The Relevance of Bitcoin to the Regression Theorem: A Reply to Luther
Abstract: Given Bitcoin’s apparent lack of non-monetary uses, Luther (2018) argues that its emergence as a medium of exchange invalidates the regression theorem, or at least severely limits its relevance to identifying which commodities could emerge as media of exchange in the absence of State intervention. However, this view misinterprets both the regression theorem itself and the problem it was developed to address. The goal of the regression theorem was not to identify which commodities could become monies, but to provide a subjectivist explanation of the purchasing power of money. To do this, it requires only that some individuals valued the good in question before its use as a medium of exchange, not that it had some objective pre-monetary use.
money — regression theorem — austrian economics — bitcoin
JEL Clssification: B53, E42, E49
George Pickering ([email protected]) is a graduate student at the University of Oxford. The author would like to thank Dr. Luther and all the other participants at the Harwood Graduate Colloquium on Monetary Policy and Institutions, hosted at the American Institute for Economic Research from July 28–31, 2019, for their insightful discussion and comments on this topic.
The emergence of Bitcoin and other private cryptocurrencies over the past decade has posed a number of interesting questions for economists, and practitioners in the Austrian tradition have embraced the opportunity to judge these peculiar case studies against the established canon of Austrian monetary theories, and vice versa (Selgin 2014, Livera 2019). In particular, much attention has been paid to the relevance of cryptocurrencies to Ludwig von Mises’s famous regression theorem (Davidson and Block 2013, Murphy 2014, Šurda 2014). One recent addition to this literature by Luther (2018) is representative of much of the broader conversation in that it judges the use of private cryptocurrencies as media of exchange to be a threatening counterexample to the validity of the regression theorem, while offering a novel and interesting justification for this familiar conclusion.
Luther argues that, due to Bitcoin’s lack of obvious non-monetary uses, Austrian economists are left with two equally plausible conclusions to choose between: one can concede that Bitcoins actually are “intrinsically worthless,”1 or one can reason that, since the regression theorem requires that media of exchange must have first had some non-monetary use, Bitcoin therefore must have had some pre-monetary use, even if that use was the mere satisfaction of the peculiar tastes of its early adopters. The first of these two conclusions, Luther argues, entirely invalidates the regression theorem, while the second preserves its validity by severely limiting its scope and prescriptiveness to the point of practical irrelevance. Specifically, Luther argues that the “practical relevance” of the regression theorem, which Bitcoin has swept away, was “in (1) distinguishing which items might emerge as money without government support and (2) offering suggestions as to how the government might launch a money that could not emerge naturally” (Luther 2018, 40).
Luther’s argument is worth addressing not only for its own particular claims, but also because it rests on a misinterpretation
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