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This is the Human Action Podcast where we debunk the economic, political and even cultural myths of the days. Here's your host, Dr. Bob Murphy. Hey everybody, welcome back to Human Action Podcast. Today I am talking about Bitcoin and how it fits in with Ludwig von Mises monetary framework. And let me just give you a quick outline of what I want to hit in this episode. So the first question is going to be should bitcoin be considered as a commodity money or as a fiat money? And then the next issue I'm going to discuss is, hey, doesn't Mises so called regression theorem prove that bitcoin could never become a money? And then finally, as an added bonus, I am going to explain that by me walking through mentally what I was going to cover with those two topics. I realized part of what I will say to you when I do the first topic answering the question, how should we classify bitcoin? You know, would it be a commodity or a fiat money? That what I'm going to say to you. Then there's some tension with that in the way I'm going to answer the second part and I'm actually not even sure where I come down on the whole thing, but I think it's going to be interesting. So let me just say at the outset, a lot of this is going to be standard fare for those of you who are well versed in this stuff. But there is that nugget at the end where I think it's, you know, I'm realizing I haven't fully thought through these issues, that there's more to be said. And so that's partly what I'm trying to intrigue even the veterans with. Even if you're a trained economist in the Messessian tradition. I think I'm going to eventually, at the end of this episode, get to some issues that you haven't thought about before because I hadn't. But also let me say as part of the housekeeping up front here, even if you don't care directly about bitcoin per se, I think you're still going to get something out of this episode. Like even if you're a gold bug and you think bitcoin's silly, for example, I still think this episode is going to be worth your while. Just to get a deeper dive into how did Ludy Van Mises think about money? Last caveat before we jump in. If you're interested in the stuff that I cover here for further reading, you definitely want to check out Mises, the Theory of Money and credit his 1912 work. It's a bit intimidating, but I have a study guide that the Mises Institute published. And so if you just, you know, go to the Mises website and type in Theory of Money and Credit P. PDF, you'll get his main book. But then also do study guide and you'll get that as well. So make sure if you haven't read it before Mises work, you definitely want to have my study guide to help you navigate it. And then the other thing is, as far as the objections about bitcoin, the regression theorem and things like that, I'm going to be referring to material that I have in my booklet with Silas Barda called Understanding Bitcoin. So if you want to see that, that's at Understanding Bitcoin us all this stuff is free. You can just get the PDFs. Okay, so let's dive right in. The reason this is on my radar is it came up recently on social media. What with gold and silver blowing through the roof and bitcoin being lackluster in 2025 for the year as a whole, the familiar question came to the surface that people who are fans of hard money and opponents of government fiat money often discuss is, hey, what's. What's the better thing? Is it, should we get into gold? Should we get into bitcoin? Okay, so my cards on the table, I'm a fan of both, and I think they have different pros and cons. All right, but that's not the focus of this episode here. And so somebody asked me point blank a couple weeks ago, I said, hey, Bob, I know in the past you said that you think bitcoin would have to be classified as a fiat money. Do you still hold that view? And my response was, yes. It's admittedly awkward, and I'll explain why it's awkward in a second. But, yeah, you put a gun to my head and I got to choose. It would have to be a fiat money because it's not any of the other two classifications. Okay. So that's what I'm going to first spend some time here unpacking. One thing to avoid confusion is right now, I personally don't think we would say bitcoin is money. Right. So in the Austrian tradition, money is defined as a medium of exchange that's commonly or universally accepted. Right. So what does that phrase, medium of exchange mean? That refers to an item that people accept in a trade, not because they directly value it, that they're going to, you know, consume it. And not even because they're going to use it to produce something else, but because they intend to trade it away down the road. That's what a medium of exchange is. All right? And then a money is a medium of exchange that happens to be accepted by virtually everybody, you know, into some defined community. And then that's what, what it would mean to be a money. Okay? So with that definition, I want to argue bitcoin right now, although I think it's clearly a medium of exchange, right? People have been accepting it in a trade not because they're going to eat it, not because they're going to use it to make their car go faster or help them build a house or something, right? That's not the kind of thing that bitcoin is useful for, but because they're going to hold on to it and then maybe trade it away down the road to acquire things from other people. Right? So since that's why you would be holding bitcoin now, I think it clearly qualifies as a medium of exchange. It's not a consumption good or a production good. But I don't think it's money because I don't think there's a community of people that could get by just using Bitcoin for most of their transactions. All right, so that's where I stand on that. But now the interesting question that we'll spend some time on is, okay, but if it were to become a money, what kind of money would it be? And so here we need to go to Mises framework. And so in his 1912 work Theory of Money and Credit, he had a threefold taxonomy where money could be one of three types. There was commodity money, fiat money, and credit money. So credit money is tricky. It's like it's a claim on something that is also valued because the community accepts it, right? So it's not valued merely because of the fact that it is a claim on some other good, but also there's an element to its valuation due to the fact that, oh, people recognize this is also useful as a medium of exchange. So historically, a good example of what Mises had in mind when