Where does Eugene Fama think currency gets its value from? \ stacker news ~econ

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Where does Eugene Fama think currency gets its value from?

776 sats \ 25 comments \ @SimpleStacker 25 Jan econ

zaps forwarded to @denlillaapan (50%)

I was reflecting on this comment by Eugene Fama (super duper famous finance prof) which @denlillaapan highlighted on #862916

Now, I'll confess. I never really paid much attention in macro class and never even took monetary. What is it that he learned in monetary econ that would be rendered meaningless if bitcoin succeeds?

signed, --a confused pleb

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94 sats \ 2 replies \ @joda 25 Jan

Gold is not used as MOE, and clearly hasn't "imploded". Moreover, it is not POSSIBLE for gold to become a better MOE than it already is, because its limitations are inherent.

Bitcoin, on the other hand, seems to work fine as a store of value, AND has the benefit of being improved through innovation and technology. Therefore it could someday be a (better) MOE.

In other words, Bitcoin is already "money" but isn't (yet) "currency".

21 sats \ 0 replies \ @SimpleStacker OP 25 Jan

That's my thinking too.

0 sats \ 0 replies \ @Solomonsatoshi 25 Jan

Money is used to settle trade and exchange- Bitcoin is rarely used in this way. While technically it may be money, in theory capable of MoE utility, if it is not used as money (for MoE) it is rendered more akin to a speculative commodity which is how it is seen, and used, by most users today.

43 sats \ 0 replies \ @0xIlmari 25 Jan

He's either dumb, brainwashed or intentionally dishonest. He's trying to argue that there's a chicken and egg problem where there isn't one. He's also conflating the terms "money" and "currency", which are not the same thing.

Every money ever had to start from nothing, then became niche then rose to popularity. Some faded away, some became MoE and then transitioned to being SoV only (gold). Some were never a good SoV but remain a decent(-ish) MoE (all of fiat).

It's a non sequitur, to put it simply.

30 sats \ 3 replies \ @denlillaapan fwd 25 Jan

Good podcast here from Mercatus that I hadn't seen yet: https://www.mercatus.org/marginal-revolution-podcast/new-monetary-economics

Relevant extract:

There’s the wealth and the liquid wealth you have that you can borrow against. Now my view isn’t the Fed doesn’t matter at all. In my view, liquidity is jointly produced by the private sector and by the Fed, but the Fed matters much less over time

The new monetary economics also suggested the marketability of money is not a single thing. There are different kinds of marketability. The notion that Bitcoin might be more marketable for getting your funds out of China, or escaping from Russia, that just seems obviously true. Or the notion that a programmable stablecoin might for some, but not all purposes, be more useful or more liquid than traditional dollars, again, that clearly seems to be true.

11 sats \ 1 reply \ @SimpleStacker OP 25 Jan

dang, too much for me to read / listen to right now. Gotta bookmark this.

30 sats \ 0 replies \ @denlillaapan fwd 25 Jan

Good topic for MONEY CLASS. Will make a summary for yah :)

0 sats \ 0 replies \ @Solomonsatoshi 25 Jan

And so where Bitcoin is used to escape autocratic regimes it is being used as a MoE, as it is being used to transfer value from one monetary system jurisdiction (say China) to another, say the US. However once you arrive in the more 'free' jurisdiction you are more likely to be required to convert the Bitcoin to dollars for use in everyday MoE transactions...because in most jurisdictions use of Bitcoin as a MoE is severely, if subtly, obstructed. It is in providing MoE (where otherwise it would be more difficult to use other currencies) that Bitcoin provides some utility and adds value to participants. But the fact remains the vast majority of people holding Bitcoin are doing so seeing it as a speculative commodity, not as a MoE. It is only in very narrow and exceptional situations as above where you are escaping from one jurisdiction to another where Bitcoin is used (briefly and one off) as a MoE and does add real value.

41 sats \ 0 replies \ @elvismercury 25 Jan

I actually mostly agree with this -- the points of contention might be how we each define "widely used" and "eventually". Without those parameter settings, the statement is basically un-falsifiable. But still I think he's saying something important, and why MoE can't be ignored.

41 sats \ 12 replies \ @Undisciplined 25 Jan

So, there's a sense in which I agree with him, but I also don't know exactly what he's referring to.

It's almost tautological, though: Money is valuable because it's widely accepted in exchange and money is only widely accepted in exchange when it is widely used for exchange.

There's also a theory that in equilibrium there can only be one money, so all monies either become widely (universally) used as MOE or they implode.

70 sats \ 4 replies \ @denlillaapan fwd 25 Jan

Eeeh, not quite.

Regression theorem situates the circle in time.

92 sats \ 3 replies \ @Undisciplined 25 Jan

That's what I was attempting to describe:

A commodity is widely used in exchanges, for whatever reasons.
People accept the commodity because it's widely used in exchanges.

25 sats \ 2 replies \ @denlillaapan fwd 25 Jan

Yeye, but that stable equilibrium, Mises teaches us, isn't a paradox or resting on nothing but air. Regression theorem idea is tha we can regress it back in time to when/where there was no monetary premium and just utility value.

