Bitcoin Forum

Isn't currency better spent than saved and hoarded?

No, this is a misconception that comes from the broken window fallacy.

Consumption is not good. If you purely consume something, it's no better than if you destroyed it. It's lost. If consumption was good, then someone who went around breaking windows would stimulate the economy because people would have to buy windows to replace the broken ones.

It is *production* that builds an economy. Production should be rewarded.

When you save money, you produce but do not consume. That's great. You deposit but do not withdraw, loaning everyone else use of the benefits of your labor. Deferred consumption should be rewarded as it's a form of investment.

+1

So often forgotten...

I noticed your avatar text, but saving bitcoins as producing something? I don't think so.

I think he was talking about lending bitcoins, or at least in that context.

Whooa.  Highly controversial question.


Spending isn't bad.  Spending more than income, debt-based consumerism, contributed to the Great Depression and the recent recession.

If debt-based consumerism is the sleeping dragon Bitcoin is a pretty nice utility to have when roasted by bad dragon breath.


Here's the really worrying thing about deflation.  It's when the rich stop spending.  As it stands currently it's more profitable, and popular, to invest in the financial sector in interesting securities than it is to invest directly in a business.  If it became possible to have a return comparable to investing in a business or security just by holding currency guess what the rich will do.

On the other hand if a deflationary model is used and we are worried about money velocity an interesting way to counteract this would be more aggressive tax policy towards the rich especially for stagnant pools of money.


I'm not completely sure I'm happy with a system where our value store is steadily depreciating and by that fact we are forced to constantly push the envelope of consumerism.

How do you get the bitcoins you save without producing something? If "producing" gives you trouble, think of it is deferring consumption instead. You could have bought a car and blew it up -- you had every right to destroy a car with those bitcoins. But instead you let someone else use that car. You didn't take what you were entitled to. And that leaves more for everybody else. (Not that it's a zero sum game, of course. If you did produce to get those bitcoins, that's where you added to the sum.)

No - deferred consumption should be encouraged, but not rewarded, because my friends and I want to enjoy the benefits of plundering that excess production.

If a buch of people don't produce more than they ultimately consume how else is a ruling class going to live like royalty without ever producing anything at all?

No that would be simply not buying a car. A rock accomplishes the same thing, it is not buying cars.
In respect to the economy nothing can replace the part of production, not even as a metaphor.

A rock can hold bitcoins though if I engrave a private key in it.  (scnr)

Bingo.  8)

How did anyone else get those bitcoins if nobody bought what they were producing? It's mostly investing that expands the economy, not consumption or saving/hoarding/whatever you call it. When most people just want to save the currency gets very valuable but the economy stops. This is unfortunately what's happening to Bitcoin.

If I didn't buy it there would just be one less car, because people generally avoid producing things that can't be sold. If someone else wanted a car too they would just make another one and earn even more money.

Odd question since savers pay the subsidy to miners via Bitcoin's inflation.

There is no problem with a currency that is fixed in amount like bitcoin. If it gets more valuable then it merely shows time preference for cash balances due to the lack of attractive investment opporotunities in capital goods.

Raise the Internal Rate of Return from capital goods and then demand for cash will decline as demand for capital goods increases.

For optimal capital allocation the market should determine the interest rate on cash balances instead of the State because of the State's economic calculation problem.

Seriously, you should go listen to PraxGirl on Capital (http://www.youtube.com/watch?v=8OWEO4Rdag4) and give her a bitcoin tip.

+1 -- insightful. I feel rather stupid for not having realized this before. The implications are very widespread...it's like a cancer intermingled throughout civilization, ultimately causing us significant harm (I mean, we've even messed with the climate with our monetary subsidization of consumption).

There is nothing worse than subsidized consumption. Bitcoin is better because it subsidizes production.

Thank you.

It's not an either-or.  100% of all Bitcoins in existence are saved all the time.   100% of all USD in existence are saved all the time.  The only difference is how fast they change the hands of savers.

There is no such thing as an arbitrary t="amount of time bitcoins stay in your wallet", below which it's magically not saving anymore.

A currency that isn't saved is a currency where t=0 which is clearly impossible.

You could argue that the rate at which money changes hands is lower for BTC, but I don't see why that is a bad thing.

Bitcoin doesn't subsidize (long term) saving, all it does is not penalize it.

