Topic: Fascinating information on saving vs. consumption - page 2. (Read 4314 times)

The gold standard is a form of fractional reserve banking; fractional reserve banking is theft.


Ok I'll stop harping on but by definition this is the (Cantillon effect), the problem with fractional reserve banking; the gold standard and fiat. (the gold standard just adds physical limits)


They were financiers, using newly created money (fractional reserves) I can't see this happening with Bitcoin because of the concept inherent in Productive and unproductive labour

I understand the problem, I think the economic situation today is a result of the Old Powers. We have a paradigm shift with Bitcoin, just like the financiers of the industrial revolution had a paradigm shift and took power away for the land owners (commodity backed money).  This time it is going to be for good.

Total agree.
Bitcoin is just a good idea if no one adopts it for economic use, it needs to propagate and be used to have any effect.
There is a problem with adoption. The "early adopters" and "early majority" who adopt it have to give unthinkable amounts of wealth the Bitcoin rich. So much so I think it will never happen. For the reasons you outlined. The free market principles which Bitcoin enables are prissily preventing its adoption as a lubricant for the economy. I think I have a lot of "pet electronic rocks" in my .dat file now.  (I think Gausscoin is a more viable idea. )   

I said "benevolent in this sense", as in, not using his wealth to manipulate the government and the economy. I'm not sure how two can be controllers of new money when both Morgan and Rockefeller were alive during the gold standard era.

I am not arguing that having capital makes you more productive, I have been making the same argument over and over and over: control over a significant portion of the money supply by a few, wealthy or well-connected people means that they will manipulate that supply to their own ends. This results in stealing productivity and wealth from poor and middle classes and drags it up the chain. A situation that is not that unlike feudalism, though its theft was much more prominent.

Even if the supply of money does not start out skewed as it did in bitcoin, the property of the currency still allows for the situation to develop because of lending, or big industry as in the case with Rockefeller. Just as the situation did not start out so skewed with gold, but we ended up with a few financiers controlling the world.

This, however, is not particularly the subject of this thread. I only brought it up because you realized the problem of bitcoin distribution then attempted to solve it without really considering that nothing has changed in your solution, except perhaps who might be in control.

None on your list are benevolent, 2 of them are controllers of new money - (thieves), and the other is an investor.

I think you are arguing that having capital makes you more productive, and those with no capital are unable to compete (And this causes a disparity between rich and pour?).

This situation arises naturally in a free market and still provides a net benefit to both parties (There is a a natural transfer of wealth to the pour?).  The benefit first outlined by Adam Smith is a fundamental economic prinsaple behind Marxian economics.

Well the primary argument of Hayek is that if you defer consumption by saving (in banks), you are increasing non-consumption growth. If you hoard, that growth may indeed be split depending on how the money supply reacts to these changes to effect the same velocity.


I am not ignoring that a free market competitor offers all of these exact same advantages.

You're ignoring the other attributes that make bitcoin desirable. Easy to store. Easy to transfer. Not easy to confiscate. etc.

I think you'll be waiting a long time for bitcoin to fail if you think the failure will be due to lack of people wanting bitcoin.

I can't defend the argument. It's hard to know if a particular person's consumption is useful or not. Hence my caveat that what he is deferring is not "the building of a factory". The resulting opportunity to to others is presumably split between useless consumption and growth producing consumption. Why the deferred consumption is not similarly split, I don't know.

What I can say is that if the savings are loanable, then it is in the interest of the loaner to make sure the opportunity is not useless. Another reason not to hoard.

That doesn't seem like the supply side is boosted to me, it just seems that one person defers consumption so that others may consume. In the end a net zero. Perhaps in the end, slight overconsumption when the person who deferred calls in to collect.

an "absurd case" I agree but I think this is actually the problem.

It should be obvious that the absurd case of a single saver people who get Bitcoin (me included) are holding all the cash money Bitcoin in the world in his mattress and not consuming a thing is not doing the world a favor since, even though prices are “falling”,(in Bitcoin we have 100% deflation in 3 months) there would be no economic activity.

+1 agree.

It's not that I don't understand the Cantillon effect, or that of those who control the money, it's that I find the distinction irrelevant. I have used the phrase "control the money" just as often as "have the money control the economy". If you enable this possibility, it will happen due to greed for wealth and power. Bill Gates may be benevolent in this sense, but JP Morgan and John D. Rockefeller most certainly were not. And they were more than enough.

I assume the argument goes: if a person defers consumption and the velocity of money is not reduced by his hoarding (more money printed or no sticky prices and wages), then supply side is slightly boosted making is easier for others to collect resources for productive uses.

What about the force of finance? (As misquoted by Rothschild below)


I'm curious as to the case that can be made. It would seem that both Austrians and Keynesians disagree with you here. Trinkets and toys and other things that are consumable and very useless would be encouraged in fiat, heavily discouraged in bitcoin, and in both cases it is hard to discover whether or not there is a real market need for these items. If by mildly discouraging these things or being indifferent, perhaps the free market would eventually be allowed to figure out exactly what is the best use of money, and hoarding would never be it.


This does not address the business cycle. The banking system->capital accumulation->derivatives->over-leveraging, etc. A competition between free market currencies would be one, partial solution, but that means that there is still something wrong with each currency.


If bitcoin is only good as a store of value, it's a digital pet rock/digital gold/what have you. With the coin distribution system especially, I don't see how a continuous supply of people wanting bitcoins will keep the price propped up if there is no economic reason to back it. Gold (sort of) works because gold is real and tangible. Bitcoins are not only not tangible, but easily manipulated with the concentration of supply. I don't think an unfixed supply means that something is not a good store of value if designed correctly. I don't want to derail this about my ideas, but I did send you a PM the other day so review that thread and respond if you are so inclined.