he talked about credit money would be government issued currency that typically could be exchanged for gold or silver, but then because of a war, some emergency, the redemption was temporarily suspended. And so in that sense, Mises said, yes, like, like the greenbacks during the Civil U.S. civil War, that in 1863, if you had those notes issued by the federal government that said whatever, $10 on it, you couldn't turn that in and get gold or silver for that however, most people thought eventually you would be able to redeem the US Dollar for gold. And that assumption turned out to be true that after the war ended, eventually they passed legislation that said by 1879, the US dollar once again is going to be redeemable in terms of gold. At the pre war parody. Right. They had demonetized silver by the end of that decade. Okay. So in Mises framework, even though you might be tempted to call the Greenbacks fiat money, he actually didn't think they were right. And there's a passage in the Theory of Money Credit, which again comes out in 1912, where Mises, even though he has laid out the theoretical possibility that money could be fiat, he says it's not clear whether fiat money has ever actually existed. Okay, so that proves in case you thought it would be a slam dunk, like, oh, of course, the Greenbacks during the Civil War, they were just printing up those things, green pieces of paper and paying for, you know, war supplies and whatever and paying soldiers, and they would. You couldn't turn it in for anything. That's fiat money. Right. And no, Mises called that credit money because he was well aware of the U. S. Civil War. He was a student of history. Right. That, that didn't escape his notice. All right, so when Mises said in the, as of the early 1900s, I don't know if fiat money has ever actually existed, clearly, you know, he had, you know, he was aware of the greenback era. And again, what he would have said is that it certainly wasn't commodity money. Right, because you couldn't get gold or silver with those notes, but people had the expectation that eventually you would be able to. And so that, that's what, you know, what he would call that. All right, so that's the credit money. So Bitcoin's clearly not credit money because it's, it's not a claim on something else. Right. So then if you're going to try to plug Bitcoin into Mises framework, it's got to either be commodity money or fiat money. Those are the two contenders. All right, so let's go to the text and read what Mises has to say about those. So this is again from Mises theory, the theory of money and credit. There are two sorts of thing that may be used as money. On the one hand, physical commodities as such, like the metal gold or the metal silver. And on the other hand, objects that do not differ technologically from other objects that are not money. The factor that decides whether they are money being not A physical but a legal characteristic. A piece of paper that is specially characterized as money by the imprint of some authority is in no way different technologically considered from another piece of paper that has received a similar imprint from an unauthorized person. The only difference lies in the law that regulates the manufacture of such coins and makes it impossible without authority. Okay, so there, it's. I think Mises there gives a little bit to both camps, right? If we're, if one camp wants to say Bitcoin, should it ever become money, has to be commodity money, and the other camp wanting to say it's fiat money. And the reason there's some ambiguity here is typically there's a bundle of attributes that goes along with both of those distinctions. Or with that distinction, I should say that a commodity money, right? Where the. It's just a commodity. You know, it could be gold or silver, but it also could be cattle or imprison. Cigarettes often become the money. There's a famous example of a POW camp in World War II where cigarettes became the money. It was, it was. There was a professional economist, he was a Royal Air Force pilot, I believe, and he was shot down, he gets captured, so he ends up in this German POW camp. And when the Red Cross ration packets would come in, the prisoners would exchange them, you know, because they had different preferences and whatever. And cigarettes became the money. All right? And there's a whole article called the Economics of a POW Camp by this guy Radford spelling all that out. So it's a fascinating read. If, especially if you like economic stuff. Well, you have to be. Otherwise why are you watching this episode? I heartily recommend you go read that thing. That's a great, great article if you've never read it before. Okay, so there, those are clear cut commodity monies, right? The thing was a regular commodity and then it got adopted by the community to also serve the monetary function. Okay. And we have a very easy way to explain the valuation of that. And how does that process happen? The, the Austrians were key in really spelling all that stuff out. Okay, but, but then Misa says there's a, you know, there's this thing called a fiat money. And there, there's nothing special about like if, let's say paper notes, a rectangular piece of paper that right now is called US$. And what's the difference between that and a counterfeit? It's not something that has to do with their inherent attributes and why people would value them as a commodity. Right? Whereas with gold, with gold coins, for example, if some mint, you know, takes an ounce of gold and stamps it into a coin there. The. The stamping didn't turn the gold into money. The gold was the money. The stamping and the, you know, the minting into coins and whatever, all that does is provide a way to make it easy for people to verify the fineness and the weight and so forth of this particular hunk of metal. Okay, but it's not that a hunk of 1 ounce of gold would not be money until the government stamps it into a coin. And in fact, historically, there were private mints. Just to make sure you're aware of that, that in my book, Understanding Money Mechanics that the Mises puts out, I spend a little time on that, just making sure you're aware. Okay, so the government does not even need to be involved in print in the minting of coins. Right. That's something that the market historically did handle. Okay? So again, if the community is using gold as the money or silver and some authoritative government agency stamps it into coins, do not make the mistake of thinking it is the stamping into the coins that turns those things into money, both