Everyone has their own utility for deferred consumption. Inflation distorts this and takes away people's choice to defer consumption.  Less choice = everyone is worse off.

By living very shortly before starving to death/being hanged by an angry mob?

(I know its a joke  ;))

No it does not; anyone can pick up a rock, this action produces nothing.
If you picked up a bunch of rocks that would have been hard to do, but your rock pile would still be worthless simply due to the cost of moving it from you to the seller of the car.

Compare to Bitcoin, to earn BTC you need to work, perhaps building said car - something valuable. If you do not buy the car you made there is more competition to sell cars cheaply and someone somewhere gets a car they would not otherwise have had.

Once YOU need a car (or something else) your BTC are easily transferred and if most are saving like you, you will also pay a cheaper price.


All of this is backed up by the fact that the BTC economy is growing; helping businessmen transfer wealth and new BTC businesses spring into existence every week it seems.

There may still be a BTC economy financial crisis in the future if people invest in something like a housing bubble (like both today AND the great depression!). This is neither caused by inflation nor deflation, but simply bad allocation of human resources.

You cannot avoid this, without experimenting, no one can really know what a good investment is.

Well observed Timo.

If velocity of money is lower than needed to lubricate trade, then people will start settling bills by other means, e.g. trade of debt and alternate currencies.

I think what you're missing is what happens when the money supply dynamics are both WELL KNOWN and WELL DEFINED. Such is the case with bitcoin, but NOTHING else.

Note that if an economy switches from inflationary to deflationary, yeah, people will stop spending as much because suddenly they can retain and even grow purchasing power by leaving money sitting around, and they don't know if the deflation is going to get more or less extreme, etc.

But what if the money supply dynamics were perfectly defined and everyone knew what they were? Enterprising people would still be able to put labor and capital together to yield something that's worth more than the sum of the price of each. Thus, business would still happen, and investors would still invest.

It's the macro uncertainty that makes people hoard in a deflationary environment. If a deflationary money supply is the economic framework on which the economy is built, and it CANNOT BE CHANGED, and everyone knows how it works, normal activity simply takes place against that backdrop and the nominal price/compensation numbers just change.

Again, the key is the money supply dynamics being well defined and well known. I think people miss this point so often because bitcoin is the only money supply system ever proposed that truly offers perfect information.

True. I guess the point is that consumption will happen no matter what; we can't survive without consuming. Investing, however, will not necessarily occur. Therefore one could argue that encouraging investment is more important than encouraging consumption.

Hardly seems apparent to me that under-investing is the standard mistake. From looking around here I'd say people need to be encouraged to cut it out (if you were into meddling that is).

But the idea that people need to be encouraged to consume seems like an unfunny joke.

Right, but it's important to remember that saving is a form of investment. When you save money, you have invested whatever productivity you contributed in order to get the money you saved. What that productivity produced earns interest in the economy as it makes possible further production.

For example, say I work at an auto factory. I help make cars. My productivity produces cars. Say I save some of the money that I earned. I have invested in the form of those cars that I made that otherwise wouldn't get made that are now earning interest as people use those cars to do work and produce goods. My income has been invested in the economy as I save that money and it earns interest because it produces goods that increase the demand for the money I saved. Deflation is the interest my productivity earns.

With a sensible monetary system, saving is a form of investing. Deflation is interest on invested productivity.

I agree all around. It's stupid to encourage people to consume when immediate consumption isn't needed. It's flat out idiotic to discourage saving.

+1000

People underestimate the importance of this.

Knowledge and wisdom!  Jr Member is extremely lucky to have such an erudite, learned Economics 101 tutor. 

It's a pleasure watching you gently correct and educate the board's Keynesians and Marxists.  Under your guidance, they'll come around.

It depends on the individual. If a person's income is derived directly or indirectly from the exploitation of others they tend to remain deliberately obtuse when it comes to certain basic facts of economics.

BTW to discuss deflation there is a dedicated thread https://bitcointalk.org/index.php?topic=11627.0


It would be a lucky rock clearly. Other people first need to produce something and sell it to earn bitcoins.


If it is meant for bitcoins as a result of deflation, then the velocity of money would not decrease (because there would simply be a high demand for bitcoins), and people will not start settling bills by other means.

What's wrong with deflation and bitcoins being "too valuable" anyway? He who wants to starve and be "rich" will hold bitcoins, and he who wants to eat and be "poor" will buy some bread (from a farmer who is happy to be paid in valuable bitcoins). In another words, the market will find an equilibrium.

