with ever-increasing difficulty.  In this respect, Bitcoin is different than gold and silver which, while difficult to produce, do not have a known cap on their production.  There is no guarantee, for example, that large undiscovered deposits of the metals could not exist.

Portability:  Compared to some other highly valued commodities, gold and silver are quite portable, but when viewed as a money commodity, they are very heavy to transport in any sizable sum.  That makes them extremely inconvenient as currency, which is why commodity-backed paper money came into use.  Bitcoin wins hands down of course, as the only weight a person must bear is to carry the device the bitcoins are stored on, such as a mobile phone.  And, unlike metals, bitcoins can be transported over any computer network.

Uniformity: Bitcoin is superior to gold and silver because both metals are easily adulterated.  One of the ways gold and silver coins were inflated in the past is by debasing them with more common metals.  The Roman denarius initially was almost pure silver, but subsequent regimes continually debased the denarius until it only contained 2% silver.  A metallurgist can for a fee tell you with a high degree of confidence if a coin or bar contains the purported concentration of gold or silver.  A layperson cannot.  In comparison bitcoins are completely uniform, and there is no mechanism by which they can be adulterated in the way precious metals can. 

Divisibility:  Gold and silver are both highly divisible, but only with specialized skills and equipment.  You can’t readily lop off 1/3rd of a gold coin to pay for an airline ticket, or buy supper for 1.65 silver coins.  Bitcoin wins again, hands down, as it is instantly and exactly divisible down to 0.00000001 of a bitcoin (called a “satoshi”).

Durability:  It would seem at first glance that gold and silver would win hands down, but I submit that Bitcoin actually wins.  It’s easy to dent and scratch gold, yet to its credit gold is practically indestructable.  But if a gold coin gets badly banged up or bent, a vendor would likely hesitate to accept it.  Sure an expert can assay the metal content of the damaged coin for a fee, so it is durable in that sense.  But Bitcoin has a different, and arguably more practical, sort of durability.  Namely, you can make any number of perfect backups of your bitcoins.  While a USB thumb drive containing one’s Bitcoin wallet is susceptible to breakage, that wallet can be stored on any number of other digital storage devices.  This provides for a kind of durability that gold and silver cannot offer.  You can have your bitcoins with you on a mobile device, on a thumb drive in a secure spot at home, even perhaps stored in another state or country in case of local disaster.

Another trait provided by Bitcoin not typically addressed in traditional monetary theory is security.  Bitcoin wallets are encrypted.  If your storage device is stolen, as long as you have a backup of your wallet, you still have your bitcoins to spend.  The same cannot be said of gold or silver.  They are, unfortunately, easily stolen or confiscated.  And if you’re not where your gold and silver are stored when you need them, you’re out of luck.  To be fair, it’s worth mentioning that bitcoins are not categorically immune to digital theft, so depending on the situation, your money is always at some kind of risk.

I have focused on gold and silver because of their historical importance as money, because North focuses on them in his writings, and because the Austrian school has a lot to say about them.  If I had to choose a commodity money, it certainly would be gold and silver for the reasons outlined above.  My purpose was not to suggest that they are unsuitable as money, but rather to show that Bitcoin shares, and in some cases exceeds, the traits which make gold and silver good forms of money.

The big weakness with Bitcoin is also its strength: it requires electric power and a computer network in order to function.  In a catastrophe such as a natural disaster, bitcoins would be of no use.  This is an important consideration, and in an all-out crisis where power grids shut down indefinitely, paper money will likely rapidly become unusable as well.  Having gold and silver on hand would clearly be the desirable choice in this scenario, but food, alcohol, medical supplies, and means of self-defense would probably be of equal or greater priority.  In other words, in a dire catastrophic situation, barter is likely to take over, and since very few people have gold and silver coins on hand, they will not serve as money.


If Bitcoin can never be money for the reasons North argues, how is it that the US dollar has been money for so long while violating North’s own self-imposed standards?  Legal tender laws aren’t a valid answer because legal tender laws have not stopped other fiat currencies from becoming worthless.

The more people who transact with Bitcoin without any coercion or legal compulsion, the more it functions as a free market money.  Because Bitcoin is not tied to any political region, it does not need to surpass the usage frequency of the US dollar to be considered money.  This, too, is another straw man argument North foists on the reader.  It is also a false dilemma.  You can exchange Bitcoin for countless other fiat currencies.  Perhaps North doesn’t consider the currencies of dozens of small countries to be money.  When a greater number of international transactions happen per day in Bitcoin than, say, in Bolivian bolivianos or Bahraini dirhams or Bermudian dollars or Bhutanese ngultrums, will North continue to deny that Bitcoin is a legitimate currency, yet defend the monetary status of those?

