93 thoughts on “The Bitcoin Bubble and a Bad Hypothesis

  1. We had an abundance of private currencies circulating in Australia prior to 1910. It was not utopia but it worked.

  2. @tgs
    What i wanted you to accept is that 94% marginal tax did not hurt prosperity if it existed at the same time. Not to show causation to the prosperity.

    Why such policy causes prosperity i explained few times with Nominal Surplus Circulation and incentives such tax gives.

  3. @TerjeP
    But those private currencies were backed by gold in their respective bank waults. And gold can never loose its value down to o since it has practical aplications too, unlike bitcoin that is not backed by anything of value, just by pure trust in the system.

    These private currencies were slowly replaced by state debt (Treasuries) as value backing which were cut up in size and time by banks in order for public to find it useful. This state debt backed currencies is present monetary system while gold backed currencies are removed as too volatile and make prosperity dependent on ammount of gold that can be digg out of ground.

    Gold backed currency is less useful then fiat currency.

  4. But those private currencies were backed by gold in their respective bank waults.

    No they weren’t. Banks were pretty conservative in terms of reserve ratios but none did 100% gold backing or anything like it. The private notes were more akin to the demand deposits that circulate via EFT today.

  5. @TerjeP
    But i did not even say at what ratio the currencies were backed? I said they were volatile which includes the variable of the ratio.

  6. Terje
    The world did not get off gold untill 1933-1939. Most of the countries did in 1933. Untill that time you can not claim that fiat currency was the rule of the day. And even if you do start from 1913 when FED was formed then i wonder how do you define stability?

    Looking from 1933 with exception of WWII which was caused by gold pegg and the debt burden that produced such bank collapse and unemployment which in turn looked at opposing spectrum of solutions: communist or fascist solution to capitalist crisis, i would say that stability was remarkably improved in next 70 years comparing to the line of depressions that were present in previous 100 years under old system.
    Pre 1933 period had depressions every 20-30 years. Sure the depressions lasted lot less, but the level of misery was depressionary.

    I really do not know how do you define stability????

  7. Fiat was the wrong word. I mean government currency. The opposite of private currency which dominated in Australia pre 1910.

  8. Feel free to share your definition of stability. And show how the private currencies pre 1901 were “too volatile”.

  9. Terje
    I am not afraid to explain my comprehension of terminology and to back my statements.
    I will define the term at US example since i do not know Australian history.
    By volatile private currencies i meant that banknotes of different banks would be used only in an area that is in a proximity to the bank and many times the areas would overlap and 20 dollar notes would have different values in the same place. Even the 20 dollar gold coins have different values and different weight. Even the values of a gold coin would change over time and also have different values in different places. Every teritory would be its own optimal currency area with market forces that determine its own value. Around gold mines the prices of goods measured in gold would be different then in other places due to market forces. In times of gold rush the gold would change its value.

    Currencies were too volatile just on their own.
    Then the banks would cover their expenses with issuing banknotes without adding the gold and that would make gold ratio uneven over multiple banks.

    Can you have a federation with such a system?
    Speading communication with railroad and roads the issues became unberable for any united consistency with such large teritories as USA. It needed more unified monetary system in order to remove trade bariers. You can draw a parallel with EU that used to have multiple currencies trying to make trade fllow easily. Just a mess.
    The real reason for Civil War in US was uniting into a single currency market with Federal system while Confederacy wanted to keep their own private currencies in each state, hence “state’s rights” and slavery that Southern politicians claimed hiding the real reasons. Confederate politicians did not want to loose individual state banking power to print money.
    Confederat wanted their “state right” to print money and distribute it which by federalizing it they would loose.
    This is what is also happening in EU today. North is for more banking union under ECB while South politicians are against such loss of sovereignety of distributing money as they see fit.
    North have higher taxes on rich and stronger safety net while southern politicians do not want that.
    In order to have sustainable banking union under single currency they also have to federalize retirement, health, social systems which will provide required fiscal transfers. Before that they should have equal standard of taxes and safety net across the countries in order to make transitions easier. I do not think that is necessary but they do.

    In order to have such thriving large economies like USA or Australia, or EU or China, you have to have standard on currencies equal accros teritories and time in order to have free flow of trade. It is the free market that demands such change 🙂

  10. @Jordan

    What i wanted you to accept is that 94% marginal tax did not hurt prosperity if it existed at the same time. Not to show causation to the prosperity.

    OK, so you’re not claiming a causal link any more.

