Crowdsourcing Clarity, Ep. 01: Mises' Regression Theorem (SBD Tip for most helpful answer!)
Having some trouble understanding the implications of Ludwig Von Mises' Regression Theorem. Any wisdom proffered much appreciated. I will reward the most helpful answer with a small reward of SBD (Steem Backed Dollars).
Cheers!
~KafkA
Graham Smith is a Voluntaryist activist, creator, and peaceful parent residing in Niigata City, Japan. Graham runs the "Voluntary Japan" online initiative with a presence here on Steem, as well as Facebook and Twitter. (Hit me up so I can stop talking about myself in the third person!)
I'm not an expert on Austrian economics, but here's my take on it.
First of all, the regression theorem doesn't talk about gold in particular, but about money in general. That being said I'll try to answer your question.
As you point out, gold and other traditional forms of money were used in barter before becoming 'money' and thus it had subjective value. However, as the supply of gold increased, the marginal utility of it decreased. What that means is that, if someone has a lot of gold, he probably won't make 500 necklaces for himself because he can't 'consume' them all. However, the gold still has value and people start to use it to purchase other goods, thus becoming money.
What mises says is that gold (or money in general) has an objective value that can be used for price calculation, because people expect the gold to have a certain purchasing power in the future. For example, I would want to sell my car for gold because I expect that the gold will still have value in the future, so I can buy something else with it later.
Now, Mises applied the same logic to look back in time. People yesterday anticipated today's purchasing power, because they remembered that money could be exchanged for other goods and services two days ago. This goes on and on, until you come back to the point in time where gold was only used as something that's consumed, and thus only had a subjective value.
Because of all this, according to Mises, the subjective and objective value of money is the same and will probably be the same in the future as well. I guess this is why your friends would say that, if the economic systems collapses today, we could still fall back to using gold because we all have a sense of its objective value, and therefore we base our own subjective value on that.
However, this doesn't mean that gold has a fixed value. The price/value of gold is still determined by supply and demand on the market. So my take on this theory is that we won't eventually end up using gold per se, but, just like anything we want to use as money, it is easier to calculate prices with and so it has an advantage compared to other commodities that can be traded.
I hope this will clarify it a little bit. Again I'm not an expert on this topic but this is what seems logical to me. If I'm totally wrong, please correct me!
One SBD sent your way. Thank you.
Glad I could help out! Thanks mate
Hi, Graham. In barter exchange all goods and services can have infinite number of prices in terms of other goods and services. Pricing in barter is marginal or relative. Economic calculation in barter exchange is ordinal according individual subjective valuation. When there was no money, cardinal or precise monetary calculation was impossible. Regression theorem states that before a certain good is chosen as money, it had only ordinal value. After its recognition as money, a good acquires exchange value which becomes prevailing. Prices of all other goods then can be expressed in terms of money. Money allows monetary or cardinal valuation.
One SBD sent your way. Thank you.
Thank you, hope it helped you out. Please read my post about the origin of money.
Not SBD farts? Did you call them SBDs growing up? Silent But Deadly.
Hahah! I did! Didn't even realize it was the same acronym. My buddy used to talk about "droppin' SBDs" all the time. Hahaha.
I've been chuckling about that for a while now.