February 13, 2018 § 30 Comments
Every real world economy is filled with real people, and there are all kinds of people in the world. There are always criminals, grifters, scammers, market manipulators, thieves, frauds, and tax evaders. There are always financially ignorant monomaniacal idealists: people who don’t grasp the difference between reality and their beloved simulations and fictions; people who believe that messy human authority and fallibility can be dispensed with and replaced by machines. There are always substantial numbers of naive gamblers and bagholders, lured into getting fleeced by their own avarice and ignorance.
Cryptocurrency exchanges may represent a natural economic evolution, nature’s way of attracting many of these elements out of the real economy and into a buggy, hackable, scammable, get-rich-quick speculative open source video game.
You can think of cryptocurrency exchanges as a heat sink. A heat sink is a large thermal mass which carries destructive waste heat away from the parts of a system where that waste heat can do harm.
Cryptocurrency exchanges are like a heat sink, except for stupidity and vice rather than heat: they are economic stupidity-and-vice sinks. The real economy is doing very well at present, despite what is technically a very long running bull market. I wonder if that isn’t at least in part because a lot of the insanity which typically accompanies bull markets has voluntarily walled itself off in its own video game world. A lot of the craziness that we saw in the dot com era has literally locked itself away from reality inside an electricity-wasting computer game, at a cost of less than six billion dollars taken out of circulation.
Some people predict that the price of cryptocurrencies will soon go to zero; that they will shortly be left behind in the dustbin of financial history. Personally I have my doubts. I think society produces enough stupidity and graft to keep cryptocurrencies running indefinitely. They may well stick around for a long time, as the economy’s evolved way of avoiding sepsis from what amounts to an intestinal blockage of greed and stupidity.
December 20, 2017 § 171 Comments
In this post I will present an argument that it is immoral to sell digital pornography and/or bitcoin.
Premise 1: It is immoral to sell property for an unjust price.
Premise 2: Context can make particular property more or less valuable; for example, water is more valuable in the desert than in a mountain lake. Call this a context multiplier.
Premise 3: Personal preferences or needs can make particular property more or less valuable to a particular buyer. I like whiskey but I don’t care for wine. Call this a subjective multiplier.
Premise 4: It is possible for particular property to have zero or negative intrinsic value: for particular property to be literally useless or harmful. (Alternatively, it is possible for the typical and intended uses of a particular kind of property to have zero or negative intrinsic value. Call this “Premise 4 light”).
Premise 5: When property (or its typical use case: call this “Premise 5 light”) has zero or negative intrinsic value, neither a context multiplier nor a subjective multiplier can make its just price greater than zero.
Digital pornography has negative intrinsic value: its typical use case is destructive to the user. Unlike paper pornography it has no useful material substrate which enables atypical uses: paper pornography might be used as fuel for a fire, for example, but digital pornography cannot even be burned to produce heat. Purchasing copies of digital pornography might be justifiable when doing so is part of a plan to destroy it or to attack its production; but this limited warrant to purchase-for-destruction does not justify the sale of digital pornography to purchasers who are likely to use it for its intended purpose.
Pornography has negative intrinsic value because it promotes vice, a false picture of reality, and other disorders in relation to the truth about the good.
Bitcoin is also a digital product which promotes vice, a false picture of reality, and other disorders in relation to the truth about the good.
Therefore selling bitcoin is immoral. (“Light” version: therefore selling bitcoin to buyers who are likely to use it for its typical use cases, is immoral).
Obviously Premise 5 is doing the heavy lifting here, though Premise 4 may also be controversial.
May 28, 2017 § 41 Comments
Context and subjectivity are not the same thing.
Context is objective: water is objectively more valuable in the desert. It is also more costly to ship water to the desert than it is to use it where and when it is already abundant.
Preferences are subjective, though even preferences are rooted in objective reality. Preferences are not reducible to nothing but pure subjectivity, because man himself is not reducible to nothing but pure subjectivity. In the absence of disorder fresh water is preferred over seawater as drink, because the former satisfies the objective needs which give rise to thirst while the latter does not.
Objective truth always trumps subjective preferences. A subjective preference which is contrary to the objective truth is an intrinsically disordered preference.