During hyperinflation in Zimbabwe people would get paid for their work and then run as fast as they could to the exchange to trade it for food, because if they walked there the prices would be higher. Inflation was literally happening by the minute.

During a 3 year period they dropped 25 zeros from their bill and still ended up issuing 100 trillion dollar bills. As your "t" approaches zero and people seek to dispose of the currency as quickly as possible the currency itself collapses and you end up with piles of it littering the streets.

I would say that the desire of a population to save money is evidence of strength in the currency.

As the saying goes, it's hard for a man to understand an argument when his livelihood depends on not understanding it.

Or he who wants to build an empire can loan the money, earn lots of interest, then cause deflationary swings by withholding money from the market (credit crisis) and benefit in the same, sadistic way that banks do now by profiting handsomely off of the bankruptcy of others.

This is why entities looking for financing shop around, and why General Finance Corp (GFC) was formed to help them shop around. Already many operations that were initially started up using 1%/day loans from General Mining Corp (GMC) and General Retirement Funds (GRF) have been refinanced at half that rate, in DeVCoins, thanks to General Financial Corp, and also several obtained refinancing from the Brits, denominated in UKB (United Kingdom Britcoin), the Canucks (denominated in Canadian Digital Notes) or the (Galactic) United Nations (denominated in United Nations Scrip).

The more altchains the better, to provide all the more options for those seeking financing outside the sandboxes of Old Money factions/groups...

-MarkM-

Bitcoin doesn't subsidize saving.  In the long run, Bitcoin is neutral with respect to saving.  And, in the short term, Bitcoin subsidizes consumption (mining).

Your arguments are all based around the fact that people save *more* coins/money. You assume that if I have 20 BTC today, I will put in effort (and thus produce something) to acquire 21 BTC tomorrow.
However, that is not what is happening with bitcoin. The problem with a deflationary currency is that I don't actually need to have MORE of it to be more wealthy. Just having the SAME amount is enough for that.
Since the currency deflates, my 20 coins will be worth more tomorrow *anyway*, so I'd better not spend it and I don't need to bother getting more either. Just sit on my coins and watch my wealth grow.

By not spending them, I am not encouraging others to actually produce anything to gain more coins. Someone willing to produce something for BTC quickly discovers that all his potential customers are postponing their purchase, because for the same amount of BTC they can by X-times more of the product in a week from now.
The only thing worth producing in bitcoin is: more bitcoins. Which is not really production, but merely burning energy. Someone élses energy if you get lucky...

You would spend them if there was something you wanted or needed enough. Most of what we all spend our money on is dumb honestly. Why would an economy need to incentivize people to spend? Is it possible to set one up that does not do this? Because it would lead to better outcomes if people saved more and wasted less in my judgement.

There isn't just "not spending" and "spending" everyone has different willingnesses and the tighter you are the better shit people are going to have to offer you. It incentivizes them more the tighter you are because you aren't some magic ascetic who doesn't want a spaceship, better health, amazing palaces, etc. And if you are I still don't care, I'll build palaces for other people.

This is just time preference semantics though. Spend now or spend later, what difference does it really make? jtimon et al make some pretty decent arguments for their demurrage currency where holding currency is actually actively discouraged by the demurrage fee, and thus potentially reducing wasteful activities by investors trying to turn a quick profit now rather than thinking about the long-term. https://bitcointalk.org/index.php?topic=89843.0

Unfortunately, there is little incentive for anyone to actually use a currency with demurrage when there are other, non-demurraging currencies available. And in fact I don't think a demurrage currency can ever be successful unless it exists in a vacuum, e.g. by government mandate. Anyone looking for the quick profit now will just take bitcoins or something else and refuse freicoins.

There is no incentive for people to start using such a currency. The only way to make people get it is by forcing them to. Tricking p

The purpose of this seems to be to spread wealth to the "laborers" by incentivizing those with money available to save into consuming more than they otherwise would. The laborers need to have access to fulfilling, goal-oriented jobs. That is the solution to that problem, not a currency noone has any incentive use that encourages people to consume and pollute.

Spend now or spend later, what difference does it really make?
People make better decisions after considering things from a number of different perspectives.

Another aspect of demurrage currencies is that they encourage loans of little to no interest rates. So borrowers may prefer such a currency, hence, Freicoin *might* find its niche.