legally and historically in a society that uses gold as the money, you know, you. You could buy stuff with physical. Just bullion or whatever. You know, you slap on bars of gold, and the people, if they could figure out how much it weighed and whatever, they could do transactions that way. And Misa says, too, that that's what merchants would do, like, for larger transactions, that if people are bringing in, like, bags full of coins, that they would weigh them. That he said, you know, yes, superficially it might look like, oh, they're paying with dollars or they're paying with French franks or whatever, but back in the days when the dollar and the frank were all defined as specific weights of gold and. Or silver, depending on the, you know, the time period that ultimately he said, really the linchpin was the physical weight of the metal. That's what you are paying with. Okay, so in contrast to that, Mises is saying with fiat money, the. The technological properties of the item that's now being designated as the money are not in any important sense different from similar items that are not considered as money. Right? So two rectangular pieces of paper, and one has a picture of Andrew Jackson on it and a two and a zero and so forth and some serial numbers and blah, blah, blah, that can become a $20 bill, and that's lawful US money. Whereas another green piece of paper with rectangles or whatever is just counterfeit that some guy made in his basement on his laser printer. And that's not money in our system. And Mises saying it's not because, oh, you know, you can use the real $20 bill as a bookmark, or you can use it in a fire, or you can use it to give a paper cut to somebody if you wanted to for some reason. Well, no, the counterfeit could do all those things too. Okay, so that's what Mises is getting at here. However, he also throws in the line that, you know, there's some legal authority that does that. And so admittedly, Historically, and when Mises was writing, the two things tended to go hand in hand, that commodity monies were voluntary and did not involve the government per se, whereas fiat money would, again, hypothetically speaking, because Mises wasn't sure that existed yet. But Mises had in mind the authorities would just designate something as, you know, being the lawful money, even though technologically didn't differ. Okay. And the reason I'm stressing that is some people were trying to argue with me when I was saying Bitcoin, I think, has to be fiat money because it's not a commodity. Right. It's not that bitcoin was doing something else first and then got adopted to do double duty as money. No, Bitcoin from its inception was designed to be, you know, a modern money for the, for our technological age. Okay. That's what is. And, and those of us who think it's cool and makes sense that, yeah, that's, that's a very interesting money with certain properties that even gold and silver don't have. But the point is it did not first establish a reputation as just a mere commodity before it was money. That's, that's the claim. Okay. And so that's why I think, you know, bitcoin would have to be money or, sorry, fiat money, if you're going to classify it as one or the other. And so some of the pushback, like I say, is people saying, well, no, Bob, because there's no coercion involved, it's voluntary, it's a market phenomenon. And so therefore it has to be commodity money. And so I'm saying Mises, this, you know, his exposition here, it's admittedly ambiguous because all the clear cut arguments he makes and examples he raises, those properties go hand in hand that if it is a commodity money, it's also voluntary and people aren't being forced to use it as the money. And likewise, if it's a fiat money, it involves a coercive state being involved in the explanation and like defining the attributes. But I think I have a trump card in terms of Austrian economics to say you could conceive of something that would have to be classified as fiat money, that is not. Does not involve coercive government action. And that has to do with Hayek's proposal that he laid out in his pamphlet, the Denationalization of Money, where Hayek said, we can imagine competing currencies that, you know, private sector organizations issuing their own notes that aren't backed up by anything. It's not that you could turn the note in and get a certain, you know, basket of commodities or something so that they're. They're not backed up in that sense, but if the community could be convinced to hold these things and they could gain exchange value, then in the long run, the organization printing up these notes might circulate them and they would be a superior form of money to what the states around the world were issuing because of competition. Right. You couldn't use coercion to get anyone to hold your notes. The only reason the public would end up holding Hayeks or Murphy's or Rothbards, right. If that was the companies issuing these pieces of paper so that, oh, yeah, I want to go buy something, I'll pay with 10 Murphy's instead of paying with $10 or €10. So why would people want to use those currencies? Well, because the private companies issuing them would have an incentive to maintain their purchasing power. You know, maybe some currencies would specialize in certain types of commodities that were of interest to particular industrialists. Maybe other currencies would maintain their purchasing power with respect to household goods. So that. Oh, yeah, if you have 100 Murphy's, you can always get, you know, a dozen eggs and a pound of hamburger meat and gallon of milk, and that's what 100 Murphy's always get you. Right? And so anyway, that's what the, the system Hayek envisioned. And Murray Rothbard, although he was a critic of that, and so that wouldn't work, that in the, in the market economy, people would just use gold as the money. Why would they use these notes? Rothbard doesn't shy away from saying what Hayek is proposing. There is privately issued fiat money. Okay? So I'm, I'm saying there, I think it shows that even with Mises framework, we can logically imagine the theoretical possibility of privately issued fiat money. It's just, you know, Rothbard would say, yeah, you could imagine someone issuing that, and they wouldn't find any. Nobody would hold that stuff, right? So the company would go out of business. Okay, so anyway, that's my, my sort of detour or cul de sac to just argue. I think it's logically coherent to say Mises framework allows for the possibility of a privately issued, non coercive fiat