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.

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

Email him at john.mather182 [at]

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The Economics of the Baby Shortage Mon, 02 Jan 2012 20:52:24 +0000 Richard Posner and Elisabeth Landes wrote this excellent paper in 1978, but I’m only now seeing it. It speaks of the terrible inefficiencies — pervasive shortages and surpluses — that come with state adoption agencies and their price controlled system of allocating the right to raise children. They address all the usual objections to a market for children and generally provide enough evidence to lower the temperature of the debate and introduce some rational thinking here.

In passing, they point out that a real market for child-rearing rights would probably end the practice of abortion or perhaps seriously curtail it.

Wow. When was the last time this point has been made an a debate on abortion? I’ve been thinking through it for years but never actually seen it discussed before. But it is really a no brainer. Why are value resources being tossed away when there are plenty of people out there who clearly want to use them? There is an intervention in the market process, and that intervention concerns the market for child-rearing rights. If we had an open market that allowed for payments to expecting mothers, the decision to abort would carry a heavy opportunity cost. Right now, all the cost is associated with carrying the baby to term.

This is the kind of libertarian research that could make a huge difference in the world. This paper came out in 1978. I see it as compatible with Murray Rothbard’s views on child rights. Don Boudreaux wrote along the same lines. If anyone knows of other work in this area, I would love to see it. It seems that more work needs to be done in this area.

I once asked an anti-abortion activist whether he would favor a market for children if permitting one could reduce the number of abortions by half. He quick answer was no. I asked him to clarify: are you saying that it is better to be dead than traded? Yes was his answer.

That’s interesting to me because the current adoption market is already rooted in the cash nexus and trade. The problem is that it is seriously hampered by monopolization, regulations, and price controls.

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In Defense of Bourgeois Civilization Tue, 27 Dec 2011 13:49:00 +0000 I’m really happy with this way this article turned out. It is published at Crisis. The editor John Zmirak had initially sent me a piece by the legendary historian Christopher Dawson and asked me to respond. I generally avoid this sort of debate so I didn’t bother to look at the piece for probably ten days or so. In fact, I didn’t really accept the challenge.

Then I read the piece. It was quite incredible. Dawson sweeps his scholarly hand over vast continents and epochs and makes wild claims entirely abstracted from the real experience of humanity. Nowhere does he show the slightest interest in the plight of the common man and his quality of life. He is happy to declare the middle ages to be this wonderful time of faith and order and then proceeds to blast away all of the last several hundred years as hopelessly corrupted by materialism. His target is what he calls the bourgeoisie, and here he admits that his thinking is in line with Karl Marx. But there is a difference. Whereas the Marxists posited a hopeless conflict between capital and labor, his model posits a conflict between real faith and material provision. The two are irreconcilable.

The real danger of the Dawson piece is its erudition in big things and its deep disengagement with the small things that make life good, like clean clothes, medical care, running water, job opportunities, access to food to feed the children, and the like. He cares nothing for these things. He is content to simply praise the past for its Michelangos and Berninis and condemn the present for its Lady Gagas and Justin Beibers. It’s really a cheap trick and an obvious one: pick the best of the past and the worst of the present and you can paint a picture of relentless decline.

My response points to the dramatic change that took hold of the world in the late 18th and early 19th centuries, a change that created what we call the middle class today. It gave life to hundreds of millions of people. Without the bourgeoisie and the capitalist marketplace they sustain, the world could not support seven billion. Surely a high-minded cultural historian like Dawson should care about things like this? Surely!

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Who Should Control the World? Mon, 26 Dec 2011 22:03:36 +0000 In the days following the gift-giving holidays, many millions of people stand in judgement over the quality of the gifts they gave and the gifts they receive. Did they arrive on time? Did the quality hold up? Did the reality match the advertising hype? The Internet ads an extra wrinkle. Anyone dissatisfied can post blistering attacks on any merchant and the product in questions. Anyone can vote up or vote down.

The down votes are what make the news. The Wall Street Journal tells the story of Scott Mitchell of Connecticut, who purchased from Best Buy and Playstation 3 for his two sons ages 10 and 14.The company let him know via an email that the goods didn’t arrive. He was furious and wouldn’t stop posting diatribes against the company. Eventually, the suits got involved and sent him his full bundle of goods at a low price plus a $200 gift certificate.