You have to look at and understand all aspects of a currency before deciding on what you think will happen. Investment has always been the tool that takes underutilized wealth and puts it to use. Whether or not it is put to good use may strongly depend on how the currency functions. Investors in a demurrage currency will look for long-term, renewable investing rather than short-term, resource dwindling gains. When gains are likely to be realized, investors will have to be very conscious about what to do with those gains and must realize that overproduction is only going to lead to a larger loss due to demurrage if more investment cannot be quickly found. So rather than promoting overproduction (and therefore overconsumption), investors are forced to stop and think about the diminishing returns that comes with a currency that has demurrage, or they will quickly find themselves penniless.

But yes, no one is going to use a currency with demurrage when there are alternatives, imo.

Even if this were true (it is a hasty generalization (http://en.wikipedia.org/wiki/Hasty_generalization)), the expected outcome on encouraging a high time preference is that either: 1) investment dwindles and there are very few "goal-oriented jobs" and people without money suffer (though this may be somewhat specific to bitcoin and the lack for need of a banking system); or 2) consumption rates will eventually equalize and it will just be older people that consume more now that money will have no meaning sooner rather than later.

If the value of money stayed relatively stable with some inherent risk of loss due to investment (a problem "avoided" by things like the FDIC), investing/saving/consuming could potentially equalize much quicker to something of a steady state. Overproduction/over-investment would be much riskier without governments/banks being able to print money.

Many of the problems attributed to fiat currencies that bitcoin supposedly solves are really just problems of government mismanagement, and not something that bitcoin inherently solves. Over-investment leads to over-production/consumption, but this is encouraged by inflating currency and government controls. Do you really think that a deflating currency is going to support a steady state, or will it support under-investment and under-production? Why utilize money to produce when the act of doing so will likely devalue it (more in circulation) and there is risk, when merely holding the currency provides a near-guaranteed return? Investors are going to have quite the pickle.

Here is the fundamental flaw of bitcoins economic model in one sentence:

Spending because of a need is fundamentally less than because of a want.
(I would be surprised if this gets any insightful answers)

I struck out your baseless assertion.  Your one sentence is trivially true, but being merely a roundabout definition of "want" and "need", it is devoid of other content.  It certainly does not follow from that sentence that more spending is better, nor that the lack of spending is evidence of a flaw in anything.  Nor does it say anything about what the real level of spending is or should be.

Bitcoin has no mechanism to implement demising returns on saving.

Every economy has that:
Gold: Physical wear, increased storage space higher cost of guarding.
Fiat money: Inflation
Barter economy: Depreciation of goods
IOU trust network alas ripple: Increased counterparty risk.

With bitcoin the fundamentally best strategy to reach highest economical authority is to never spend them ever, which is obviously not feasible.
I don't speak out against the fixed supply, but it needs some mechanism to encourage spending for luxury like demurrage for example.
A concrete scenario for many bitcoiners is to save them for cases where they are either overvalued (from their personal perspective) or to save them as an insurance against economic turmoil while at the same time doing nothing to prevent that scenario from occurring.

The main reason I am opposed here is the self interest of bitcoin hoarders to justify their own behavior and keep up the public perception of bitcoin.

Somehow I doubt that's your actual motive.

People are attracted to bitcoin precisely because it has no mechanism to implement demising returns on saving.

I suspect you're more interesting preventing the spread of the idea that it's possible to have a currency which is not intentionally devalued because of how popular this idea is one people hear about it. Bob forbid that people could store their deferred consumption themselves instead of losing large parts of it to rent-seeking assholes.

go for it

http://inalienablerights.files.wordpress.com/2009/06/strawman21.jpg

It doesn't matter, it's production that builds the economy, not spending. If we can get the same production with less spending, that's better. So just encouraging spending is not what you want.

No.

You simply can't get the same amount of production with less spending. Modern production is exclusively driven by demand, overproduction more or less is a thing of the past.

If you can make a car efficiently enough to sell it for $15,000, you can make that same car and sell it for $30,000. The reverse is, of course, not always true. But it's not always false either.

The concern is not "overproduction" but insane production. For example, just prior to the mortgage crisis, the economy was insanely overproducing luxury goods. This was largely because the overvaluation of homes was stimulating spending. This spending was bad spending and the economy still hasn't recovered from the harm this overspending did. The economy should not have diverted scarce resources to producing luxury goods that people incorrectly believed they could afford.

