I see a lot of people saying economic quips in defense of bitcoin such as:
He did contribute to the growth over the last 10 years though, by not pulling goods and services out of the economy. He earns a general interest rate of return. All those shoes he produced are in the economy, creating even more growth. Hence, by not spending his coins he is investing in the general economy.
Aha, but again you are ignoring the time-value of money. The producer produced in the past, and deferred his consumption. It is from his delay of consumption that he "earns" more consumption over time. By not consuming something on each day, he enables that thing to be consumed by another market participant - by opting out of consumption, he enables others to opt-in for that same consumption at that price. If he consumed, then he'd be "taking" resources from others (by bidding up the price of those resources upon his consumption of them).
Also remember that by saving that money, he is not taking one iota of wealth from anybody else. Further, everyone has the exact same opportunity to enjoy the benefits of the appreciating money. Anyone who defers his consumption will be rewarded in the exact same way, in proportion to the consumption deferred. There is no special privilege, other than the skills, work, and talents of the individual producer - and these things are bestowed by nature. If you're upset about the unfairness of nature, then take it up with nature
So I wanted to see if any Austrians believe this.
I found this article on Wikipedia:
https://en.wikipedia.org/wiki/Paradox_of_thriftIt is a Keynesian idea that states: "The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth."
Under its criticisms:
"The second criticism is that savings represent loanable funds, particularly at banks, assuming the savings are held at banks, rather than currency itself being held ("stashed under one's mattress"). Thus an accumulation of savings yields an increase in potential lending, which will lower interest rates and stimulate borrowing. So a decline in consumer spending is offset by an increase in lending, and subsequent investment and spending.
Two caveats are added to this criticism. Firstly, if savings are held as cash, rather than being loaned out (directly by savers, or indirectly, as via bank deposits), then loanable funds do not increase, and thus a recession may be caused – but this is due to holding cash, not to saving per se."
So I followed the citation for this criticism, and it is mostly based off of Hayek's discreditation of Keynesian economics. I will quote some things I find interesting.
http://www.auburn.edu/~garriro/cbm.htm9.3: It is the forgoing of current and near-term consumption, after all, that frees up the resources with which to expand the economy’s productive capacity and make increasing future consumption possible.
[T]he output of consumables begins to rise.
And with saving now in excess of capital depreciation, expansion continues in each of the stages of production. The economy experiences a positive secular growth rate[.]
9.4: Is there a market mechanism that brings saving and investment in line with one another without at the same time having perverse effects (e.g. widespread resource idleness) on the macroeconomy?
Some macroeconomists would answer the critical question in the affirmative, taking the market’s allocation of resources to the production of consumption goods and the production of investment goods,
the later financed by saving, to be on a par with the market’s allocation of resources to the production of fruits and the production of vegetables.
[T]he Keynesian theory precludes by construction any possibility of there being a trade-off of the sort emphasized by the Austrians.
There is simply no scope in the Keynesian vision for investment to rise at the expense of current consumption. Similarly, market participants willing to forgo current consumption (i.e., to save) in order to be able to enjoy greater future consumption would find their efforts foiled by the market mechanisms that link saving and investment.
The more favorable credit conditions brought about by the increase in saving is the basis for the rest of the story.
Consider, say, a tenth-order good in the form of durable capital equipment. Testing facilities and laboratory fixtures devoted to product development are good examples. More favorable credit conditions could easily tip the scales toward creating or expanding such a facility. In early stages of production, the time-discount effect can more-than offset the derived-demand effect.
Contrary to Keynes’s paradox of thrift, consumption and investment can move in opposite directions.
“Mr. Keynes’s aggregates conceal the most fundamental mechanisms of change.” (Hayek, 1931) It is significant that those fundamental mechanisms are set into motion by the supply and demand for loanable funds—because it was loanable-funds theory, a staple in the pre-Keynesians’ toolkit, that Keynes specifically jettisoned.
9.5: With their incomes they engage in consumption spending, laying claim to most-but-not-all of the output that they have collectively produced. The part of income not so spent, that is, their saving, bears a strong and systematic relationship to the part of the output that is not currently consumed. These unconsumed resources can be made available for increasing the economy’s productive capacity. In a market economy, there are a number of different financial instruments (bank deposits, passbook accounts, bonds, and equity shares) that transfer command over the unconsumed resources to the business community.
What if some income is neither spent on consumption nor offered as funds for lending? That is, what if people—unexpectedly and on an economywide basis—prefer to add to their cash holdings? The increased demand for cash holdings would constitute saving in the sense of income not consumed but would not constitute saving in the sense of an increase in the supply of loanable funds.
An exogenous change in money demand is rarely if ever the source of a macroeconomic disruption. And an occasional dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it.9.6: Hence, if capital depreciation just happened to be equal to the gross investment, the economy would be experiencing no economic growth. Typically, depreciation will be something less than gross investment, and the economy will enjoy a positive growth rate, the frontier itself expanding outward from period to period.
In the unlikely case in which gross investment falls short of depreciation, of course, the economy would be in economic decline, the frontier shifting inward from period to period.
A major focus of Austrian theorizing is on the market mechanisms that allow for such movements—and on policy actions that lead to a disruption of these mechanisms. ... It also entails a growth rate that is consistent with intertemporal preferences.
9.8: Suppose that in circumstances of a no-growth economy and a natural rate of interest of ieq, people become more thrifty. ... With the resulting downward pressure on the interest rate, the loanable-funds market is brought back into equilibrium.
If we understand the saving that gave rise to the capital restructuring not as a permanent reduction in consumption but rather as an increased demand for future consumption, then we see that the reallocations are consistent with the preference change that gave rise to them.
But with reduced consumer spending and no change—and certainly no increase—in investment spending, the economy has fallen inside the production possibilities frontier.
NOTE: This is in reference to Keynes "paradox of thrift" and refers to what Keynes thought would cause a recession (he did not believe investment spending would increase).
9.12: Deflation, like inflation, is a secondary issue in the Austrian literature. Growth-induced deflation, that is, the decline in some overall price index that accompanies increases in real output, is considered a non-problem.
Deflation caused by a severe monetary contraction is another matter. Strong downward pressures on prices in general put undue burdens on market mechanisms. Unless, implausibly, all prices and wages adjust instantaneously to the lower money supply, output levels will fall.
I think there is some pretty thorough analysis here of the different mechanisms between the Austrian and Keynes schools of thought on economic growth. However, all of the Austrian ideas consider that saving drives investment. This is, at least at this point in time, most certainly not the case with Bitcoin.
How then could the two posts I quoted initially be accurate? How can the market find a real interest rate, or at least an acceptable one, when so much investment opportunity is hoarded rather than lent? According to this analysis, there would be economic recession. Since Bitcoin is currently such a small market, I think that implies a lack of any avenue for real growth.
This analysis claims that this would be the fault of economic policy or a problem with the market--"dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it." Does Bitcoin have an inherent intertemporal coordination failure?
How's about some real discussion.