money. And so if you agree that that thing is, that's possible, well then I say I think that's what Bitcoin would have to qualify as. Okay, so that's my argument there. Regardless of how you feel about my stance on that, let me emphasize the following because this is critical in general. Not just talking about Bitcoin, but in general. I think some Austro libertarians misunderstand what the term fiat money means. And I think they're giving too much credit to the government. So I think some people, I know some people, because I say this all the time on social media, will say, oh, if something's fiat money, that means the government is just declaring by fiat that this is the money and makes people use it. Whereas, you know, gold or silver or silver, Bitcoin, whatever. That's, you know, not relying on coercion. And therefore, and so just be careful that what the fiat part is doing there is not forcing people to use it as the money. And so the way I express this on social media recently when I was getting in these conversations with people is I said, yes, the US Dollar is fiat money, but what the government is doing by fiat is declaring these things are valid US Dollars and these things are not right. That that's where the fiat arbitrariness comes in. To say the US Dollar is fiat is that the US Government is telling everybody authoritatively this is what counts as a US Dollar. However, it's not that the US Government can declare by fiat that Americans shall use dollars as the money. Okay? So don't get me wrong, there's other tools at its disposal that the US Government can use that involve coercion to get people to use US Dollars as the money. But I'm saying that's not the, where the, what the word fiat is doing when we call it fiat money. All right? And I was glad to see, as I was reviewing the theory of money credit, that Mises goes out of his way to say that, you know, in his formal language. And so let me just read, read that to you. He's got it in parentheses after the stuff I was reading you before. In order to avoid every possible misunderstanding, let it be expressly stated that all that the law can do is to regulate the issue of the coins. And that is beyond the power of the State to ensure, in addition, that they actually shall become money, that is, that they actually shall be employed as a common medium of exchange. All that the state can do by means of its official stamp is to single out certain pieces of metal or paper from all the other things of the same kind so that they can be subjected to a process of valuation independent of that of the rest. Thus, it permits those objects possessing the special legal qualification to be used as a common medium of exchange, while the other commodities of the same sort remain mere commodities. It can also take various steps with the object of encouraging the actual employment of the qualified commodities as common media of exchange. But these commodities can never become money just because the state commands it. Money can be created only by the usage of those who take part in commercial transactions. Okay, so I realized that I was going through that you might be confused because there Mises is using the term commodity, and he's talking about coins. And so you might say, wait, is he talking about fiat money? Is you're talking about. So there Mises is using the word commodity, broadly speaking, so that. Oh, yeah, even a rectangular piece of paper, that's a commodity. Right. And then if the government. If the US government stamps some stuff on it and puts a 2 and a 0 and a picture, Randy Jackson and whatnot, a serial number and says federal Reserve note. Now all of a sudden, oh, that mere paper commodity turned into money, or it turned into a US Dollar, I should say. Right. So that's. That's what Mises means there. So there don't get confused. He's saying even fiat money consists of commodities, even though it's not commodity money. Right. So I realize that might be confusing to people. And also coins could be fiat money. Like right now, a US Quarter is fiat money even though it also is a coin. Okay. So just make sure you're not getting mixed up there. All right. But his substantive point was he was saying, you know what it is when we say fiat and that, oh, the. What makes something a fiat money is that the state, you know, the legal authority, specifies and sets aside a certain subset of a class of goods that are technologically equivalent and says only some of them qualify to be the fiat money there. He's saying that it's just setting them aside. It's. It can't actually make the community use that stuff as money merely by declaring it. So he admits there's other things they can do. Sure. But he's saying, for the definition of what we mean to say something is a fiat money as opposed to a commodity Money that it involves the authority, you know, arbitrarily as it were, laying out some criteria that, again, that's just. It makes for the possibility of the public now using that as money. Right? So if the government didn't do anything special to rectangular pieces of paper to say which ones count as US Dollars and which ones are not official US Dollars, the dollar couldn't really be the money. Because then, you know, anything, anybody could just take a rectangular piece of paper, say, oh, this is a dollar. Right? And so, you know, there'd be hyperinflation. You want to think of it that way. So I'm saying to even make this possible, the US Government kind of has to draw boundaries around it to limit the quantity of what could qualify as a dollar. And then it's a separate question, is the public going to use those things as the money or not? Okay, so now that we've walked through that, let me just take one last stab at spelling out why I think bitcoin actually, again, it's awkward, but would have to be classified as fiat money, because technologically speaking, there's nothing really that makes bitcoin much different from, you know, some other item on a blockchain. Right. In the same way that, you know, technologically speaking, A legal tender US $20 bill does not differ from some other rectangular piece of paper. Right. The way I tried to put it glibly when I was going back and forth on social media, as I said, it doesn't take a consensus of minors to tell you whether a hunk of metal really is gold or not. Okay. Whereas it does take a consensus of miners to tell you whether, you know, you're. You had a valid bitcoin transaction, the block gets added to the chain. All right? So again, when you understand the sense in which Mises is using that