One of the reasons that I switched from economics to finance was to avoid pointless bickering. In finance the only correct response to an 'analysis' like that found at the end of the OP is to challenge the one making the claims to a public wager. If BitShares does not collapse as predicted, then Legarcon should donate USD 10,000 to a charity that he or she despises.
If one has nothing to lose, should one's powers of prophesy fail, then it is just economics.
In fact, although the author claims to be a “self-taught Austrian Economist”, the entire microeconomic foundation of BitShares is incorrect.
The foundation of Austrian School microeconomics consists of methodological individualism (All human action is individual
action.), subjective value (inter-personal, intra-personal, and inter-temporal), time preference, and viewing the market as a process (rather than as a dimensionless and instantaneous equilibration)... none of which the author addresses, notwithstanding that for BitShares—or any
market—to function, all of these apply.
Fundamentally, BitShares assumes that prices are driven by arbitrageurs, when in fact they are driven by users.
BitShares, being inanimate strings of 1s and 0s, assume nothing. Anthropomorphisms make for engaging fables, but have no place in scientific analysis.
As the author never defines 'arbitrageur' or 'user', it is difficult to know what distinction is being drawn here. As understood by financial economists, arbitrage is the simultaneous buying and selling of an asset on different markets, in order to take advantage of price discrepancies. By selling on markets with relatively high prices, and simultaneously buying the same asset on markets with relatively low prices, arbitrageurs bid the high price down and the low price up, earning zero-cost profits until the arbitrage opportunity vanishes.
In this way, arbitrageurs do
drive prices, as do information traders and noise traders
I am unfamiliar with a market 'user', so I must leave the assertion that prices are driven by users unchallenged.
Arbitrageurs merely perform the simple service of aggregating and cancelling different price offerings, which prevents users from being ripped off.
The phrase 'ripped off' suggests that some 'fair price' exists. However, this is an opinion, as opposed to a fact, and thus irrelevant in this context.
Speculators absorb and transfer risk, brokers call in the order, and janitors cleans the trading floor to prevent slippage. It is not the employees, but the users, who set prices by expressing supply and demand preferences
It is unclear where the janitors and employees fit into this analysis. Again, the author makes no attempt to explain who market 'users' are.
(While short episodes of speculator-control exist, they are defined by their terminal insanity and a subsequent correction to the user-controlled price level).
As the future is unknowable, all transactions are speculative
. To assert that one category of trader is 'investors' ('users'?) and another is 'speculators' is to assert that the one group can divine the future, and the other is comprised of mere gamblers who lack the power of prophesy.
If the market offers a price which is “too low”, such as a car for $5, people will buy them to use: to drive, to enjoy the latest car tech, to avoid breakdowns, for their children, or simply because $5 is less than gasoline or oil changes. The homeless could even live in a $5 car.
If the price is 'too low', then why would the sellers sell? Price ceilings that are below the market-clearing price most commonly are mandated by government agents, and not by market participants, and they invariable result in shortages.
If the market set the price of cars to $5,000,000, people would sell them to use that money to buy other things to use.
Who would buy the cars, assuming that the $5 million had approximately the same purchasing power that it would have today? Price floors that are above the market-clearing price most commonly are mandated by government agents, and not by market participants, and they invariable result in unsold surplus goods.
In BitShares, there is no use, only speculation, and so prices can move without bound.
Prices are limited by the resources of the market participants. For a price to move without bound, one would need at least one participant who had infinite wealth. Even the universe is not infinite.
Even if the BitShares idea were partially valid, the scourge of risk, and well-known effects of Asymmetric Information would iteratively drag the price of all BitAssets to zero, in a phenomenon called ‘The Market for Lemons’.
The phrase 'The Market for Lemons
' refers to an economic paper from 1970. Nowhere in that paper does the price fall to zero.
Cars are not fungible, thus some are 'cherries' and others are 'lemons'. For a given BitAsset issue, the opposite is the case. Among BitAssets issues, it might be the case that market participants might hoard 'cherry' BitAssets (as we see today with Bitcoin), but it is a bit of a stretch to predict that no one would circulate them (as we see with Bitcoin, when people use it as money).
The margin call system only increases the fragility of this mysterious experiment, such that the richest or craziest agents could create and profit from immensely volatile price swings.
This is a hypothesis, and not a foregone conclusion. The only way to know is to run the experiment.