The amount of spending doesn't so much determine how much production takes place in terms of how much human effort is expended. People who need jobs will work whether they're making 100" plasma TVs or running a soup kitchen.

We can increase spending dramatically by paying people a million dollars a day to dig trenches with teaspoons. But we only want to encourage *sensible* spending.

lol

No that was because the spending was based on debt and the currency was based on debt.
Don't ever apply the idiocracies of the fiat economy to anything else except itself.  :D

I think it's time for this:

http://art.ngfiles.com/images/47/archon68_do-not-feed-the-troll.jpg

I am not trolling, but feel free to push that orange ignore button maybe there are enough ignorant asshats out there so I can get into the red territory.

Definitely time for this:
https://images.encyclopediadramatica.se/9/9f/Hatred_Dost_Prevail.png

Not true. The spending was not based on debt, the spending was based on expected future revenue from selling a house. That would exist in any economy.

I try not to. If you can show why that makes a difference, please do. Spending is not inherently good, more spending can change the type of goods an economy produces such that it's producing short-term consumed goods rather than long-term investment goods. That can be bad.

Ok, corrected it was partly based on debt because at some point the expected return was higher than the interest payments.


Only overextended spending is bad. The reason why overextended spending is so bad in the fiat economy is because of debt and the tendency for the controlling entities to issue more currency the more debt there is and in order to pay off debt. This can simply not happen in another system.

I am not talking about spending strictly from a consumer standpoint but from a "prosumer" standpoint. For a money system to support such an economy it is beneficial to encourage spending.
It is my belief that if bitcoin were to implement demurrage, even on a voluntary basis economic growth would shoot through the roof. A mandatory system would require too drastic changes to patch it in now but if bitcoin misses this train another cryptocurrency which has this feature from the start will overtake it in my opinion.

How do you produce without investment? It is investment, after all, that is the problem that the OP has brought up. Saving is clearly not investing by any stretch of the imagination when it comes to bitcoin. In a typical fiat economy, saving is investing because banks are putting your money into investments. Here, that is not the case. It is not encouraging spending that we're looking for, it is encouraging investment. If investments are sane (which they are not when the people who control money printing leverage themselves a thousand times over), then production and spending will follow in a similar, sane manner.

Investment - Production - Consumption

I mentioned in the other thread where I was rabidly attacked by Realpra that regardless of consumer debt, government debt exists and forces us to work harder and longer and produce more than necessary because we are tied down by that debt, regardless if we have any of our own debt. It is a vicious circle that can only be escaped by getting rid of the notion of a currency based out of debt. So yes, bitcoin solves that problem--somewhat. Lopsided distribution based on luck still leaves an awful lot to be desired. The great majority of bitcoins can only enter the economy via debt. This is the same problem with gold and goldsmiths and moneylenders and what have you. Rather than any particular economic merit, it is only the luck of the mine that makes you rich. It is a silly concept that spawned thousands of years of servitude, and one that has no business being echoed by something touted as the future of money.

Yes, saving is investment with Bitcoin. When you save Bitcoins, you've investedwhatever productivity you exchanged for the Bitcoins you saved.

Yes, it is. Except it's just not the banks that do it. If I work at a factory, I produce value. That is value that I "deposit" into the economy. I am fully entitled to "withdraw" based on that production and destroy/consume some of the value I created. But if I save, instead of withdrawing that value, I leave it earning interest in the economy.

The most useful and beneficial investment is usually to labor to produce exactly what people most want without consuming any of the value you produced. That is, saving.

I am not going to argue with the inane definition of investment that you've created to suit your own purposes. If you want to treat bitcoin itself as an investment, fine, but then it is a currency-like commodity, not a currency. And then you have the same issues of lack of production that a lack of putting money to use will incur.

Earning interest for doing nothing is exactly what banks do when they print money, but you want to suck on that same teat because you believe you're entitled and you must rationalize this in some other way.

It is astonishing to me that you would consider earning money to be "doing nothing" but destroying goods to be something worth encouraging.

Keynes for the win :)

+1, this world is slowly getting out of hand...

Are you hard of reading? I said "earning interest for doing nothing", that is quite different from what you claimed I said.

And how does saving with the intent to destroy more goods later than less goods now solve anything? Hint: it doesn't. You are just trying to rationalize again. "lol maybe if i leave off half the equation he won't notice!"

