Understanding Bitcoin, Regression Theorem, and Money Definition: Brain Tockey




Whether something is money or not, commonly, the regression theorem is discussed in the economic discussions. As it has no concern with money or the money definition, so it is quite surprising. The regression theorem is more related to prices and is an explanation based on common sense.

For understanding this theorem, we need to understand the Austrian explanation of “prices” establishment from where it comes? How do we come to know about selling good X for which price? The prompt answer is the running price issued from former prices that were tagged with the prices.

The price tag of a product comes from its worth in the past; the price grows and evolves via the market’s infinite synergies and originates from past prices. The price of money must emerge from yesterday.

An objection was raised here: “Monies haven’t used to be in existence and rise and fall occur. If the price of products comes from previous prices, then from where the price of a new and first time launched product will come? Is it making any sense to be accepted? For responding to this criticism, the regression theorem derived.

Quoting from Man, Economy, and State: Book by Murray Rothbard

Rothbard wrote that “To ascertain the cost of a product, we examine the market ­demand schedule for the product; which then depends on the in­dividual demand schedules, which then are defined by the individuals’ value rankings of pieces of the product and units of money as provided by the different alternative uses of money, yet the late alternatives then depend on given prices of the other products.”

He further added that “Professor Ludwig von Mises clarified this critical issue of circularity in his famous money regression theory. The theory of money regression could be illustrated by analyzing the period considered in every section of our study. Let’s define a day as “the period just enough to manage every product market price in society.”

It is notable that, like all evolutions, the evolution of a product into money is progressive and not a prompt one. A particular day is a period for the well-being of reasons, as Rothbard’s concept. It is essential that a ‘start’ survives, the turn on the whole as a single play.

Some people state Bitcoin (BTC) is not money as it ‘violates regression theorem’ because it was not a product earlier and became money, i.e., this craves the point of the regression theorem. In the meaning of the regression theorem, Bitcoin’s value is not circularly described but rather comes from the initial transactions performed.

According to research, the first buying of a product with BTC was 5-21-2010, when a person named ‘Laszlo’ purchased a pizza of $25 worth for 10,000 BTC. It shows just how much growth the price moves through a bit past three years, and the Bitcoin’s value grew from that first transaction of USD 0.0025/BTC to the current rate of more than USD 200/BTC.

As a clear start is visible, there is no circularity in defining Bitcoin’s value in the context of past values. No matter, Bitcoin is money or not, it is entirely not included in the reach of the regression theorem.

About the author, Awi Khan

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