Another Reason VeriCoin Crashed



Yesterday I posted an article about VeriCoin here.

Shortly after tweeting the link a kind stranger contacted me and informed me VRC’s drop was not caused by the attack on MintPal. Like a number of other investors I mistakenly believed VRC’s plummeting price was entirely the result of a mass panic. However, it can be partially or largely attributed to one whale and a couple manatees vomiting at the wrong time. The investor in question, who is not named in the document, spotted a double top reversal in the VRC chart. Convinced its fate was forever sealed, he not only sold his holdings, but advised others at a BTC conference to do the same. Few people have the luxury of making sure their predictions bear fruit.

In his broken English he states at the very end:

“Sorry, the coin was nicely build (sic) with devoted devs, but at the end money wins. Always!”


Earlier in the memo our mystery dumper reflects on his decision:

“Vericoin is a good coin and the idea behind an open dev team drove the price up. Also VeriBit and VeriSMS are nice features, BUT that’s it.”

That’s it? What does that even mean? What he listed is more than the overwhelming majority of altcoins provide, although it is difficult to compare as none of the others offer these same features. Several VRC fans on Facebook and Twitter have lamented the utter lack of correlation between a coin’s value and its price, but neither the innocent enthusiast nor the cold investor should only consider the short run.

Henry George Revisited


“What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power.”

-Henry George

Progress and Poverty has been praised by Tolstoy, Einstein and Milton Friedman. Friedman, predictably, was the least effusive of three.  He said the “least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.” George disagreed with Thomas Malthus’s gloomy forecasts of widespread of famine; geometric population growth did not seem likely to him. While it is beyond the scope of this blog, in a future post I will explain why neither man was right.

Whereas the contemporaneous textbooks authored by Walras and Menger were strictly academic tomes about the theory of political economy, Progress and Poverty is succinct and accessible. The clarity of its arguments  made it such a success with the men listed above, but its rallying cry for equality is what endeared its author to people from all walks of life.  His thesis is simple: a land tax would encourage people to make use of their property while allowing those without land to keep all of their income. Also, and this should not even need to be said, his thoughts on real estate speculation are more pertinent now than when the book was published.

Henry George, like C.S Peirce, was an autodidact who had no ties to the ivory tower. Unlike Peirce, George became famous in his lifetime. Milton Friedman, though he is despised by the left for defending the unrestrained market and defamed by the likes of Mises for his “socialist” views on monetary policy, was an outstanding economist. He sits on the opposite end of the fence of the types commonly associate with modern Georgism, which is unfairly pegged as a populist movement composed of agrarian class warriors.  Nothing could be farther from the truth about the man or his followers.  An observer of the industrial revolution, George understood there are a myriad of benefits to capitalism, innovation and urbanization.  What troubled him was not private ownership or competition, but the level of inequality he observed in terms of material wealth and opportunities to advance one’s self. Unlike Piketty, what George saw was deplorable by the standards of any era. What he decried was reality, not his own dire predictions.

Slavery in antiquity was not a humane institution, but before the advent of labor laws (preceded and largely made possible by rises in the marginal productivity of capital) one can say it was abolished in name alone. One would have to be incredibly dense to think the formal renunciation of human chattel did anything to improve the lot of the freed or the already free. One only need to read The Condition of the Working Class in England or other period pieces to understand that a slave by any other name is still a slave. Even today English and Americans happily import mountains of consumer goods made by the “free” citizens of India, Cambodia, Vietnam and Malaysia without the slightest twinge of guilt. Nothing makes a sweater feel better than knowing the 8 year old who made it is not legally anyone’s property. He or she has chosen to forego childhood and education to work sixteen hour days without anything remotely resembling fair compensation, but they have the right to starve to death. In civilization’s brief history dreadful working conditions are the rule, not the exception. Urbanization, positions demanding specialized knowledge and the concentration of wealth into smaller geographic areas, along with political activism, are what changed this situation.

To me George’s genius does not necessarily lie with his advocacy of the land tax but with his realization that capitalism, in spite of all its triumphs, has flaws. I do not entirely agree with his thesis, but I believe Progress and Poverty is worth reading for the clarity of its exposition and its historical value. I wonder what he would have thought of Keynes, robots and all the other wonders and oddities that came after his death in 1897. One can only guess.

Perspectives on Piketty


Thomas Piketty is today’s most discussed economist. Not just a pedantic treatise on economic theory, Capital in the Twentieth Century is a political manifesto in the tradition of Henry George and Karl Marx. His literary references and indulgences in simple algebra, however, conjure Keynes’s stylistic spectre. Paul Krugman defends him by noting the responses to his thesis have come primarily in the form of “name-calling.” Hardly a valid point as this is the most common response to anything. One example of a commentator repeating vague neoclassical platitudes is The Cato Institute’s James Dorn. There is truth in his article, even though it amounts to little more than redundant rhetoric for an audience that never tires of  the touting virtues of the unfettered market.