It does.

Delaying consumption is actually how economic progress is made.

If you're quoting Rostow or something unclescrooge, you're quite misguided. Big surprise there.

http://en.wikipedia.org/wiki/Rostow's_stages_of_growth


Explain to me how non-productive capital pursues innovation or accelerates the rate of growth in the economy. Or are we just going to say that capital sitting in a wallet accruing deflationary interest at little to no risk is productive again? Innovative, even?

Alternatively, please link me to your sources or the book you wrote explaining your statement.

Money is not production, it's representation of production.

If I work for 100 000 dollars and let then this dollars in a mattress (or actually burn them), what really happened is that I produced something real and useful for others, while not consuming what I produced. Which then lead, all things else been equal, to lower prices of good for others > economic progress.

oh back to proselytizing again, gotcha

Put another way, money is not wealth.  Money is what you use to purchase wealth.

it's also a complete non sequitur to the discussion, but maybe if it's bolded and in a bigger font it will mean something more

yes it is central to the discussion. Letting money sit in a wallet is not the same as letting real capital (let's say a machine) in a garage.

You earn the interest for earning money. "Saving" means earning money.

Your future intent does not affect the consequences of your actions.

Ok.  It is already bold, I can't make it bolder.  How about red?


Your posts make it clear that you do not understand this distinction.  Here is a recent example:


Capital does not sit in wallets.

You are just a font of amazing new definitions. I wish I could redefine everything to fit my point of view, it would make life so much easier.

No, but the intent of the economy as a whole does.

Sorry that should say low time preference, but the point remains: interest rates will be very high and there will be little economic growth if everyone has a low time preference (read Menger! an Austrian!). Unless of course you have some solution for how the everyman will acquire bitcoins when half of them will have been mined in a few months?

I will give you the distinction between capital and money; however, the point remains that there is little incentive for money to become capital, and thus little economic growth. You are the one that is claiming that delaying consumption spurs economic growth, but that has to be traded off the form of high-risk, innovative pursuits according to Rostow, whom you quoted almost verbatim.

Trade.

In the currency that pays you for not trading. GREAT ANSWER

So even if you're starving you won't buy food but you'll keep your money because it doesn't lose value with time passing?

Flip it around.  The dollar is inflationary.  Every time you sell something, you could have gotten more dollars by waiting until tomorrow.

No, I'll buy food with the currency I actually have, because everyone will have a choice to either use the currency that sucks but is available, or the currency-like commodity that has a small set of rabid supporters who don't want to invest their money (or claim that they're investing in saving) and claim that consumption is teh debil.

Whatever though folks, enough of this revolving door of narrow arguments and inability to see bigger pictures, et al. Enjoy coveting your pet rocks.

Sorry dude, this is a hotbed of rabid anti-Keynesians.  We get it that you prefer that your money inflate, we simply disagree, and we have our reasons.  You have a high bar to pass if you want to convince us, and reductio ad absurdum isn't going to be enough.

But what you don't get is that inflation does not necessarily equal Keynes, just like deflation does not necessarily equal Austrian. And the god awful majority of you didn't know your ass from Austrian economics until you heard of bitcoin.

What you don't get (or are deliberately ignoring) is that people don't want their savings to devalue over time. You are loudly arguing that Bitcoin needs to be "fixed" to stop offering people what they want because people shouldn't want it.

A lot of vested interests are doing very well right now because everybody else has limited choices with regards to storing deferred consumption so I'm not surprised to see people desperately trying to hamper the idea that alternatives are possible from spreading.

Kjj, that is a beautiful point. I hadn't even thought of this!

Every "deflationist"/"austrian economist"/what-ever should memorize that one.

In both scenarios, inflation/deflation, what pays best is simply the highest possible interest rate at the lowest risk/investment possible.

Only in deflationary economies no government gets to manipulate the market.


As for Etlase2 I think he is an economist student or something, I just argued with him in another thread which derailed in similar fashion as this one.
Pity him and the other economists.

Meh.  Bitcoin was designed to gradually stop inflating.  As a result, it attracts the interest of people that don't like inflation, people that don't like seeing their savings erode over time.

I personally don't believe any sort of economist much more than I believe witch doctors. * At least Austrians tend to promote smaller government.

* Except Steve Keen, to some extent.  He does some really good work of the "trying to understand what is happening" variety, which I sadly see as very lacking among economists in general.

