Working Paper Series, Volume 1 Issue 3

The third issue of the AIER Sound Money Project Working Paper Series is available online. AIER is currently ranked 76th on SSRN's Top 1,600 Entrepreneurship Research & Policy Network Organizations.

Issue 3

Is Bitcoin Intrinsically Worthless?
William J. Luther, Kenyon College and American Institute for Economics Research

Abstract:  Monies are typically categorized as commodity or fiat, depending on whether the item in question is intrinsically worthless. In the case of bitcoin, it is not so clear. I consider the superficial subjective value argument often put forward by non-monetary economists and a more sophisticated payments technology argument. After dismissing both, I argue that there are two reasonable views on the value of bitcoin. One might claim bitcoin lacks intrinsic worth, in which case its value depends on foresight and coordination. Alternatively, one might claim that bitcoin has intrinsic worth, even if no one else accepts it, because some users have peculiar preferences. In either case, the existence of bitcoin calls into question the practical relevance of the regression theorem.

Transaction Asset Shortages
David Beckworth, Mercatus Center at George Mason University
Joshua R. Hendrickson, University of Mississippi and American Institute for Economics Research

Abstract:  Over the course of U.S. history there have been a small number of occasions in which aggregate nominal spending has declined, the most recent of which occurred during the recession that began in December 2007. Coincident with these observed declines in nominal spending are declines in the quantity of transaction assets and real output, where the former are defined as financial assets that also serve as a medium of exchange. We argue that the co-movement evident in the data is the result of transaction asset shortages. In particular, we develop a model in which transaction asset shortages result from shocks to the resalability, or liquidity, of privately produced assets. We estimate the model using Bayesian techniques. The estimated impulse response functions show evidence of the co-movement between nominal GDP, real GDP, and the supply of transaction assets that are known to occur during declines in aggregate nominal spending. We also show that the decline in nominal GDP that occurred in 2008 coincides with a large, sudden decline in the resalability of private assets.

The Leveraged Invisible Hand: How Private Equity Enhances the Market for Corporate Control and Capitalism Itself
Edward Peter Stringham, American Institute for Economics Research
Jack Vogel, Trinity College

Abstract:  What keeps corporate managers from underperforming or disregarding shareholders interests? In contrast to most scholars and policymakers who believe legal and regulatory oversight is key, Henry Manne's Mergers and the Market for Corporate Control describes a private or entirely invisible hand mechanism for disciplining managers to work for shareholders. The more underperforming firms have depressed stock prices, the more they become targets for buyouts and restructuring with new management. Funding much of these acquisitions is the private equity industry and its use of leveraged buyouts. Such buyouts concentrate ownership in the hands of private equity managers, and the high amount of leverage they use provides strong incentives for private equity managers to implement beneficial reforms. The expansion of private equity has helped to restructure scores of underperforming firms, has benefited equity and debt investors in this alternative investment space,and has enhanced corporate governance in society. This invisible hand mechanism works well and the recent expansion of control over the private equity industry by the Securities and Exchange Industry is unwarranted.

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William J. Luther, PhD

William J. Luther is an Assistant Professor of Economics at Kenyon College and an Adjunct Scholar with the Cato Institute’s Center for Monetary and Financial Alternatives. His research focuses primarily on questions of currency acceptance. He has published articles in leading scholarly journals, including Journal of Economic Behavior & Organization, Economic Inquiry, Public Choice, and Quarterly Review of Economics and Finance. His popular works have appeared in The Economist, Forbes, and U.S. News & World Report. He has been cited by major media outlets, including NPR, VICE News, Al Jazeera, The Christian Science Monitor, and New Scientist.

Luther earned his M.A. and Ph.D. in Economics at George Mason University and his B.A. in Economics at Capital University. He was an AIER Summer Fellowship Program participant in 2010 and 2011.