Prices reflect an equilibrium in preferences between counterparties in the exchange of goods and services. The reason for exchange in the first place is because different objective contexts obtain for each counterparty: the baker has ample bread and few candles, while the candle maker has abundant candles and little bread. So ten candles are exchanged for a loaf of bread.
An actual exchange represents a preference equilibrium: a subjective meeting of the minds in bringing together two different objective contexts for putative mutual benefit.
But perception is not always reality.
When the controlling preferences of either party to an exchange are intrinsically disordered, the price is an unjust price. The mutual benefit (or its lack) in any exchange is ultimately an objective property of the actual exchange, not a meeting of minds in an intersubjective preference space.
May 18, 2017 § 54 Comments
One of the interesting things about patents (unless the law has changed since I filed mine a couple decades ago) is that the invention must be “reduced to practice” before you can even apply for one: you have to have a concrete working implementation before the patent office will even accept your application. And once a patent is granted, what the patent holder actually receives – the patent itself – is a security entitling the holder of the patent to enforceable commercial exclusivity within the jurisdiction of the patent authority.
Similar things can be said about other forms of intellectual property.
As usual liberal modernity requires you to studiously avert your gaze once actual reality starts to come into view.
October 26, 2016 § 37 Comments
So called ‘gold standard’ currency is a scrambled mess of confused and opaque financial nonsense, a toxic mix of securities and commodities which poisons the finances of governments and the minds of economists. I’ve explained why fiat currency is more transparent and honest than gold standard currency any number of times. But of course many folks know all sorts of things that aren’t true about sovereign finance, and can’t tell the difference between a financial security and the media upon which it is printed; so they disagree.
Sometimes folks relate better to concrete stories than to dry and abstract explanation of financial concepts. So in this post we’ll consider a hypothetical situation which will hopefully help the still-perplexed understand why fiat currency is more honest and financially transparent than ‘gold standard’ currency.
Suppose we are on a gold standard currency. The government issues official gold notes and for each gold note there is 1/40 gram of gold stored in the vault at Nakatomi Tower. Each gold note notionally entitles the bearer to 1/40 gram of gold, though in practice almost nobody ever actually turns in the notes in exchange for actual gold. The government accepts the gold notes it issues – and only those gold notes – for payment of taxes.
Hans Gruber and his merry band of faux-terrorists carry out a sophisticated paramilitary assault on Nakatomi Tower. Despite John McClane’s best efforts they escape with all of the gold and McClane’s selfish chunky feminist wife, whose constant whining causes half of the exceptional thieves to commit suicide. McClane reclaims his stolen children and lives happily for a while as a NYC cop, until he is killed in a Black Lives Matter terrorist attack on police orchestrated by the Clinton Foundation in conspiracy with a Saudi Arabian donor — a terrorist attack which gets blamed on Donald Trump, who at the time was innocently visiting Playboy Mansion but just for the articles.
Back in front of your iPad in suburbia, you have plenty of government issued gold notes and a tax bill that is coming due.
Should the government accept the gold notes that it issued from you, even though the gold is gone; or are you out of luck because your gold is in a non-extradition country earning 20%? Now that all of the gold has been spirited away, is everyone holding government gold notes a tax evader with literally no available legal means to pay their taxes?
If the government should accept the gold notes that it issued to settle your tax bill – even though the gold is gone, the top of the skyscraper exploded along with the heads of numerous Austrian economists, and the Johnsons and their helicopters are no more – doesn’t that tell you that the presence or absence of the gold doesn’t really have much of anything to do with the value of the “gold notes” as a financial security issued by the government?
October 22, 2016 § 32 Comments
An important feature of cryptography is authentication: the ability to verify that a document comes from who it claims to come from and has the authority it claims to have. Authentication is a feature of the medium in which a message is delivered: it is not the message itself.
There are two kinds of financial securities, for present purposes: bearer securities and securities which must be cleared when they are transferred. The latter sort have to pass through a transfer agent who verifies the identities of the parties and the legitimacy of the transfer of rights. Rights are not technically transferred until the check clears, and if someone is being dishonest we know who they are and can hunt them down.
But bearer securities transfer the rights they represent immediately, with transfer of possession. They don’t leave a paper trail, and it has to be possible within reason to authenticate them as they are.