I am not ignoring the fact that people don't want their savings to devalue, it is not the topic of this thread. Inflation doesn't inherently cause savings to devalue--unfair, unequitably distributed inflation does. I am also not arguing that bitcoin needs to be fixed, I am arguing that it is flawed. It is flawed in a very similar way to keynesian fiat currency--it has a mechanism for unfair, unproductive profit that is ripe for abuse. This is how people become slaves to debt or to an elite. You can talk all you want about how bitcoin will become the next gold or whatever and I won't disagree that the possibility exists, but I will vehemently argue against anyone who thinks bitcoin will become a true, alternative currency that will be any better than the ones we currently have.

Well said and agreed.

It has nothing to do with definitions. Saving money consists of earning it and then not doing anything else with it.

Define "equitable distribution."


Holding Bitcoins doesn't guarantee profit.  It is a risky act that helps to stabilize the currency, promote trade, and increase the value of the economy.  The "profit" gained by doing so (or loss perhaps) can be considered the interest earned by the original resources used to purchase the Bitcoins to begin with, invested in the Bitcoin economy as a whole.


People become slaves to debt by being born into poverty.  Bitcoin doesn't cause this, and has no obligation to prevent it.  It is, in fact, encouraged by the "democratic" per capita demurrage schemes you are promoting, which subsidize the creation of consumers at the expense of savers.

You are free to start an altchain at any time.  You are not a slave to Bitcoin.

@Coincomm, Will you STFU already ?

@People, stop reply to one line brainfart.

Well, if we want to just play a game: if the money supply is M and then everyone's money doubles to M*2, then inflation has had absolutely no effect other than forcing everyone to update pricing.
If governments said "there will be X dollars created for each citizen" and paid out government employees in new money each year up to the amount of the increase in population (and the rest was brought in by taxes--and FRB was outlawed), then inflation would have virtually no effect on pricing or saving. Or hell, even if the government just created the money period, even if they create inflation, the new money goes to the bottom/middle of the chain (gov't employees and contractors), rather than supporting the trickle down reagonomics that has worked oh so well, we'd actually have something closer to keynesian economics I think. When the lower rungs get money, they spend it (or invest via saving) and the upper rungs benefit by being the employers and producers, when the upper rungs get money, they get million dollar bonuses and such.

I don't deny that there are leeches and there are producers in a society, and producers absolutely should be rewarded, but they will be rewarded without having the economic system simply slap them in the face with free money, as the current system provides and is the reality of why everyone on these boards thinks inflation is a terrible idea. Also because of the FDIC, and now the bank bailouts, and every other attempt that governments have made to intervene, the bankers are well aware that they can do whatever-the-fuck-they-please with this government given gift of creating money and they have no real risk. The middle class takes the risk by being forced to invest all of their money at the behest of bankers or render it effectively worthless in 10 or 15 years.

What a proper system should do is keep a relatively stable value of money so that the middle class can hedge their bets with both non-invested savings as well as invested savings, looking to achieve the "steady state" where overproduction and consumption is NOT encouraged because of the dwindling value of the currency. Because of how sick and twisted things have gotten, the bankers ARE the producers. Just look at all the megacorps that exist nowadays. Producing and banking are one in the same. Controlled by the same people. This is a terrible thing for society.

Investing would do a hell of a lot more to stabilize a currency than holding money. Money needs to circulate to be useful. I fail to see how holding money promotes trade; this is the exact opposite of what any bit of common sense would suggest. And it doesn't increase the value of the economy, it artificially increases the market cap on the exchange. This is not the same thing. And this was incredibly evident when all it took was maybe 100k BTC to take the price from $32 to $10. You mention the word interest again as if something useful was done, but nothing was. Again this is the same mechanism that banks use with FRB. Doing nothing to get something. That you think this is any different is the typical bitcoiner mentality and it is wrong. The only risk you take by holding BTC is that people get sick of this game, not any real investment risk. It is a stock, but no corporation that produces anything is behind this stock. Stocks don't do anything useful after they have purchased equity in a company (except perhaps give you voting power, but that is irrelevant here), and bitcoin doesn't even have that.

People are born into poverty because we haven't figured out how to stop those with the gold to stop stealing our productivity from us. For all the advancements we've made, we are still only one step away from a feudalist society, and those in power want to keep it that way. Just like those with lots of bitcoins have no issues with earning non-productive interest, because they'd rather be the ones with gold than the ones actually fixing the problem. Your third sentence is a total strawman, so I won't even bother with it.

