Topic: Inflation and Deflation of Price and Money Supply - page 45. (Read 1456842 times)

Well, I consider the drive of economic interactions to be classified in essentially 2 categories.  Of course, the ULTIMATE drive is simply consumption (or meta-consumption).  Consumption is seen very broadly as "satisfying one's needs and desires" (included, empathic desires, such as wanting to get the impression that your kids, or poor people, or your political party, are "happy").
But there is consumption, and then there are "plans".  There is direct consumption, and indirect consumption.

You can of course acquire directly assets and services that bring you this satisfaction: that's direct consumption.  But you can also " make a plan"  to increase your perceived capacity to consume in the future.  As such, the acquisitions of assets you do in the frame of that plan are not directly interesting to you (you do not acquire them directly for their capacity to bring you satisfaction).
But in making your plans, you can be dependent on a bet on the future economic interaction of others, and then I call that speculation, or you can not be dependent on that, in which case it is not speculation.

Investment is the acquisition of assets that are used in production.  In other words, investment is buying stuff that will help make products.
Now in as much as that production is going to provide you with your consumption goods and services, that investment is not speculation.  In as much as that production is to be sold to others, it is speculation, because you are betting on other people's future desire and capacity to buy your production.

Simplistic examples:

- you buy bread because you're hungry: direct consumption.
- you buy bread and freeze it, because you know that next week the bakery is closed, and you will be able (you think) to sell your bread with some gain: speculation and not an investment.
- you buy an oven to bake bread so that you can eat that bread: investment but not speculation: you are not dependent on other people's desires to buy bread in the future for your plan to work.
- you buy an oven to bake bread to sell it: investment and speculation.

Of course you can do combinations:
In your house, you install a second shower and bathroom.  That's an investment, and it is partly a speculation.  It is a non-speculation because you're going to use that shower and bathroom (consumption), but it is also a kind of investment because you think it will increase the sales price of your house when you will sell it one day.

If you buy shares, that's an investment and speculation, of course.  The goods produced by the business you're buying the shares from are probably not meant for them to be consumed by you.  But who knows

Apart from consumption, there is hence investment and speculation, but these are not mutually exclusive classes.  There can be investment that is not speculation, speculation that is not investment, and investment that is speculation.

Now, whether we call investment that is not speculation, "indirect consumption" or whether we also call everything that is not direct consumption, indirect consumption, is open to debate

There's a form of meta-consumption, which is the satisfaction and the fun one obtains (sounds like consumption) if one is getting the impression of doing good speculation or investment.  
So this gives a direct consumption utility to assets which don't seem to have any consumption value.

People holding a huge stash of bitcoins may get a lot of pleasure from contemplating that.  As such, the holding of bitcoin (which is a purely speculative asset objectively speaking) provides pleasure (which is nothing else but the result of consumption).
Being a greedy bastard is based upon (too much) meta consumption of speculative assets.  Living a poor man's life to "be rich in the bank" is driven by meta-consumption.

I still think you are using the term too broadly.  So what is investment according to you then?  Does it exist? Or should we throw away that word?

All this is *speculating* on the bread market.

As I said, it is a stable market with very low volatility, so the risk is very small.  But it is BETTING on other people's future economic behaviour nevertheless, and to me that's the core concept in "speculation": betting on other people's future economic behaviour.

Your "estimating the behaviour of bread buying people in a different part of town" is your version of technical analysis, based upon extrapolation from the past and certain hypotheses about the general model of the bread market.

It might for instance very well be that there's no good bakery in that part of town simply because everybody there eats noodles in the morning   Then your speculative action of setting up a bakery there was a wrong bet, and your analysis of the cash flow failed.

Yes you could estimate future cash flows of you had contracts or sales data.

For example I worked for a bakery that made 20K per month.  Then I decided to model my business after theirs but in a different past of town that didn't have a good bakery.  I could estimate that within a few years my business could possibly genstate similar income

Or if I snuck behind their backs and offered the same baguette to a distributor for 20% less and stole their contract

I know that these are the standard definitions.  I consider "investment" as a special kind of speculation, namely one where creation of value through production is considered.  But I will try to explain you why both are "speculative" and why the borderline between investment and speculation is not so evident.

I know that it is strange practice at first sight to redefine words which have a standard meaning.  But my aim is to go to a better understanding of the concepts and dynamics behind it, instead of thinking in pre-defined boxes.  I do not want to modify the meaning of the words radically, but I want them to represent a core concept, and not an "agreed-upon catalog" which misses, in my opinion, the core idea somewhat.

