Scarcity Fallacy

As an absolute concept, economic scarcity of a resource implies only that it is not available in limitless supply. Nevertheless, if no person demands it, the resource has no value. A scarce resource under demand becomes property. No degree of difficulty in producing the resource is implied.

Scarcity may also refer to the relative availabity of some property. For a given supply, increasing demand implies decreasing availability. However, increasing demand tends to increase supply, and thereby availability. Similarly, for a given demand, increasing supply implies increasing availability. However increasing supply tends to decrease demand, and thereby availability. These negative feedbacks stabalize availability and correspondingly price.

A single coin has fixed supply. There is a theory that the fixed supply of Bitcoin is the source of its value. As with Bitcoin, there is a fixed supply of the Mona Lisa, only one is possible. The theory implies that this is the source of value for the famed work of art. However there are countless unique works of art with no demand, and therefore no value. Bitcoin cannot be valuable only because of “scarce” supply. To the contrary, it necessarily becomes more scarce as it becomes more highly valued.

An aspect of the theory is that Bitcoin’s fixed supply is the source of its utility because it ensures non-increasing availability. However, this requires non-decreasing demand.

Bitcoin is unique in the realm of property in that the cost of transferring it inherently increases with demand to do so. Unlike the Mona Lisa, it is also subject to effective substitution. These forces necessarily create the negative demand feedback seen in property without fixed supply. Given that non-decreasing demand is not assured the theory is invalid.