Topic: A modest amount of inflation should be part of bitcoin - page 6. (Read 17996 times)

The entire system surrounding the dollar is set up for two decimal places of divisibility. Do you have any idea how much it would cost to add more decimal places? Every fucking thing would have to change.

No I was saying that the fed could print 0.000000000000001 dolar bills too. The dolar is potentially divisible to any number of decimal places.
The user would need to go to a bank and change its one cent coin for 100 bills of 0.0001 dolars.
Bitcoin doesn't have more protection against deflation than the dolar because of its divisibility.

Right. In LETS, all the community have to decide the unit of value of the IOUs. In Ripple, just the issuer and the receiver of the IOUs.
In both systems they trade with IOUs. They are so similar to me (Ripple is a generalization of LETS) that I don't understand how one can be a currency and the other not. They are both a currency or neither of them.

I'd like to see you, the user divide a penny. Lets see it.

Ripple doesn't define the unit of value the IOU's are based upon, while a LETS system must collectively define this.

It depends on how we define currency.
What quality has LETS and Ripple hasn't that make it a currency?
You may say that the real currency in ripple are the IOUs issued. The LETS currency is just the IOUs issued by the LETS organization or community.
I see the fact that they can use different references of value (and need to use at least one) as an advantage.
You could issue IOUs denominated in carrots, but carrots won't gain extra value for becoming money (as gold did).
You could issue IOUs denominated in a currency that is based on a basket of currencies (like terra) so that they were completely inflation/deflation resistant. You could define a currency in Ripple the same way you define CPI.

I've read the chapter.
I don't think that a hoarder is a miser. He just do what he thinks is better for him. If hoarding is the best way to save in the society he lives, it's not his fault.
The argument I find more interesting is this:

"The more uncertain and fearful they are, the more cash balances they will want to hold; the more secure, the less cash they will wish to keep on hand. "

Or more simply: Cash is a protection against uncertainty.


Ok, maybe fiat is not the right word, what I mean is that its value as money is based on faith too. People give credit to gold in some sense.
I think that was Morgan who said "Gold is money, everything else is credit".
Well, I disagree and I think gold (when used as money) is credit too, the only difference is that gold cannot be printed. That's one of the reasons why it became money in the first place.


They are as scarce as credit.
LETS works for small communities. The payer owes the community (as a whole) and the seller is credited by the community by the same amount (the price of the purchase).
With Ripple, each participant performs the same role as the central LETS organization. He gives and receives IOUs from his trusted parties and can act as an intermediary between them (just as the central LETS does with the LETS participants), without moving his total balance. He can charge fees or interest if the parties agree.
The Ripple system allows you to use that network of trust connections to pay someone who you don't have a direct trust relationship with.


I mean that fulfilling this function optimally shouldn't be the main purpose of a currency.
Inflationary currencies or currencies with demurrage don't store value as well as gold does. Does make them money with less capacity for storing value, but with more capacity to mediate in exchanges.
Inflationary currencies also lead to miss-allocation of capital.


What I meant is that you don't always prefer to have certain good now than later.
If you have 100,000 carrots, for example, maybe you're happy to lend them at no interest and receive 10 of them a week.


I change the sentence.

-Every currency is based on collective credit: gold is also credit.


Yes, separation of labor. That's the whole point of money. It's a step forward in separation of labor when compared to ordinary barter.  
The accounting tool would be better if it didn't suffer from price inflation/deflation.

We have two men that produce the same durable good.
One of them sell it for an ounce of gold, while the other one stores the good to sell it in the future.
The credit that the first holds (one ounce of gold) is equivalent at market price to the stored good.
No growth, no change in the market.
Now a ton of gold gets lost in the deepest ocean. Monetary deflation causes price deflation.
Now the first man is credited magically for a value greater than the stored good (which is what he produced).
The stored good has not change in value in relation to all the other goods, just in relation with money. Nevertheless, the unit of account (the value of a gold ounce) has changed.
If the unit of account is changing, is more likely that "unfair" deals are made.
Deflation is bad for debtors, and we all owe to money holders in a certain way (if you accept that money is credit).
The example is a bit tricky because it relies on monetary deflation, not just price deflation. But I think that if we replace in it monetary deflation with stable supply and growth, the result is much the same.

I'll keep on reading about Austrian economics. Although I don't think that "gold = money" is a natural law, but an ancient cultural convention, their theories are very interesting.
I don't completely agree with the school in what the nature of money is but I do agree in what's the origin (from what I read/heard) of it.

Ripple is not a currency, but a web-of-trust based credit system.  It still depends on a common reference of value.  Said another way, Ripple users can use any common metric; such as ounces of gold or silver, fiat currencies, or whatever; as their medium of exchange, but the system itself does not establish one.  Bitcoins could be traded well in this manner, but in the end, Ripple is credit; if the buyer had the bitcoins, he could just pay for it.  Ripple does permit people to trade online relative to hard money, without needing to ship the hard money itself; but it is neccessarily not anonymous.