term, technology and. And why he, you know, he thinks, what's the essential difference between a commodity money versus a fiat money? I hope you see that's why I'm saying, I think in that spirit, then you'd have to say bitcoin is a fiat money. So let me just dwell a little bit on that to just show why that isn't true with the commodity money. So there again, it's not that there's something technologically different between the coin that people are using in commerce. Excuse me, the gold that people are using in commerce. In the gold that's in its raw form. That. No, the gold in its raw form also could be employed as the money in a community that, you know, is using Gold as the money. Okay? And historically, too, just in case this isn't on your radar, that's what would happen. So back, like in the year 1840, the US dollar was defined as a certain weight of gold and. Or silver. Or more specifically, it was like a $10 gold eagle coin was defined as a certain weight of gold. And then like a $1 silver quarter was defined as a, you know, certain weight of silver. Okay? And then you had to find, you know, subdivisions and whatnot. And so there it. It wasn't that the US Government issued paper notes and that you could turn those in and get a certain weight of gold or silver. It was. It was more fundamental than that. It was. No, before the US Civil War, the federal government did not issue paper currency at all. The only, like, lawful US Money were gold and silver coins. Okay? And so what would happen is you could take hunks of raw gold or silver to the authorities and they would stamp it into official US Coinage at the appropriate, you know, weights. All right? And then if you wanted. If you had a bunch of gold coins, you could melt them down into raw gold and you could do whatever you wanted with them. Okay? So the, the, again, just showing that really, even though they use the term dollar, the money of Americans initially was gold and silver. Like, that's what Mises would say that, like during the days of the classical gold standard, Mises would say the money was gold. It was not that the money was the French frank and the British pound and US Dollar, that those were just units signifying certain weights of gold. Okay. And that the, the underlying money was gold. And again, his, the. His evidence for that was to. He wasn't just armchair theorizing or he wasn't just saying ideologically because he likes gold, he doesn't like government money. You know, he was saying, you can go look at the practice of the merchants, especially for, like, large transactions. What they would do is they would weigh the actual coins, and it was always based on, oh, yeah, you want to buy this huge amount. You know, you want to buy this ship or something, and you're going to give me a certain weight of gold for it. They would weigh it. It's not that they would count up how many coins are you handing over. Okay? So again, there. My point with all this is to show the issue is, is this really gold or not? And then to say, well, is it gold? If you want to push it and say, what does that mean, really? It would mean, for the reasons that people in the community like gold, does this satisfy that, Right. That's ultimately what the, what the issue would be. And to, to switch it to a different example. Remember earlier I said a classic commodity money example from history is in the German POW camp during World War II where the cigarettes were used as money. And when I say that, I mean quite like they would have chalkboards and have prices listed, right? So, oh, you need shoelaces, you need a can of ham, you want more extra water, you want, you know, whatever the kind of things that were in the ration pack. So all the prisoners would have, you know, a lot of them, there'd be a supply in the market and they would have prices on the chalkboard based on the supply and demand that day. And the numbers, you know, what they would be quoting it in were cigarettes. And then Radford, though, in the article explains really what we meant by that was a cigarette. Excuse me, the tobacco of a full bodied cigarette, right? So if somebody took out a cigarette and they had unrolled it and they had knocked out half the tobacco and then rolled it back up and tried to buy something that quote was one cigarette in price. The seller would say, no, no, that's not a real sick, that's not a full bodied cigarette. Right? So, so Radford clarifies that actually it was the tobacco that was, you know, the, the, the actual money, but we just use cigarette. Okay, so, so there's that element kind of like during the days of the classical gold standard, like, you know, $20.67 was one ounce of gold. And so, yes, the prices could be quoted in dollars, but Mises would say really it was the underlying gold that was the issue. And, and just as, you know, if, if, if the authorities started inflating and so someone was trying to pay you with coins, for example, like during Roman times that had been debased and the coin purported to be a certain weight of gold, but you knew, oh, wait a minute, it's not that full weight of gold, there's some base or metal mixed in, then the merchant would respond accordingly. Just like in the POW camp, if someone tried to buy something that was officially one cigarette and they tried to pay you with a cigarette that only had half the tobacco in it, they might say, no, I need two cigarettes. If they only got, you know, if they're only half bodied. Okay, so just to push this one step further, if you think it through though, suppose there were different types of tobacco. Or maybe to make it easier, suppose we're talking now about a modern US prison and the inmates, let's Just say, are using cigarettes as the money. Right? And maybe there is a distinction, like, you say, are marbles the same as, like, menthols or something? Right? That, and I'm not a smoker. So here I got to stop because otherwise I'm going to, you know, it's clear I'm bluffing. I don't know what I'm talking about, but I can imagine among smokers there's different hierarchies and what they might want, so to say, oh, yeah, that thing costs five cigarettes. We say, what kind of cigarette? Right. And does that count? And so here, what I'm trying to get at is if the cigarettes are the money, you would have to get more specific and say, well, what does it mean? And so notice it's not fiat money, Right? So it's not that you would have to go consult some authority figure and say, oh, well, wait a minute. This particular cylinder of paper that has tobacco in it has not been stamped by the