Topic: If you have 100 bitcoins in your computer wallet and 100 in your MtGox account, - page 3. (Read 15429 times)

Note that RB are not fungible. They're always issued from one person to another.
Anyway, you're considering ripple a money substitute in the austrian sense, so maybe we should take it out of our example.
Let's just use regular credit transactions. I meant money substitutes as just other medium of exchange different from money, don't know if this fits with the austrian definition.
Referring to credit transactions, Gesell said this:

"We said that wares represent a demand for the medium of exchange exactly corresponding to their amount and quality. So, if there were any method of exchanging wares without employing money, the demand for money would be reduced by the amount of the wares so exchanged. This is self-evident when examined with the aid of our conception of the demand for money. Here again we may use a railway-line as an illustration. The demand for rolling stock is exactly equal to the amount of goods awaiting transport. But if a canal is built along the railway, the demand for rolling stock decreases by the amount of the goods transported by canal."

When I said inflation I meant price inflation rather than monetary inflation (what you defined as inflation). I don't care if credit it's going to be considered part of M or not. What I want to know is if prices would rise.
I'm interested in both the Austrian and the Keynesian view on this.

If we had only one country with one currency (say gold) and 100% reserve for banks by law, will private credit between partners push price inflation?

He can bid with other commodities or credit of those commodities instead of money too. The crucial difference from the point of view of money supply is whether such medium circulates or not.

Let me clarify this. The whole issue is a bit fuzzy, because there can always be cases where some particular medium or method of exchange is not accepted.

Money-substitutes (that's a term from Austrian economics) are generally accepted as a media of exchange just as if they were money proper. This is how they are defined. Therefore, they affect the money supply. For simplicity, let's assume that they are accepted at par. Whether this causes inflation depends on how inflation is defined. The definition I lean towards is the increase in moneys supply over the money proper. So yes, it would cause inflation.

That depends on how widespread the acceptance of ripple payments would be. It's also possible that two relatively large subsets formed, one that accepts ripple-bitcoins (RB) and one that does not (NB for normal Bitcoins). Ripple-bitcoins would only increase the money supply in the former subset. I think that under ceteris paribus conditions, this would eventually cause an outflow of normal bitcoins from RB to NB economy, causing a decrease in the price of BTC in NB until an equilibrium is established.

Sorry about that.

Only whatever is generally accepted as a method of payment counts as a part of M. That's what it means. As I said, it is a bit fuzzy, as nothing is universally accepted.

The population would be greater than 3 people. There's no need for money otherwise.
So no, only C accepts B IOUs. My point is that he can bid with credit instead of money.

I wasn't referring to your objection. I just want to discuss if ordinary credit (not from the banks, not widely accepted) while competing with money as a medium of exchange (when used for bidding), effectively increases M.
Maybe it just reduces Q like stuff traded through barter would also be out of the equation.
Do money substitutes create inflation?

So you think btc denominated ripple would decrease the price of each btc?

Sorry, I don't get how this relates to my question.


No, B will have to give money or goods/services to C later to settle the debt. C can't pay another person with B's IOUs.
I mean, with ripple, he can, but not any person, only people who also trust B.

Burt,

I think in retrospect that some of my claims were unfortunate and inaccurate. I reflected that in the latest edit of the wiki page. Please review.

Atheros,

you write on the wiki page:

I have said multiple times that I do not claim that FRB with Bitcoin is impossible. On the contrary, I provided several historical examples of bitcoin FRB. Why do you keep misrepresenting my claim?

I don't have time to respond to all of that right now (it is Friday night). But I can shortly. I just wanted to say that you are certainly free to leave any Austrian quotes or references in as they help form the argument from your viewpoint.

Atheros, I find it odd how you are presenting a simplification that ignores my point as as a refutation.

I really doubt that Keynesianism, with its focus on spending, liquidity-preference and marginal efficiency of capital, would support your claims. While I am not an expert in Keynesianism, this is what Keynes says in The General Theory of Employment, Interest and Money:

(I interpret this as liquidity being the determining factor for money)

(I interpret this as Keynes not considering deposits a part of the "quantity of money", i.e. what we call money supply).

(again, this seems to indicate that liquidity is a determining factor)

Keynes is particularly difficult to read, so I could very well be misinterpreting him. But I still don't see how he supports your position.

Furthermore, in the only link you provide yourself on the wiki article, says:

Nevertheless, since I'm not an adherent of keynesianism, I don't care much if Atheros gets that interpretation right or wrong. I have no reason to object to people presenting whatever they want as a Keynesian viewpoint. I'll however rewrite the Austrian section to eliminate non-Austrian influences, add references and explain money supply definition from the Austrian perspective.

As a side remark, I find it funny how, allegedly, both Austrians and Keynesians see Bitcoin as doing exactly what they want, even though these goals are opposed.

I cite sources and respond to his claims and questions. Then 24 hours go by and he doesn't remember, so he complains that I'm not citing sources and responding to his claims.