The core defining property of "speculation" is for me: "betting on future prices of assets".  Now, given that prices are the resultant of market forces, which include offer and demand, this means betting on the future capabilities and wishes of OTHERS.  To me, the core idea of speculation is the uncertain bet on other people's economic behavior in the future.

That bet is just as well the case when you produce as when you "speculate" (in the standard sense).  When you produce, you are betting upon a sales volume and a sales price.  Your current "acquisition price" (= the investment in the production) is estimated lower than the cash flow that you will obtain from it.  When you "speculate", you do the same: you acquire assets at a current price, with the idea of selling them at a higher price later.  In both cases, there has been a kind of value creation: in the first case, it comes from production, in the second case, it comes from appreciation.  This value creation (subjective value creation!) is a bet.  You are BETTING that the price of the oven, of the flower, of the labor, .... is going to be lower than the price of the sold bread.  It might be that tomorrow, nobody is eating bread anymore.  Then you have been buying expensive assets (ovens ...) today, to sell something worthless tomorrow.  If you are buying expensive bitcoins today, to sell them at a lower price tomorrow, you have been speculating too, but you also lost.  Because you've lost the bet.

However, it is true that "speculative" assets have no consumption value, so their only value is as a price.  As such, purely "speculative" actions are a zero-sum game (because on the price level, all forms of exchange are zero-sum - it is on the subjective value level that exchange brings value creation), and there is no value beyond the price concept with speculative assets, while production is not zero-sum because there is genuine consumption value produced.  This distinguishes the particular category of "investment" from the other (in my definition) kinds of speculation.

What I call speculation is to me what is the core idea behind speculation.  I would use the right economic word for it if it existed, but I don't think it does.  How do you call, in economy, "an economic acquisition of assets that has as sole purpose to be sold, or to help sell other assets in which one is not directly interested, on the speculation that those assets will be wanted more and can be traded for more than the price to pay now for it " ?

It is what I call "speculation" in the broad sense.

Again: buying an oven to make stuff FOR YOURSELF is not a speculative act.  You could call it an investment too, but it is an indirect way to obtain consumption (namely, eating the bread that you will bake with it).  The point is that no matter what happens, you will be able to make your bread with that oven.  Even if tomorrow, nobody likes bread anymore.  Even if tomorrow all prices change.  There is no betting on other people's economic intentions and interactions in the future when you buy an oven for your own bread.

I  redefine "speculation" in this way because in my opinion, it captures the essence of the act: namely betting on other people's future economic interactions.

You cannot calculate future cash flows of your bakery.  In order to do so, you have to bet on the price of bread tomorrow.  Now, that price is pretty stable, so your bet is not a very risky one.  But it is a bet nevertheless.  The calculated future cash flow of a bakery is IN PRINCIPLE not different from any technical analysis of the future price of bitcoin.  Except for the much much lower volatility.  You are doing "technical analysis" on a horizontal line essentially with a bakery.

Investment and speculation is different.

If you but an oven to start a bakery that's an investment.  You can calculate future cash flows based on the investment.

Speculation is when you but something so you can sell it later at a higher price

Speculation is for me, the bet on being able to sell an asset for something else you're interested in.
Anything which doesn't imply pleasure from its acquisition (= consumption) is probably speculation, that is, an indirect way of trying to get pleasure from acquisition later (which is the sole and ultimate goal of any economic interaction).
Production is a kind of speculation, capital investment is a kind of speculation, .... anything of which the economic interaction doesn't serve to be used to obtain pleasure, but which has a bet on the future economic interactions of others, is to me, speculation.

If you bake bread to eat it, that's consumption.  If you bake bread to sell it, that's speculation.  If you buy an oven to be able to bake bread to eat, that's (indirect) consumption.  If you buy an oven to be able to bake bread to sell it, that's speculation.

Why ?  Because in all the speculation examples, you are betting on a future economic interaction with others.  If you buy an oven to make your own bread next week, then you are not dependent on other people's desires to obtain your pleasure (eating your bread) next week.  It is a bet on the future (that you will succeed making bread, and that you will like that bread), but that bet doesn't involve other people's economic interactions.  However, if you will bake bread for others, you're betting on the idea that they will want your bread and pay for it (a certain amount).   That's what I call "speculation": betting on other people's economic will and ability to buy your stuff against stuff you want.