“Capital in Mr Piketty’s book includes forms of wealth, such as land, that would not figure in economists’ models of production; his rate of return is the pace at which such wealth grows rather than the benefit to firms of investing it. Mr Piketty’s data appear to justify this approach: in the past, at least, the rich have been able to shift resources into higher-yielding forms of wealth when over-investment slashes the return.”

-The Economist

“But how do you make that defense if the rich derive much of their income not from the work they do but from the assets they own? And what if great wealth comes increasingly not from enterprise but from inheritance?”

-Paul Krugman

“Gary Becker, the late Nobel laureate economist, showed the importance of human capital (i.e., the skills individuals acquire through education and training) for a person’s future income and economic growth. High marginal income tax rates and wealth taxes dampen incentives to invest in human and non-human capital—and when investment slows so will economic growth. ”

-James Dorn

The United States has anxiously awaited a scholarly treatment of the acutely felt and easily exploited socioeconomic divide between the very rich and the rest of the nation. Appealing to envy is a time honoured tradition among politicians of the far left, but we should not dismiss the book’s thesis because of its political overtones or its ludicrous taxation scheme.  Francois Hollande’s presidency has attempted to put Piketty’s policy recommendations into action. They didn’t work. Piketty himself admits to the problems posed by creative banking, which is why he envisions a global tax. A bit ridiculous, no? While other factors could  be taken into account, Monsieur Hollande now knows his appropriation schemes are not without consequences. The catastrophe in 2008 had a marked influence on the entire world, but not surprisingly, an 80% income tax is a powerful disincentive in both good times and bad. A person who makes 10 million dollars a year may want to keep more than 2 million. This sounds like a huge sum of money, especially to someone who subsists in 20 or 30 thousand a year, but human wants are unlimited.

“For instance, we have this talk about tax havens. Five years ago, people were saying that nothing would ever happen; Swiss banks would keep their accounts secret and would never accept having automatic transmission of information. And then suddenly there were U.S. sanctions against Swiss banks and things began to change. I think these general moves will continue.”

-Thomas Piketty

Piketty views the uneven distribution of income and capital as the by-products of an unregulated economy.  This is incontestable; the point of contention here is when this becomes harmful and whether the government should intervene. In his analysis he ignores the various programs in place in nearly all developed nations: social security, Medicare, welfare, unemployment benefits and foodstamps. He also forgets about insurance packages many employers offer. This does not mean the underclass in America is living in a worker’s paradise, but to base a damning prediction based on one’s own “laws of capitalism” seems short-sighted, particularly when innovation in many fields is growing at an exponential rate. Who in 1850 could have imagined crude oil, nasty stuff with few uses, would become one of the most sought out commodities in the world?  Who could have foreseen the environmental and geopolitical ramifications of fossil fuels or the engines that created a tragically inelastic demand for them?

Like Steve Keen Piketty is critical of those who have tried to divorce economics from the other social sciences and use only simple mathematical models to “prove” their assertions. Yet his “laws of capitalism” seem to suffer from the same shortcomings as the neoclassical conceptions of employment, supply and demand Keen so deftly eviscerates in Debunking Economics. The entire palace this formerly obscure French economist is constructing relies strongly upon one equation: r > g. The rate of return on capital exceeds economic growth (and wages).  As any good Austrian can tell you this is not a bad thing. When investment is too high (artificially high in many cases) it results in the overvaluation of assets, a bubble. This would be fine and dandy if bubbles didn’t pop.

“But the fact that r exceeds g is simply a necessary condition for an efficient allocation of an economy’s investment over time, whether in a capitalist or a centrally planned economy (the former Soviet Union and, arguably, China are examples of countries that over-invested, so damaging their own consumption opportunities), and is consistent with any pattern of inequality, high or low, rising or falling. “

-Mervyn King

“In particular, the leap from r>g to the conclusion of a growing role of inheritance in society seems too large to me. Many capital owners consume much of the return on their capital, so wealth does not grow at rate r. This consumption ranges from fancy cars and luxurious vacations to generous charitable giving. In addition, unless mating is perfectly assortative, or we return to an era of primogeniture, wealth per family shrinks as it is split among children. “

-Greg Mankiw

Let us give the man himself the last word, one can all agree upon:

“Private property and the market system are good not only to promote innovation and to promote growth; private property and the market system are good for our personal freedom.”

-Thomas Piketty