“While I can’t say I’m happy, I wound up being satisfied,” Mr. Mitchell told the Journal.

The case was cited as one of many such cases. Consumer demand was so intense that Best Buy got behind. The company didn’t have the inventory it needed to fill all requests. Cyber Monday overloaded the staff and they couldn’t respond fast enough. Any business that hears the story thinks: nice problem to have. Inventory decisions like this require daily clairvoyance.

What’s more important here is what this anecdote indicates about the social order. In this setting above, who is in control? Mr. Mitchell is just one lone guy with one problem with a company that serves untold millions. But he had a voice and his voice was heard. The company scrambled to please him.

Justice was served, and not because he was part of a big pack of people going to voting booths once every four years. There were no hearings, committees, testimonies, debates, complex systems of legislation and signings, judges and juries, regulations and legal rights. He was served because he was a consumer. One man with a credit card beat the system.

The institution that allows this great thing to happen is known as consumer sovereignty and it is an intrinsic part of the market. The preferences and rights of one individual prevailed even though he was not in the majority, even though he never registered for any system in a political apparatus, even though he had no lobbying firm or friends in high places. He complained and the giant corporate monolith bowed to his wishes. And they did so for self interested reasons. It’s bad for business to have dissatisfied customers. So the the corporate execs fell to their knees in supplication.

This is a good system. Who set it up? No one. There was no votes, no constitutions, no committee hearings, no lobbying. It emerged spontaneously from the decisions of self interested parties. The company exists to make a profit by finding ways to get goods to people who want them. Mr. Mitchell was among those who decided on his own volition to trade with the profit-seeking company. That trading relationship is one of billions and billions that go on every day, all day, all year. Put them all together and you have what is known as the market economy.

Philosophers from the ancient world to the present have tried to imagine how to set up a society in which every individual matters, a society without exploitation, a society without violence, a society with peace, justice, and prosperity. They have usually imagined that this world would have to emerge from the political process. That is where their speculations and plans usually begin. They were and are wrong. The society that does these things is right before our eyes and found within the framework of our own choices, actions, and trades with others.

We are often told about the evils of corporate power and the grim nightmare of the market in which we are all swallowed up by the forces of materialism and consumerism. Where is there evidence of any of this in the sphere governed by voluntary exchange?

In the market economy, the buyer is the decision maker. He or she determines what gets produced, how much, and directs the pattern of change. The supposedly powerful fat cats of the corporate world are daily submitting to the wishes of the little guy with a computer and a credit card. Any company in a market can be shut down in a matter of weeks if the consumers switch loyalties. This happens every day.

Nothing like this system exists in our dealings with the state. For years now, masses of people have been screaming about the indignities imposed upon us by the TSA. The TSA responds with a propaganda blitz designed to make us believe that they are strip searching us electronically for our own good. The institution doesn’t comply with all our wishes much less the wishes of one person. Instead it sets out to change our thinking, trying to make our mental habits conform to those with the power.

In other words, the TSA operates on the opposite principle of the free market. In the market, we are in charge and the producers slavishly attempt to find out what we think and try to conform their operations to our point of view. In government, we are told that we are the ones that must change. We must submit. We must comply. We must go along no matter what. We can choose to be grumpy about it or happy about it, but, in either case, there is no choice. We must obey. And the institutions of government never really go away.

And so it is with every government agency at all levels. The little guy doesn’t matter. There is nothing like the consumer/producer relationship that we see in operation in every instant on the market economy. Instead, the government takes our money by force and spends it as it wishes. If we don’t like the system, we are invited to slog our way to designated spots every four years and choose among a slate of drones who want to be our designated leaders.

Government vs. the market: which system is better? Granted that neither system provides utopia. The real issue is: which system is better capable of self correcting in our favor? The market does this every day. There is a ceaseless struggle going on globally with the goal of winning us over as consumers. The market is always saying: “how can I help you?” The government is always saying: “help us or else.”

Looking at the choice here, it seems rather obvious that the market – as a particular application of the principles of choice and free association – is the best approach to organizing society. No one designed it. It is controlled by us in the very exercise of our free will to It gives power to the people. The statist approach can only lead to less satisfaction, less mutual benefit, less control, and ultimately the very nightmare that we all want to avoid.

Think of all that that market contributed to your holidays and all it will do for you in the year ahead. As a form of social organization, nothing is more deferential to your needs and wishes.

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