proper authority. So this doesn't count. This isn't really a cigarette. No. What. What determines whether it's a cigarette or not and should count in the prison economy of, hey, if that thing costs five cigarettes to these five things, I'm holding to that, does that count? Does that qualify? Ultimately, you know, it. It would have to be. Well, is this the kind of thing that the community means by cigarettes and do. And ultimately, I think the test would be someone who's going to go smoke a cigarette. Do they think these things count? Right. So it's an interesting thing, and that's why I'm saying that I've never thought through this depth before. There is still some subjective elements involved where even in that obvious example of a commodity money that's, you know, there's not authority figures weighing in and signifying it. If you personally are not a smoker, but yet you're still selling stuff for cigarettes because, you know, I'm not going to have any trouble unloading these things for whatever it is I need. Right? That's, that's how something becomes money in a commodity money framework is that people, even if they don't directly use the thing, know that, oh, wait, I know others do. And then that process snowballs. Right? So that's how cigarettes can be used as money in a prison, even though not every inmate smokes. Okay. But again, so the linchpin, I think, when, when someone's trying to, like, buy something from you with menthols is you might, if you're not a smoker, you would have to just Think, okay, well, am I going to have trouble unloading the menthols? Are people going to balk and say, no, no, when we say cigarette, that's not what we mean. Right. So anyway, that's, that's the, the issue. But so again, there. It's not that there has to be some authority figure coming in and declaring, this is what we mean by a cigarette. It ultimately would have to do with, you know, the community of people who are using this as a commodity. What do they think about it? And so likewise with gold, to say this hunk of yellow metal is. If we're in a community that uses gold as money, does this count? Hey, is this what you guys mean by you might think originally, oh, well, you got to get some chemists involved or they could tell you whether that's gold or not. But really the issue is, for the things that the community uses gold for, is this hunk that you're holding, is that interchangeable from their point of view with the other stuff that they're. That they're using right now? Okay, so, yes, for most purposes, the chemist's opinion will, Will be decisive because of the chemist says, yeah, that's really gold. That's all you need. But strictly speaking, I think that just because anyone using gold like to make into jewelry or for industrial purposes or whatever, dental fillings that the chemists view as to. Yeah, yeah, that really does have the atomic structure that. That is gold. That, that would. If that were true, then that would be good for what they were doing too. All right, if you get, if you get what I'm saying there. So it's, it's not that you would need the chemist to sign off on it for it to be the money or not. It's all the chemists would be doing, would be verifying that, yes, the people who use this as a commodity would agree that that's gold just as much as anything else is gold. Okay. And then it would be. It would also then be money. Okay. All right, so now let's switch over to the issue. Hey, doesn't Mises regression theorem prove that Bitcoin can never become money? Because Mises argued both in the theory of money and credit, and then he reiterates it in human action, that in order for a good to become a medium of exchange, it had to have first been a commodity. And his argument is because people would have needed to see the exchange ratios. All right, so think back to the prison example. If right now we see the people using cigarettes as the money, Mises would have would argue there must have been a preceding stage where the cigarettes at first were not used as the money, but people just directly valued them, you know, to smoke. And then they were just making barter trades like when the red Cross rations would come in and then people would hey, I, I want some sho shoelaces. I've got cigarettes. And they would find some guy who's a smoker who had shoelaces and he go, yeah, I'll give you my shoelaces cigarettes. Okay, right. And so then you'd have some basis to know what's the exchange rate between shoelaces and cigarettes. And that would happen with, you know, one off spot trades, barter trades, transactions. And then once you had a sense of the purchasing power of cigarettes, then non smokers could look around and see that and say, oh, if I'm selling something, if I can just get cigarettes for it, at least a certain number, I'll just take that even though I'm not going to smoke them. But then it's easier for me to walk around camp carrying a handful of cigarettes than whatever, you know, if I'm lugging some big thing around that I'm trying to sell or if I have like a pair of pants or something that I don't want. If I could find someone who's giving me some cigarettes for it, I'd rather be walking around with some cigarettes in my pocket looking for the thing I really want. Right. And so but you be his point is you couldn't do that if you had no idea what five cigarettes would fetch you in the camp. You'd have to first see and have some experience of what are the what. What can cigarettes get you to then be in a position where you might sell your stuff for cigarettes, intending to use the cigarettes then, you know, sort of like as a stepping stone to go get what you ultimately desire. All right, so that's what you know, involved in Mises regression theorem. And so then the claim is from critics of bitcoin is they'll say how could bitcoin ever become money? Because it certainly didn't ever spend time being a mere commodity. So people wouldn't know. It doesn't Mises. So my argument to that is I think that's a poor argument. Right? So I'm not here saying definitively bitcoin will become money or it won't. What I am saying is to claim mises shows it's impossible that bitcoin could become money. I think that is a bad argument because if you go and look carefully at what Mises said, and just think through the logic what I just argued, the blocker. If you're going to think the regression theorem and that whole train of thought, if you think that's going to stop Bitcoin in its tracks, it would mean Bitcoin could never become a medium of exchange, let alone become a money. And yet