People with money don't control the economy; people who control money control the economy.

There is a difference.
Any wealth created through productivity is a benefit to the whole economy.  
Those who control Money, have a mechanism to transfer the wealth without being productive. You haven't fully understood that the Cantillon effect doesn't apply to the rich or the capitalist, It applies to those who can create new money or money substitutes.
 
10,000,000 years of freedom, fell to the barons age, barons age fell to feudalism, feudalism fell to more efficient and innovative kings to become empires, empires fell to financiers (bankers) of the industrial revolution, the bankers are still in charge, nation states are an illusion, we are all human and we all inhabit the biosphere.
Progress is made through healthy competition (being rich should be indicative of the contribution you have made to society) but it is a symbol of how close you are to the money makers.  

I have will just little time.  

Economic growth is intimately tied to the movement of money. (More specifically; the payment of money for assets to allow the use of those assets productively and the payment of money for labor which is necessary to add value to products.)

It should be obvious that the absurd case of a single saver holding all the cash money in the world in his mattress and not consuming a thing is not doing the world a favor since, even though prices are “falling”, there would be no economic activity.

Normal saving where funds are offered for lending gets around this by continuing to move the money through loans. This saving is a virtue.

Increases in demand for cash, when savers put more cash in their mattresses, can be met by printing more cash or letting prices drop so that the remaining “moving” money is sufficient to sustain economic activity. Either way there is a case to be made that the hoarder is benefiting growth by deferring his consumption. (This assumes that if he consumed it’s a pure loss and not a growth producing consumption such as paying to build a factory. I don’t think it’s clear that deferring building a factory is a net plus or minus for the economy.)

However, in the real world, prices are sticky. Hence the remaining “moving” money will not be enough to sustain economic growth when there is an increase in the demand for cash. Furthermore, there seems to be positive feedback where demand for cash lowers economic activity which increases the demand for cash (race to liquidity when times are uncertain.)

There is an argument that sticky prices (and wages) is a learned behavior and that if we would just bite the bullet and live in a world with a fixed supply of cash money, then everyone would learn to live with a variable stock of “moving” money and realize they lose nothing by lowering prices (and wages).

I happen to think that the transition to there from here is cruel and unnecessary. Alternatively, the function of money in trade (“moving” money) can be separated from the function of money as a store of value.

In the fiat currency world we can live with a little bit of inflation. You want to save? Invest your cash in assets or in inflation indexed loans. Don’t moan that you want to stay in cash but you want society to guarantee you its purchasing power. Society needs cash to circulate to produce growth.

In the bitcoin world it is obvious bitcoin is a store of value. Use it for that. If you want to take over the function of money for the world, however, it makes sense to design a sister currency that is not a good store of value but is designed to keep the flow of money, “moving” money, on an even keel. Sure, build in the desirable features; No central control, No manipulation, No excess inflation, No deflation either. Have the supply grow with the needs of the economy. All governed by a set of rational rules enforced by a large number of p-p nodes.

By free market currency you are referring to a peer-to-peer (P2P) cybercrypto currency, it is the future, I am all in.

With commodity money like corn you make more of it by control the land (feudalism)
With a commodity money substitute like Gold you control it by force (empire)
With a money substitute like Fractional reserve banking, you gain control by deceit "inflation"( free market democracy)
With fiat money you control it with a central bank. (Managed socialism)
with P2P money you get ....

"Give me the right to issue and control a nation’s money and I care not who governs the country.” –Mayer Amschel Rothschild.edit
“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson edit
“Money plays the largest part in determining the course of history.” Karl Marx writing in the Communist Manifesto.
Whoever controls teh money benefits, so P2P is the only solution.

I await turning my miners loose on your Gausscoin. 

I think the paradox of thrift would be counteracted to a small degree if the distribution were changed to the ease-in, ease-out model. You still have the situation where people with the money control the economy. If lenders don't lend after previously lending, recessions will be easy to induce and allow the wealthy to become even wealthier (in real and durable goods).


Analogs of gold and silver shouldn't be what we're looking for though. You never responded to my long-winded post on this.

@ Etlase2
Thanks for the simulating perspective, although I haven't had time to debate some of the points you raise on other posts, I have come to a conclusion I didn't consider before.  

My former understandings lead me to discount your idea of a new Bitcoin reward scheme. But I now consider it a possibility.


I have arrived at the conclusion that the current Bitcoin reward scheme is flawed.  For the reasons you have outlined and the paradox it has created that is hindering economic growth, that will perpetuate boom bust cycles until Bitcoin is the dominant medium of exchange (if it can become that). I have seen no evidence to convince me a perpetual inflating model is viable either.

If the rate of coin production were to be changed it should look something like this:


I think the paradox of thrift would be counteracted to a large degree and be more equitable to all economic participants but still grant rewords to early adopters and benefits to productivity and encourage free market principles and the adoption of the new currency.

This currency generation curve would be more analogues of Silver to Gold in relation to Bitcoin this model would also benefit Bitcoin users because it wouldn't penalise early adopters or disproportionately reword the innovators. (It would also accommodate defector from Bitcoin - with every crash should that prediction be accurate) other than (debated) technical improvements I find the Bitcoin idea still revolutionary.

It makes you have to wonder how Keynes became the economic heavyweight while more logical people such as Hayek fell to the wayside. Could this possibly be another case of the "powers that be" interfering with public opinion on this subject? Or not even that, just old-fashioned government expansion? Canada's competitive, regional banking system fared quite well vs. the US during many times of US economic depression. Yet Canada still fell for it eventually. It's still really odd though that instead of printing money on its own, governments choose to give this power to a private corporation.


Bitcoin has created an Austrian example of the "paradox of thrift"