LETS stands for Local Exchange Trading System, and it is a local "mutual credit" based currency.  It does not involve scarcity, as the credits are created at the time of the trade deal by a double entry type system.  I.E., there is some central book, and when someone buys something from a local vendor, the account of the vendor shows a credit while the account of the buyer shows a debit, but all debits and credits in the system balance out to zero.  The system requires an external peg of value agreed to by the whole of the userbase, which can be a national currency, hard money, or hours of unskilled labor.

Great!  Let me know what you think.


Everyone who "hoards" their money out of the market is intending to spend it at some later date, unless they are collectors and the money itself were the desired end (a miniscule minority at best).  To paraphrase Rothbard, money isn't only useful when it's being exchanged.  It's also useful when put away, as it is ready to be exchanged if/when its owner wants to.  Think of spending as kinetic energy and savings as potential energy, if that helps.  Both are needed and useful.


What is money if not a store of value?  It can only be used as a medium of exchange because it has value.


Not to sidetrack with a semantic argument, but bitcoin is not fiat.  Fiat money has its value because it is backed by government fiat.  Free market money has its value because enough people freely assign value to it.  The key difference is counterparty risk.  Fiat money relies on a relatively small group of people (government) to retain its value while free market money disperses its risk over the entire free market.


If they were truly non-scarce then they would have 0 value on the free market.  I haven't read about Ripple or LETS yet but I'm venturing to guess that, if it can function as a store of value, then it must have scarcity.  Even the USD has scarcity -- it just keeps getting less scarce at a very fast rate.


Again, if money did not store value, then it would be worthless in exchange.


Since our time is scarce, and we can only take any action at the exclusion of all other possible actions at any given time, time preference applies to everything we do.


Note the differences I pointed out between "collective credit" and fiat above.


Measure of value = store of value.  They are one and the same.


Instead of looking at money as a medium of exchange, try viewing it instead as an accounting tool (by calling it a "measure of value" you may already do this).  As separation of labor and the resulting necessities to trade propagated throughout humanity, a need arose to efficiently measure each individual's contribution to the economy.  That's all money really does.  Any changes to the total supply of money distorts this measure of past productivity.  The savings rate is also important as it broadcasts to entrepreneurs, through interest rates, what the market's general time preference is at any given time.  Savings are extremely important.  It's actually the only way an economy can sustainably grow because people are deferring present consumption in favor of more future consumption.  This deferred consumption is what gets invested into newer and better capital to increase productivity.  As for money that is lost, like a deleted bitcoin wallet, that can't be accounted for since there is no way in telling if any bitcoin is truly lost or just being saved for a long period of time.  IMO, the fairest action is no action.  The wallet owner is punished for his/her mistake while the rest of the bitcoin owners benefit on aggregate.

Ok, so monetary debasement is the same as what we called monetary inflation before, not the same as price inflation.
Thank you

I know what I mean, but I don't say what I mean sometimes.

Keynes didn't wash my brain. If someone did it, probably has been Silvio Gesell, as his was the first book that talks about economics that I read. Now I'm seeing a series of introductory lectures about austrian economics that the "don't buy bitcoins" guy has in his youtube account. It seems interesting. I will read the book because I'm interested in monetary theorist in general.
I'll reed the link to the chapter first.
Before anything I want to clarify what I mean by hoard and what I mean by save.
when you hoard you keep your money out of the market. When you save, you reserve some of the wealth you're earning to later consumption (or to increase production in the future or whatever). Thus hoarding is a way to save, but not the only one. You can save without hoard by lending or storing consumption goods that you know you will consume, for example. This way you can free the money to keep circulating and to do its job: serve as a medium of exchange.
I don't think that money should serve necessarily as a store of value because that function competes with the function as medium of exchange. Before money emerged from barter, the only way to save was storing goods or lending them.

I think that the assertion of "no one would lend his goods without charging interest because of time preference" is wrong.
There's some cases in which you would do it. If you have 20 Kgs of fish, maybe you consider lending them before they lose their value. Most consumption goods lost their value over time. Even production goods break and deteriorate. The only thing that does not (without inflation nor demurrage) is money.

When you hold money is like if the whole society gives you credit because the goods and services offered in exchange of a currency is what really "backs" a currency. Bitcoin is fiat, but the bitcoin community agrees to trade with it because it has many advantages as a medium of exchange over other currencies. A currency is in part an agreement. That's why a currency can lose all its value overnight when that agreement is broke.