Folks are always asking me to speculate about why gold or silver was the printing medium of choice for bearer securities (in particular sovereign currency) for much of premodern history. Whatever else may be the case, it seems obvious that premodern sovereigns had limited choices of available counterfeit-resistant print media from which to choose.
As for why masses of people tend to think that the value inheres in the print media rather than the financial security it represents, that obviously involves mass psychology about why lots of people have wrong ideas about something or other. It isn’t as if the mass of humanity has a good track record of being right about politically and religiously charged subjects. Centuries of rampant usury has doubtless contributed to a mass illusion wherein many folks can’t tell the difference between actual bread and a promise of bread, and it is an especially modern error to conflate medium and message. At the end of the day what matters is what is true though, not the results of a popularity contest.
If you find yourself psychologically in need of a reason why gold was a favored medium for bearer securities before the modern age, you need look no further than the development of cheaper counterfeit-resistant print media. And you should probably work on your own demotic resistance to the fact that a whole lot of the time the great mass of human beings muddle through without really understanding what is going on.
October 21, 2016 § 38 Comments
A fiat dollar is a security issued by the sovereign. Like every other financial security issued by an institution, fiat dollars grant the owner of the security an economic claim backed by the institution’s balance sheet. Like every other financial security issued by an institution, it is possible to trade fiat dollars for other property in the marketplace. It is also possible to exercise the specific rights granted by the security instead of trading it: in the case of fiat dollars, to turn it in to the sovereign who issued it for the satisfaction of a particular tax obligation.
The worth of a fiat dollar derives from the financial rights that it grants. Its price in marketplace exchanges represents what other people are willing to pay, in terms of different kinds of property, in exchange for the financial rights granted by the fiat dollar.
A ‘gold standard’ dollar is the same kind of thing. It is a financial claim against the balance sheet of the sovereign; the financial rights conferred are the satisfaction of debts owed to the sovereign, in particular tax liabilities. The difference is that the gold standard irrationally presupposes that a substantial portion of the sovereign balance sheet must or should be made up of gold — an otherwise not very noteworthy kind of property, property which while fairly durable sits unproductively in a vault where it destroys economic value in the demands that it places on its defense and maintenance against the universal tide of entropy.
Advocacy of gold standard dollars is like advocacy of gold standard capital stock: in essence, it requires than any securities which an institution issues must be printed on gold or must come along with some ratio of gold stored away in addition to the rights granted by the security. Advocacy of gold standard dollars assumes that gold is the only valid kind of wealth, when in fact almost all of the wealth in the world is constituted by property other than gold. A gold standard involves making a wildly irrational assumption about sovereign finance that we would never make about private finance. It is as if the stock price of corporations were required to be indexed to the amount of gold that the corporation has stored away in a vault, even though the gold is entirely useless in the company’s business operations and its storage and provision for security constitute a senseless and perpetual drain of resources.
Gold standard dollars are no more rational than requiring by statute that eggs be sold in golden egg cartons, or bundled with certificates entitling the bearer to a gram of gold per egg. Gold standards are literally crazy, a scrambling together of entirely unlike property into a toxic mix. Folks who simply hate government per se advocate for them precisely because they understand on some level that the gold standard is irrational, debilitating poison. If you can’t drown the balance sheet of the government you hate by weighing it down with lead, at least maybe you can weigh it down with gold.
But you won’t see them – at least not the more rational ones – advocate for a ‘gold standard’ in the securities that make up their retirement portfolios, or in the goods they buy in the grocery store. An investor with an equity portfolio doesn’t want to require the companies whose stock he owns to carry large quantities of inert and unproductive gold on their balance sheets. For these folks, the gold standard is an unprincipled exception intended to apply only to government precisely because it is financial poison for the institution which they despise.
The crazier wing of the gold standard crowd isn’t even sophisticated enough to grasp that a gold standard is financial poison. They like the gold standard because GOLD. Their attachment is pure unreasoning emotion. A gold standard is, objectively, a requirement to literally add useless dead weight to unrelated kinds of property.
But better to let the scrambled eggs rot than to give up our irrational attachment to gold.
 Absent contractual terms or other legal restrictions to the contrary.
 T-bills are just fiat dollars once removed, as stock options are just shares of capital stock once removed: they are not debt, and the sooner you banish the idea that they are debt from your mind the better you will understand them.