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Comment by msandford | Hacker News Reader

The Fair Price of an Ounce of Gold is Zero! Since there's no issuer of an ounce of gold it can't be worth anything. Q.E.D.

EDIT: Some context: "First, all financial instruments are accounting creatures. They are the asset of the bearer and the liability of the issuer. Gold coins were the liability of, e.g., the King, Federal Reserve notes are liability of the Federal Reserve, and coins are the liability of the Treasury."

An ounce of gold is worth a lot even prior to being minted into a coin. As such you could melt it, cut it in half, etc and it would retain it's value. That means it might technically be the liability of the government or the king, but practically speaking they're not. I could buy krugerrands, francs, golden eagles or whatever, melt them down and make jewelry out of them and it doesn't screw up the books of any of their issuers.

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So what can you make out of your bitcoins when you melt them down? The argument of the post is that gold-as-money is worth more than gold-as-commodity, and, if gold doesn't have an issuer, its value falls to that of the physical commodity. Because bitcoin, unlike gold, has no use except as a medium of exchange, if a bitcoin's value fell in the same way in the absence of an issuer, unlike gold, bitcoin's value would fall to zero.

One definition of money is "the most marketable commodity" and bitcoin does tend to pass that test. It's rapidly becoming a marketable commodity as so many people will accept it for goods or services.

My point wasn't so much that money has to be a commodity with an underlying value. It was to point out that the notion that "money is an asset to the holder and a liability to the issuer" might be the author's definition of money, but it's not THE ONLY RIGHT definition of money.

If gold can effectively be money, sans minting into coins that means that the earth is the issuer. Do we "owe" the earth an ounce of gold by virtue of having mined it? If so, do we then "owe" the earth a ton of steel for every ton we extract? And what happens if/when that gold or steel leaves the earth on one of the Voyager probes?

I'm making absurd arguments to point out that the author's definition of money is absurd. I'm not trying to troll but to illustrate a point. I think his definition of money works fine when you're issuing bills or notes, but it breaks down when people are using commodity money with none of the "debt" part that gets brought to play with notes.

When people start issuing paper notes redeemable for bitcoins then I'll accept the author's definition of money. But right now people are trading the actual commodity itself so his definition of money falls flat in this circumstance.

> One definition of money is "the most marketable commodity" and bitcoin does tend to pass that test. It's rapidly becoming a marketable commodity as so many people will accept it for goods or services.

"Rapidly becoming a marketable commodity" is vastly different than being "the most marketable commodity".

Agreed, but the definition of money isn't constant worldwide nor for all groups of people even in the same country, and it's definitely not constant through time.

In Nazi Germany everyone used the Reichsmark except for American POWs there, who used cigarettes. Right now in Argentina they use pesos and dollars. Furthermore the official exchange rate set by the government isn't the true exchange rate that you can get on the street. http://en.wikipedia.org/wiki/Prisoner-of-war_camp and http://en.wikipedia.org/wiki/Argentine_peso

Even here in the US there are plenty of people willing to trade or barter or accept slightly alternative currencies. I might argue that something's money-ness is related to it's acceptance as a medium of exchange. Probably not linearly, but in some way. There are network effects for money just the same as everything else that humans do.

At home I've got US coins that are labelled as dimes but I can take them to quite a few places and exchange them for at least $1.25 in today's paper dollars. Why? They're pre-1965 dimes and they've got some silver and that makes them worth more.

To try and pin down "money" as "absolutely this one thing always and forever" is a bit of a fool's errand because money is as one friend of mine put it a "shared delusion". It's a decidedly human construct and while you can pass laws, you can't actually control people's behavior. If everyone decides that bitcoin is money it doesn't matter what the law says about dollars, they'll be just as worthless as this author thinks bitcoin is now.

The process of rapidly becoming a marketable commodity is called monetization.

Bitcoin is in a hypermonetization melt-up phase.

> The process of rapidly becoming a marketable commodity is called monetization.

No, its not. That's the process of printing money to pay off a debt. Or the act of a government making something legal tender. It might even be a tenable name for something becoming money (which isn't just a marketable commodity.)

Things often become marketable commodities -- even rapidly, especially when they are newly discovered or new uses are discovered for them -- without becoming money.

> Bitcoin is in a hypermonetization melt-up phase.

What is that even supposed to mean?

you are referring to monetization of debt. monetization per se is the process of becoming a money. Mises is a good read.

> (which isn't just _a_ marketable commodity.)

You got that right. It's _the_ marketable commodity.

> What is that even supposed to mean?

A melt-up is the opposite of a melt-down.

If gold suddenly fell out of favour as a money it would lose more than 90% of its value. Bitcoin would lose 100%. Yes there's a difference but not much.

\o/ this guy gets it!

The fair price of an ounce of gold is one Bitcoin. More or less. Currently.

I found this odd as well. The US Dollar was essentially a unit of weight for much of its early history. Much of the money circulating was in fact silver Spanish dollars, issued by the Spanish empire as a result of the gigantic silver mines in central and southern America. Anyone could bring a unit of gold or silver to the treasury and be issued a silver or gold dollar. It was not a liability of the government in any way.

https://en.wikipedia.org/wiki/Eight_real_coin#United_States https://en.wikipedia.org/wiki/Coinage_Act_of_1792

a) the treasury would take seignorage.

b) money is a free-market good as in your example above. all the government was doing was weights and measures standardization.

c) only fiat (paper) money is a liability of the government because the original deal (FRNs) was that the notes would be exchanged for coin. That is why the note says promise to pay the bearer a dollar (which is a denomination of weight of silver or gold).

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