Bitcoin already is a medium of exchange. Right? So I'm saying that if, if there were going to be an impediment because of the regression theorem analysis, it. Bitcoin's already gotten through that door. So again, to clarify or make a different clarification, I'm not saying Mises was wrong. I'm just saying you should not, I don't think, be arguing that Mises proved Bitcoin can't become money. I think that's a bad argument. That if, if that's what you think, then you also would have to say Mises showed Bitcoin could never become a medium exchange. And clearly then he would be wrong because Bitcoin has become a medium exchange, a different thing you could do. And I have seen people argue this is, they say, no, Bitcoin is a commodity. It, it did serve, you know, it had features that made it valuable, you know, it was a good network and blah, blah, blah, whatever they want to say. And hence the regression theorem applies and Bitcoin was first valued as a network good. And for all these other reasons. And then it get began to be valued also because of his exchange value. Okay, so some Austrians have argued that. So that's another route. So again, I'm not saying Mises is wrong. I'm just saying if you think Mises shows Bitcoin can't become money because the regression theorem, then I think Mises would have been wrong. Okay, all right, let me now got two more points I want to make for you folks, then we'll wrap it up. It's further evidence for my claim there that the regression theorem is not stopping Bitcoin from becoming money. Let me read from Rothbard. So here, this is going to be a somewhat long quote and he's first going to say, you know, make the standard point that something had to have first been a commodity in order for it to be money. Okay, so you can see I'm not trying to sneak anything by you. But then notice what he's going to go on to say and you'll see the relevance. Before I read this, it occurred to me some of you might be confused. You might say, wait a minute, what do you mean something had to have been a commodity first before it can be money. Didn't you just say, Bob, that, you know, the US Dollar now in the euro and the yen, those are all fiat monies. They were never a commodity. You know, it's not that people were using dollars or euros to make sandwiches or to make their car go faster. So what are you talking about? Are you saying Mises and Rothbard think that the dollar and the euro don't exist or that there aren't money? No. So there, what happens is the dollar used to be defined as gold or, and, or silver. And the euro originally, when it came on the scene, could be substituted for like the German mark and the French franc and so on. Okay, so that's, that's where the euro got its original valuation from, was being tied to those other sovereign currencies, which in turn historically had been tied back to gold. Right. So in 1913, all the major powers, their sovereign currencies were defined in, as specific weights of gold. Okay, so that's the historical link. So yes, the US Dollar was never used to make sandwiches, but it did used to be directly interchangeable with gold. And so that is the link to that. And then gold itself, you know, used to be a mere commodity. Right, so that's how we explain that stuff. Okay, so now here's Rothbard. Demand for a good as a medium of exchange must be predicated on a previously existing array of prices in terms of other goods. A medium of exchange can arise only out of a commodity previously used directly in a barter situation, and therefore having had an array of prices in terms of other goods, money must develop out of a commodity with a previously existing purchasing power, such as gold and silver had. It cannot be created out of thin air by any sudden social compact or edict of government. Okay, so so far so good. If you're like a fan of Peter Schiff, you're like, yep, spot on, Murray. That's why Bitcoin's never going to be money. It's going to zero. Hang on. On the other hand, it does not follow from this analysis that if an extant money were to lose its direct uses, it could no longer be used as money. Thus, if gold, after being established as money, were suddenly to lose its value in ornaments or industrial uses, it would not necessarily lose its character as a money. Once a medium of exchange has been established as a money, money prices continue to be set. If on day X, gold loses its direct uses, there will still be previously existing money prices that have been established on day x minus 1 and these prices form the basis for the marginal utility of gold on day X. Similarly, the money prices thereby determined on day X form the basis for the marginal utility of Money on Day X +1. From X on, gold could be demanded for its exchange value alone and not at all for its direct use. Therefore, while it is absolutely necessary that a money originate as a commodity with direct uses, it is not absolutely necessary that direct uses continue after the money has been established. Okay, so there I hope you see the relevance that Rothbard clearly is saying. Yeah, for something to be a money, you have to historically trace it back to a commodity that, you know, was used just in barter. But he's saying even though historically the thing that, you know, right now we could call commodity money, had that passed, if it's commodity functions for some reason ceased, it could still continue going forward as a money being valued solely for its exchange value. Because again, that in Mises regression theorem doesn't pose a stumbling block there. Because again, the point is you have to know, how do I value this thing? In order for you to accept something as a medium exchange, you have to have a sense of what can it fetch me in the market. And so once gold is up and running, people do know they can remember yesterday, oh yeah, an ounce of gold would trade for this, it would trade for that, it would trade for this. And so that's how going forward, if I want to sell something, I would accept certain weights of gold because I would expect, you know, that baseline at least that would give me a frame of reference and a starting point, my valuations. And so Rothbard is saying, you don't need gold to still be used to make jewelry and to still be used for dental fillings and whatever and arthritis patients. I think some of them get gold injected and then whatnot. Right. So if for some reason all that stuff went away, still humanity might still go forward using gold coins as the money. And to say, well, how would they know how much it was worth? Well, it's purchasing