I've created this page where we can both explain. Hopefully we can keep the page at a reasonable length.
https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin

Just one more anecdote to support my position:

http://www.youtube.com/watch?v=rrSETU0p9Bs&feature=player_detailpage#t=622s

Burt, feel free to arrange an arbiter. I don't think I can affect Atheros' opinion in any way at the moment.

Ok.

This depends on how likely this debt instrument is being accepted by a typical person in that group as a method of payment.

I think time frame is very important in any kind of precise calculation of money supply and its flow, in any given time, there is only one fixed amount of money in the whole society

Yes, the world is complex. But let's just assume for the shake of simplicity that there's only one country and one currency.

In my exmple only the baker trusts B, A doesn't. So the IOU is only from B to C (baker). It is not transferable.
My point is that credit (no matter if it's not from banks, if it is not quasi fungible, transferable) can be used as a medium of exchange.
For example, with ripple, ordinary credit (as opposed to the privileged credit commercial banks have nowadays) can be used as a means of exchange.


I didn't mean that there's inflation as a variable of the problem. That was actually the question.
Is ordinary credit between private parties equivalent to an increase in M ?

@bwagner I didn't get to your first post. Sorry for entering without reading at least the first page completely, but I got lazy when I saw there were 6 pages. I just read precisely until the cool graph with different reserve ratios. Shame on me.


Can we check this conclusion again for the case of credit going from a supplier to its customers?
In this case, although the IOU is not generally accepted later, the credit is participating in a transaction of real products and therefore it is directly competing with money in its role of tool for exchange.

Why does every thread in this forum have to deteriorate into people calling each other trolls?  I have been enjoining this thread up to this point because it is one of the more civil threads I have participated in so please keep it that way.  You two shake hands and cut the crap and let's prove that we can have a clean thread for once.

That was one of my first posts to this thread.  If you read on you will find that I have learned how to make finer distinctions of definition and would now say that lending does not increase the money supply until the debt instruments themselves are generally accepted as payment for goods and services.

I hope I can explain how it works. Money supply calculation must always refer to a group of people that it applies to. This is what the terms GPD and money velocity also refer to. Nowadays, this roughly corresponds to countries, which have national currencies. In addition to that, people also sometimes accept debt claims instead of the "normal" money. There is an element of fuzziness here, typically, noone accepts all forms of money all the times. Some shops don't accepts credit cards. One usually cannot pay the taxes in cash. Shops close to country borders often accept both country's currencies. As long as people's preferences with respect to money are different, the money supply cannot be measured with complete accuracy. What we are stuck with is the general acceptance, i.e. what a typical person does.

In your example, it could be argued that from the perspective of the three people involved, the IOU might be a part of money supply, if A and B trust each other and A would accept B's IOU in exchange. From the point of view of a more meaningful scope of economy, this IOU probably would not be accepted by a significant proportion of people, most of whom do not know B. So it probably would not be a part of money supply.

The problem with the equation you mention is that it includes inflation, and that shifts the debate one step too far ahead. Just merge the inflation and real GDP into nominal GDP and it's fine.

I think FRB just works like insurance, most of the time banks can loan out the deposited money without huge risk, due to the risk is diversified between different saving accounts. But if they fully utilize that credit, and a social or economy crisis come, most of the people will have to withdraw money to pass the difficult time, then banks will get hit badly

And, I think like government debt, it is always the first group of people entered the system benefit the most. The current banking system were mostly established after the world war II, at that time very few people were withdraw money from the system, they were keep accumulating through 20th century and now they are going to
withdraw, and anyone who joined this system today will have to pay older generation's pension, thus impossible to accumulate new wealth in bank's system

A related question...
Let's generalize from bank's credit to any form of credit.
When denominated in a given currency, does it cause inflation in that currency?
For example.
A and B go to the bakery.
A brings $1 but B doesn't.
There's only one loaf left and the price is 70 cents
A says, "here's the money, I'll take it".
But the baker trusts B and accepts his credit.
B says, "I'll give you 75 cents, next week"
B signs a paper IOU, gives it to the baker and takes the last loaf of bread.

Since credit can be used to bid in some cases, can it be counted as part of the money supply?
I specifically mean count as part of M in the equation of exchange (MV = PQ).

FRB = fractional reserve banking, the origin of my disagreement with Atheros.

Actually, now that I googled about the relationship betwen FRB and islamic law, I came across this:
'The New Straits Times' Kuala Lumpur during August 1997
This article makes an even stronger point than me, it claims that the ability to lend is a consequence of the acceptance of the debt claims as a means of payment. So even if my reasoning for the conditions under which FRB expands the money supply was wrong, according to this article, under the conditions stipulated (not accepted as a method of payment) it would not even come to existence. Personally, I don't think they are right, rather than FRB being impossible, it would merely be less likely, but you can clearly see that the line of reasoning I'm taking is widespread, rather than a fringe position of someone who insists on creating his own economic theory.

Oh, yes. I forgot that one.
Sorry, I didn't read your point, just the first page of coments or so.
Islamic law doesn't permit interest, but what's FRB ?