Speculation, to me, is the bet on the future of other people's needs and ability to offer you something you want.

Consumption is everything you do directly and indirectly to get pleasure.  Directly, that's evident, indirectly, that is, providing yourself with the means (independent of other people's desires in the future) to satisfy your needs in the future.

This is too broad a definition for a notion or an idea, and as such this definition loses its focus and utility. As an economic term, speculation is set apart from investment, and they are to be necessarily distinguished. Would you call capital investment speculation (or rather consumption)?

To me, speculation is the bet that in the future, a certain asset you hold will be able to be traded for some value.
It is at first sight broader than your definition of speculation, but in fact it is the same, only you apply it in the case of a trader, who applies to his bet on the future, a discounted cash flow to today, and compares that to the current price.  If the current price is lower than what he estimates getting from it later, he buys the asset.  If not, he sells it if he holds some.

But the basic property of speculation is to bet on the value you will obtain from others in the future for a given asset.  Whether your purpose is to make a benefit, to cut your losses, or to "store value" is independent of it.  Betting on future exchange value is to me the core concept in "speculation".

Even production is a form of speculation: when you produce things, you make a bet that you will be able to trade it (sell it to customers) for a certain amount of value (usually in the form of money).  Investing in future production is hence also a form of speculation.

You only essentially have consumption and speculation in economic action.

That's not how most people use the word speculation.  Speculation usually means when people try to earn money from price increase being long an asset. (or price decrease in a short position)

Outside of Bitcoin and forex, most people don't "buy" money. They simply use it as medium of exchange.  I don't think it has anything to do with speculation but it needs faith in the backing.  People trusted gold notes because gold was backing the notes. They trust fiat because it's backed by future output of issuing country.  (And demand is set by legislature) But when that confidence is shaken like in Weimar Republic, the faith was broken.

Indeed.  Now, belief or confidence in the abstraction of being able to settle FUTURE debts is nothing else but...

a form of speculation !

In other words, money is really a totally speculative asset. 
Totally (that's what your "abstract" means: the money carrier has no usage value as consumption or as capital production good) - its only value resides in speculation.

It is an asset, because you can possess it.

And it has the specific feature that it is accepted very generally to settle debts.  Any asset can settle debts, on the condition that it is accepted by the creditor.  You can pay a debt in apples, you can pay a debt in labor, you can pay a debt in state bonds, you can pay a debt with stocks, but not all creditors accept that.  Money has the peculiar property to be generally accepted.  In fact, with fiat money, this is usually imposed by law ("legal tender").  You are OBLIGED to accept it.

That has to do with belief or confidence in the abstraction. 

This is why this worked so well in the Weimar republic :-)

Money is an abstraction used to settle debts.  Notes and coins are physical representations of that abstraction regardless if they are made of gold or paper.  The only reason gold was used as the material of choice is it had the desirable properties.

I recommend not using words in a question whose meanings are being debated.

In a sense, the deflation of bitcoin (ie bitcoins get lost in unrecoverable private keys), can be like stock if you accidentally burn the certificates, but even then, they're registered (bitcoins are NOT), so burned stock certificates can be replaced.  So not like stock.

Inflation of bitcoins (miners create new coins by solving blocks) is like stock, as if the issuer issues 25 new shares every ten minutes though, so a really weird stock.

Of course current events relating to BTC affect btc and, like anything that can be bought and sold, it's "run" by supply and demand.

So in a sense, are the deflation and inflation of BTC kind of like stocks?
Since it's effected by current events relating to BTC.
And also it's ran by supply and demand?

Did you just coin the phrase for yourself? Regarding monetary inflation, yes, there is such a notion meaning increase in the money supply. Actually it predates the usage of the word to express the notion of rising prices. But the word deflation is used exclusively to mean falling prices...

What you meant to say is labeled "contraction of money supply"

Oooh Yay!  Let's all be like Plato and pretend that words have objective meanings so we can argue about them without ever getting anywhere!

There are plenty of people brainwashed or dishonest enough to misuse terms in a way that makes it difficult to understand things.  An argument of what the words mean only suggests that you are a slave to an utterance using those words, and so you must get others to use them the way you understand them.  That seems kind of silly and pointless (and cultish and religious and academic).  What they mean is important if you want to understand a claim made using them, but whoever made the claim can simply replace them with other words that are simpler (and often more numerous).

Dude stop.

Again, no.

Monetary inflation = increase in the money supply.
Monerary deflation = decrease in money supply.

That's all.