In some sense, gold is fiat too. Even if it has "intrinsic value". Be careful when you hear this words because value is always relative. What that really means is that inside the commodity called gold which is a medium of exchange that isn't, but is also called gold and you can mutate between them at your will. That's why the value of gold will never go to zero even if the agreement is broke and it is not a currency anymore. But gold has far more value as a currency than as a commodity.

The first implicit agreement in what money should be (which emerged naturally from bartering) converged in gold (and other precious metals), which has the ability to store value because it doesn't deteriorate. It wasn't the only reason why it was collectively chosen. That agreement could exclude that property from the mix.

I don't think that printing is the right way to prevent money to become a store of value, inflation has many side effects which you probably know in more detail than me. One of them (which you seem to not consider too bad due to your defense of deflation) is that it damages the desirable function of currencies as measure of value.

I think that a better way to take away the function of storing value from money than applying demurrage to a scarce currency exist: create a non scarce currency.
There's a non scarce currency called LETS, but it depends on a "state". It requires a mini-government. Furthermore it is not scalable at all.
There's another non scarce currency called Ripple. I bet your objection to ripple: it is based on debt. But since every money is credit, Ripple is just pure money. You can store value in ripple by lending to the agents you trust

I'll put together some things you may disagree:

-Money shouldn't have the store of value function.
-Time preference does not apply to all goods.
-Every currency is based on collective credit: gold is also fiat.
-Measure of value is a desirable function for money. [This was the topic when I got in the thread]

P.S.: The web advices me that there's 4 posts that I haven't read, but I'm going to post it anyway.

That such a scenario is unlikely, I grant.  Still, the distinction is an important one if only because blurring it is confusing symptom with cause.

Unless Bill is very careful to hide the location of his $5 trillion from everyone it will cause inflation when he dies.  Your argument is that if you create money and remove that same amount from the supply, inflation won't happen, but in what situation would that ever be done?

They're not exactly the same thing though.

Bernanke could deliver $5 trillion to Bill Gates who decides to just put the money in a hole in the ground.  The US dollar has just been substantially debased but there's no reason to expect any inflation.

Sustained inflation (beyond temporary price spikes) requires debasement of the currency, but debasement of the currency does not always result in price inflation.  Debasement is a necessary but not sufficient condition for price inflation.

+1

Murray Rothbard FTW

I've re-read it and cannot see the difference between what you actually said, and what I assumed you said. I didn't want to put words in your mouth that you didn't say, but if you don't have the time to clarify it yourself, I cannot undone it, because I don't know what you meant.

Agreed.  jtimon, you need to stop calling "saving" "hoarding".  That's Keynes lingering in your brain.  What you need to take into consideration is that we are all mortal and will die some time soon.  This makes our scarce time on this Earth extremely valuable to us.  That's why we'll continue to spend and circulate a currency even in a moderately deflationary environment.  Satisfying needs and wants now is more valuable than satisfying them later.

You also need to understand how important real savings are to economic growth.  I recommend the book, "How an Economy Grows and Why it Crashes" by Peter Schiff.  It's a fast and entertaining read that explains economic fundamentals (and torpedoes Keynesianism as a result) very succinctly.  If you want something free, then I highly recommend "What Has Government Done to Our Money?" by Murray Rothbard.  Reading that book was a real "red pill" moment for me.

EDIT: If you're REALLY impatient, here's Murray's thoughts on "hoarding".  He dedicated an entire chapter to it.

What's better for society.  People only buying what they need, and things they _really_ want, or some people buying everything they think they might want, and some people not having anything.  That's what happens when inflation causes prices to rise.  The haves blow all their money on stupid shit because it will be worthless tomorrow and the have nots go hungry.

If you're going to continue to call it hoarding, can you please define the difference between "saving" and "hoarding"? To me, there is no difference, hoarding is merely someone saving more than you think is proper. Which is to say, it's none of anyone's business but the saver.

Anyway, I still disagree that hoarding/saving is detrimental. The key factor is "time preference", in almost every case, humans prefer to have things now instead of later. Think of it like two opposing forces, one is "if I wait until later, I can buy more things", the other is "I want things now". There is a different point for every individual at which these two forces cancel out. This cancelling results in trade. Now imagine you place everyone on a one dimensional graph represented by this function. There would be people scattered all over. Some will trade their Bitcoins when they reach $0.10/BTC, some at $1/BTC, some at $10/BTC. There is never going to be a point where a significant number of people are not willing to engage in trade. The more people unwilling to engage in trade, the more incentive there is for everyone else to trade, as their money has that much more purchasing power.

If you think about the two forces in an inflationary money supply, it's obvious why we are such consumers today. Inflation discourages savings, so the forces are "if I wait until later, I can buy less things" and "I want things now".

/sigh/

Please read the above carefully, to see the difference between what I actually said, and what you assumed I said. This is wasting my time; I'm out of this discussion.