When Austrians argue about Bitcoin there seems to be two basic camps. On the one hand there are those who use the regression theorem to argue that Bitcoin isn’t money, and on the other there are Bitcoiners who don’t see the regression theorem as relevant to Bitcoin at all. The regression theorem applies to Bitcoin in the same way that modern evolution theory applies to Darwinism. The regression theorem explains the origins of money, but it does not explain the current state of the money market.
It is important to keep in mind that the evenly rotating economy is merely a construction, and that life is always changing. Dogma is not a part of science. It is not a question of if, but a matter of when the regression theorem will be obsolete. Does this degrade Mises? No it does not. Newtonian physics is obsolete. Modern computer technology also renders obsolete the technology of the past. All of these things were necessary steps on the road to modern achievement.
The regression theorem seeks to explain the origin of money by saying that at some point a commodity used in barter became widely popular and individuals began to trade and use it as a medium of exchange. As far as it goes the regression theorem makes sense. The regression theorem explains why commodity money exists today.
The author of Smiling Dave’s Blog is a proponent of the regression theorem and is a critic of Bitcoin. In his article, Bitcoin Takes a Beating he writes:
“And this is where bitcoins achieve their fail. Unlike gold, no matter how far back you go, bitcoins were never worth anything intrinsically. There was never a reason for bitcoins to suddenly become worth a dime, or any other price. They are totally useless as jewellery, or anything else. So, that there is no reason people should accept them as being worth a dime, much less $33.
One may ask, then how come they were traded on certain websites at $33 a bitcoin? P.T. Barnum provided the answer. There’s a sucker born every minute. A small handful of people decided to speculate in bitcoins and bought them at whatever silly price they thought was worth it. But bitcoins were never generally accepted at any price but zero. They have no reason to be.”
The regression theorem does a good job of explaining the creation of money, however it does not necessarily apply to all forms of money. The first thing used as money had to have been a commodity that had value in trade in a barter system. Does this mean that all monetary institutions must have the same characteristics? I think not. The market is ever changing.
Bitcoin is not backed by a commodity and thus violates the regression theorem, according to some sects of the Austrian school, so what does this mean for Bitcoiners? There are some who have gone so far as to reject the regression theorem in total. I think this reaction is a little over the top and is unnecessary. The theorem explains commodity money, its genesis if you will, but the only bearing the genesis of money has on the current iteration of money is the cause and effect relation of the history therein. Bitcoin is money because people see it as such and it has utility that commodities don’t have.
The anonymity and decentralized design of the blockchain and the entirety of the digital nature of the currency give it advantages over a centralized, controllable commodity backed currency. Bitcoin has features that will remain valuable even after the fall of the State. Bitcoin, or something very much like it, is the future of exchange.
While Bitcoin doesn’t follow the regression theorem and is not based on a commodity, that doesn’t mean that the accuracy of the regression theorem and the exchange value of Bitcoin are mutually exclusive. Life is ever changing. The fact that money has now evolved passed a point in which the Austrians of old had considered does not mean that this current form is doomed to fail. Back when Mises wrote The Theory of Money and Credit computers didn’t even exist. Bitcoin was inconceivable when Mises first contemplated the origin of money. He had no way to take Bitcoin into account.
The regression theorem concerns the development of money, it does not necessarily concern all adaptations of money. Applying this theorem to Bitcoin is stretching it beyond its scope. Just as physics has evolved over the centuries and just as our understanding of these things increases so too shall our understanding of money change. Change happens. It is foolish to fear it.
Clinging to the old forms of money simply because of a theory put down by one of the founders of the Austrian tradition is dogmatism and is indeed a critical error. Capitalism and the idea that competition and innovation are good for society are the antithesis of dogma. Any capitalist worth their salt is not a dogmatist. While education may be conservative by nature that does not mean that our way of thinking must too be conservative and dogmatic.