part, because they would still remember yesterday how much stuff cost quoted in gold. They wouldn't forget that just because people stopped using gold for those other direct applications. All right, so that's Rothb's argument there. I think he's correct. And then notice the relevance. So right now there's no dispute or doubt about what Bitcoin's purchasing power was yesterday. We all remember that. You can go look up on Coinbase or whatever. So the regression theorem isn't stopping Bitcoin from being used as a medium of exchange. Right now, people know what it's worth. They know, oh, I want to sell a car. Should I sell it for bitcoins? Well, you can determine, well, if someone gave me this much, what could I do with those bitcoins? You know, you can go looking right now and see what the, you know, what it's listed on the various exchanges. You could figure out, what could I buy with 100 bitcoins right now would be a lot. Okay, so that's, that's my point. So that clearly I want to argue. It can't be that, yes, bitcoin's up and running, and it's made a good run so far, but it's going to zero any day now because of Mises regression therapy. No, that doesn't follow. Okay, last point. I want to make food for thought. And this is the one for even trained Austrian economists that you may not have pondered. It occurred to me as I was going through mentally, you know, what the topics I wanted to hit in this episode. Wait a minute. There's something interesting there that ties into the earlier point I made that if it were the case that you had an original commodity, money, that then its direct commodity uses faded away over time, such that going forward, it was still used as a money but was now only being valued for its exchange value, would you then need some kind of authority figure to say what determines the boundaries of that thing, being a commodity or not, or, you know, being part of that money? Right. So go back to, like, the. The prison example that you've got a camp or prison where some of the smokers smoke. And cigarettes have a lot of attributes that make them ideal as a medium exchange. You know, they're durable, they're easily recognizable. You can unroll a cigarette, you know, put all the tobacco and different ones re roll it and whatever. Right. So there's lots of reasons to explain why the cigarettes would become money in a prison rather than, whatever, eggs or something. Okay, so, so that you get that. But then what happens if there's a health craze and all of a sudden it turns like nobody in the prison smokes anymore? And then it's not as obvious, you know, then, so someone pulls out a mental, you know, so someone says, yeah, I'll sell this to you for five cigarettes. And someone pulls out five menthols and you say, we take these another person. How would he know? Right, because before I was saying, ultimately, you would push it back to. Well, from the smoker's perspective, is there at least a chunk of people who would smoke Menthols. And so therefore, you know, I don't mind accepting these because I can ultimately find it. Because, no, it's not even that you have to give it to somebody who smokes menthols. It's just for the same reason you would accept that you might find somebody else to accept it when you want to buy something, because that person thinks, yeah, there's a, there's a group of people that smoke menthols, they'll take this, right? So that's really the bootstrapping that you need. But then if, again, if nobody in the prison smoking anymore, then technically, if someone tries to pay you with a cigarette with only half the tobacco, what do you care, right? If it's only being used instrumentally as now the unit of account, and it's not that anyone's actually smoking him anymore, whether it's got half, half tobacco or full tobacco, who cares, right? So I'm saying in order for that thing to still be the money, you would need some kind of rules. And I'm not saying there would have to be an authority figure that would use violence to enforce it. But I am saying at that point, it wouldn't be as obvious, like, what, what counts when we say something costs five cigarettes, what counts as a cigarette? It wouldn't be as obvious how you'd nail that down if nobody's smoking anymore. And so then like with gold coins. All right, so gold coins are in circulation and there's, you know, and yeah, some gold coin that was stamped into existence three years ago when people still use gold is for industrial purposes. Yep, that's clearly money. But now someone's mining up more metal or yellow stuff and they bring it in to the mint and say, I want you to stamp this into. So now, again, before, the linchpin was always, is this, Are we to say, is this gold? Is this qualify. Can we stamp this and say, yep, this is an ounce of gold? Really, the linchpin was in the types of services or processes that other people were directly using gold for. Would this hunk of metal be interchangeable with what they're currently using? And if the answer is yes, then yeah, this is gold too. But if nobody's using gold anymore, then that's not as obvious, right? And again, you could say, well, what if something's half gold and half copper? Well, if no one's ever going to melt the thing down and go to use the gold for something, what do you care? Clearly, you have to have some limits, because otherwise they could take anything and say, up now the gold would be infinite. So for it to still be the money, there's got to be boundaries on what counts. And so again, there it occurred to me that maybe one solution is you'd say, oh, at that point it would still be money, but now it would be a fiat money. That's one possibility. Okay, so I'm not saying that's my answer. I need to think more. But I lay that at your feet for your consideration. Okay, thanks for your attention, everybody. I hope this has been helpful again. For more reading, go check out the theory of Money and credit, which I don't think I mentioned this early. Not only does Mises lay out the taxonomy and the theory of using or how to take subjective margin utility theory and apply it coherently to money, that's one problem he solved in this book. He also, because he was bored, laid out what we now call Austrian Business cycle theory. All right, so Misa's was a productive guy. He did a lot in this book. So go check that out and use my study guide to help you navigate it. Thanks for attention, everybody. See you next time. Check back next week for a new episode of the Human Action Podcast. In the meantime, you can find more content like this on nieces.org.