(You know this, of course, just spelling it out for others+clarifying that this is what you meant)

13 sats \ 1 reply \ @Undisciplined 25 Jan

Yeah, I'm also talking about the more conventional type of equilibrium condition, rather than the Evenly Rotating Economy concept that Austrians prefer, and which has no money.

22 sats \ 0 replies \ @denlillaapan fwd 25 Jan

that's very close to the Black/Fama-type idea in new monetary econ, I believe. (though from very different theoretical approaches)

49 sats \ 1 reply \ @SimpleStacker OP 25 Jan

Yeah I really wonder what he has in mind when he says this.

I talked with my macro colleague about this too and he pointed me to a Ben Bernanke speech on this topic, and Bernanke pretty much said it's not a currency because no one's using it for transactions and it's too volatile.

Seems tautological? Isn't the point to analyze the item's properties and then determine whether it could be used as money?

61 sats \ 0 replies \ @denlillaapan fwd 25 Jan

I can go dig up my notes on Fama's old banking/money papers but iirc it's to do with last-period effects and intrinsic value

(New monetary economics, etc)

34 sats \ 4 replies \ @freetx 25 Jan

MOE or they implode.

Gold has happily been existing despite not being used as a MoE for a few hundred years.....

Anyway, I think the traditional concepts of MoE don't really map well to purely digital products. Kinda like potential vs kinetic energy....purely digital products have the potential to be transferred at any time. Given this high potential to be transferred anywhere at anytime lends to it an innate MoE property that physical objects just dont have.

44 sats \ 3 replies \ @Undisciplined 25 Jan

Gold was a medium of exchange within the past century. I also expect it to implode as a money and collapse to its industrial value.

40 sats \ 2 replies \ @SimpleStacker OP 25 Jan

That's interesting. But given gold's preeminent place in human history I wouldn't expect that

30 sats \ 1 reply \ @Undisciplined 25 Jan

Really? You don't expect Bitcoin to absorb the monetary premia of other store-of-value goods?

33 sats \ 0 replies \ @SimpleStacker OP 25 Jan

No, I don't think so. My Pokemon cards aren't going to zero, that's for sure!

59 sats \ 0 replies \ @nout 25 Jan

I mean he's not wrong. Big part of the appeal of bitcoin is the potential for a future where it's used as a medium of exchange.

0 sats \ 0 replies \ @Solomonsatoshi 25 Jan

Money gains its value mostly by enabling MoE. Bitcoin is not mostly being used for that. It has been slyly obstructed in terms of MoE and this leaves it as a speculative commodity that while theoretically can still be used as a MoE, it is rarely used in that role, and thus does not add value by enabling convenient exchange of value between participants in an economy. This sly obstruction has been imposed without most Bitcoiners seeming to even realise how it succeeds in undermining the protocol and preserving fiat hegemony.

0 sats \ 0 replies \ @Solomonsatoshi 25 Jan

What he is saying is that if Bitcoin remains as a largely speculative commodity it is not performing the role of a monetary system. The major part of the value of a monetary system is in the way that it enables people and businesses to interact- exchanging goods and services with a neutral medium of exchange. In doing this a monetary system adds HUGE value to an economy...because by facilitating the exchange of value between participants it enables economic growth. Bitcoin was proposed as a P2P payments protocol- enabling you and me to exchange value/trade without any intermediary capable of censoring our interactions. This challenges the legacy fiat operators as it threatens to undermine their near complete hegemony over MoE between participants in the economy. So the banks and governments have very slyly worked to obstruct the use of Bitcoin as a MoE. Businesses who dare offer payment in Bitcoin risk being sanctioned by their regular fiat bankers. If they get past that they are required in most jurisdictions to record all transactions and pay tax on gains in a very complex and inconvenient manner. This tax requirement is also imposed on all consumers daring to use Bitcoin as a MoE. Combined these impositions have succeeded in crippling Bitcoins adoption as a MoE. At the same time Bitcoin has been allowed and even encouraged as a speculative commodity. ETFs have been allowed in this context and the ETFs concentrate custody of Bitcoin into a small group of institutional custodians who expressly prevent the Bitcoin held under their custody from being used as a P2P MoE. At current rates of institutional custody where Bitcoin is being held on behalf of investors as a speculative commodity, MOST bitcoin will be held in this way within 6-7 years.

If Bitcoin can be mostly prevented from being used as a MoE it renders it much less of a competitor and threat to the legacy fiat operators. You sometimes hear bankers cry- 'oh Bitcoin it adds no value' - they are of course sly hypocrits as they have been central to obstructing Bitcoins use as a MoE where it would demonstrably be adding value by enabling more convenient trade and exchange for participants in the protocol.

As long as the fiat operators continue to succeed in obstructing Bitcoin use as a MoE a ban on private custody may never be required- but at the same time the rapid institutional custody being accumulated in US jurisdiction would make such a E.O. 6102 style ban much more effective and practicable...if required...

It is not unreasonable to expect that if Bitcoin continues to be managed into a primarily speculative commodity narrative and use it does not have a good long term prospect of enduring value because it is not being used as a monetary system, despite having been designed to be one- it has instead been slyly captured and controlled, corralled into a limited and narrow use case where as a speculative commodity it neither threatens fiat hegemony nor adds significant value for participants. As a primarily speculative commodity it is more akin to a PONZI scheme than a monetary system.