    Why such policy

    causes

    prosperity i explained few times with Nominal Surplus Circulation and incentives such tax gives.

    You are now claiming a causal link again… in the immediately following sentence no less. I must admit I’m not sure what it is you are trying to say here when two adjacent sentences appear to contradict each other.

    Yes, I did read your proposal of a hypothetical mechanism by which this causal link may have taken place.

  11. “The subsequent 100 years of fiat currency was far less stable.”

    Of course, Terje. It’s not as if we had devastating depressions in the 1840s and 1890s or anything, is it, or that the 1890s depression was so much longer and deeper than the one in the 1930s.

    A fiat currency and central banking have really ruined it for everyone.

  12. @tgs
    Causal link is side note and i wanted to show that it is not the main topic right now by explaining that causality came from somwhere else.
    Just wanted to get agreement that high prosperity existed with 94% top tax which gives conclusion opposite to what neoliberal claim; that high top taxes hurt prosperity.
    And i have never heard such concession from “free marketeers”

    You want to keep avoiding such implications by conflating implications of a corollary and causality, nobody can stop you.

  13. Just wanted to get agreement that high prosperity existed with 94% top tax which gives conclusion opposite to what neoliberal claim; that high top taxes hurt prosperity.

    Well no, I am not disputing any historical data as it currently stands.

    However, the correct counter-factual to your point would be whether prosperity would have been greater if the nominal marginal tax rate was lower than 94%.

    I don’t know the answer to that. I’m sure that you have a very strong opinion on that question and that there would be opinions out there that would disagree with yours.

    You want to keep avoiding such implications by conflating implications of a corollary and causality, nobody can stop you.

    I assume you mean correlation where you have used the word corollary.

    I am not sure what you are accusing me of trying to avoid or what you really mean by your last sentence.

  14. Well no, I am not disputing any historical data as it currently stands.

    This is what i looked for. Thank you.
    Don’t you think that implications of that should be included in today’s conversations? Or what history can teach us is not applicable?
    I think that such implications are of the most importance to talk about at least to figure out how such policy affected the performance.
    Since preveiling thinking is that taxes are bad, there is nothing to figure out about such policy since we already made up our mind, right?

    However, the correct counter-factual to your point would be whether prosperity would have been greater if the nominal marginal tax rate was lower than 94%.

    How much better can be then already the most prosperous time in history?
    If true that prosperity would have been better, it would be only marginaly better and rising inflation is showing that it was at the maximum.

    I apologize for missusing the word corollary, i usualy do not proofread even tough i should.

  15. Don’t you think that implications of that should be included in today’s conversations? Or what history can teach us is not applicable?

    Of course history is important and can teach us valuable lessons about the present. I suppose I am not as convinced as you appear to be as to exactly what the lesson to be drawn in this instance is.

    If the lesson is that high nominal marginal tax rates and high economic growth are not mutually exclusive given a certain set of domestic and global macroeconomic conditions then I would wholeheartedly agree.

    If the lesson is, as you seem to be claiming, that high nominal marginal tax rates cause high economic growth then I would find this position far less convincing. However, I am always willing to change my opinion in the face of evidence.

    This is what I was getting at when I suggested you should consider the difference between correlation and causation. Correlation is relatively easy to demonstrate, causality is typically much, much harder.

    If true that prosperity would have been better, it would be only marginaly better and rising inflation is showing that it was at the maximum.

    Like all historical ‘what-ifs’, it is probably difficult to prove such a claim. I suspect that there would be people who would disagree with your opinion just as there may be those who agree.

  16. Reality check
    People still see a future in bitcoin or its successor
    http://www.zerohedge.com/news/2013-04-22/bitcoin-or-betacoin-what-venture-capitalists-are-thinking

    “If the venture capital community wants to make bitcoin the “Next big thing”, staving off regulation by bringing the currency into the light is just as important as their other goals. Yes, the U.S. Treasury recently issued some guidance, essentially bringing bitcoin into the regulatory fold. At the same time, regulators do have the facility to make life difficult for bitcoin if they so choose.”

    “In summary, bitcoin is what I would call a “Beta currency.” To the tech world, that means something that is still in development. It’s eventual success or failure is a technological challenge, mixed with business development issue”

    Regardless of the ethics and merits of alternative currency systems, this looks like something that will need to be dealt with. Perhaps a government approved design (eg secondary private key to decode all transactions as per various key escrow proposals put forward by government for other cryptographic systems).

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