I am well aware of this. If I were an honest person, which I try to be, it would behoove me to explain to people why bitcoin is not the answer and to shoot down those that unintentionally or intentionally try to promote a system that is dishonest, which I believe it to be. Can you fault me for that, even if you disagree? I am the one wasting time with absolutely no potential beneficial repercussions for myself here. I don't want any more slaves.

wtf?

Are you really arguing for labor theory of value?

Doing nothing is quite productive sometimes.  Thanks to decades of Keynesian mal-investment, now is one of them.  Your problem seems to be that you are looking at the price of Bitcoins going up and you see the Bitcoin economy "doing nothing" and you mistakenly assume that this is somehow a fraud.  When, in reality, Bitcoin is going up in value because doing nothing is actually more productive than what most fiat currency economies are doing right now.

wtf wtf? Why are you here if you think that there isn't something wrong with fiat? What is it that you think is wrong with it? Do the trace amounts of cocaine on bills bother you immensely? Can you manage to form complete sentences without help?

An atrociously asinine argument. But I'd expect nothing less from someone who will quote one sentence and attack that instead of comprehending the bigger picture. You don't get it, won't get it, refuse to get it because it's not in your best interest and doesn't fit the little picture of the world that you've painted for yourself.

Gold is not a fiat currency. ;)

Ok, so your issue is with 1) crony-capitalism...

And:


2) what you assert is not an equitable initial-distribution mechanism in bitcoin.

Fair enough. I think damn near everyone on here agrees with you on #1, and #2 is an interesting discussion point (ie; what *would* be a fair initial distro mechanism?).


I personally disagree with your other points about the societal benefits of a demurrage currency system. As you point out, the goal of a currency is to allow a steady state to emerge within which people make rational capital allocation decisions based on business dynamics. I assert that with a currency system that truly offers perfect information (eg; bitcoin (and note that no other money system ever proposed has credibly offered perfect information)), people don't have to speculate about the supply of money anymore, so those dynamics merely become the backdrop on which economic activity happens, not a fundamental input; ie, people simply decide to invest based on whether they think they can put capital and labor together to yield more than the sum of their parts. What's happening to the money supply being fully well known, the only effect should be on price (which everyone is subject to on both sides of the equation).



Keep it up. Good discussion.

Listen, Etlase2, I have similar concerns.  And I have expressed them here, over and over again, from my very first post.  But your proposed solutions are laughable.  Would it be better if early adopters invested instead of saved?  Probably.  Will Bitcoin fail if they don't?  Perhaps.  Does this mean we should re-distribute Bitcoins on a per capita basis?  LOL... no.

The thing to consider, is that the Bitcoin economy could easily end up being worse off if a bunch of incompetent early adopters were to take your advice, for instance, to invest, and end up giving half a million Bitcoins to a ponzi scammer, in a botched attempt at "investing".  So, why not let the market work, instead?  Why not allow those who are competent investors to see a rising price as a signal to invest, and let everyone else just hoard in the mean time?  That's called rational self-interest.  That's called specialization.  That's called an 'economy', for christ's sake.

I mean, in your economic understanding, do you have absolutely no concept of failure?  Is there no consideration for the fact that doing things, even doing beneficial things with the absolute best intentions, could end up making us worse off?  When I asked whether you were promoting the labor theory of value, did you even consider the relevance of the question to your arguments?

Regardless, these are the facts:

• Bitcoin rewards early adopters, because it needs to attract users.
• Bitcoin subsidizes mining, which is consumption, because it needs protection.
• The total Bitcoin supply is limited, because it needs to have economic value.
• This supply currently inflates at 30%+ per year, and therefore does not even remotely subsidize savings.
• Despite everything, the Bitcoin economy is still growing.

If you want to argue any of these, go right ahead.  That would at least be a discussion grounded in reality.  But I think, by now, we all understand the reasons for all of them, and they have been discussed to death.

It goes much deeper than that. We are where we are today because of the history of gold, a history spread out over at least 5,000 years that bitcoin has tried to emulate in about 4. Acquiring vast sums of money should not be about luck, but it was the case with gold and is the case with bitcoin. But--this is only one side of the issue. Gold gains great power not because of what you can buy with it, but what you can do by NOT spending it. I think most people would agree that the wealthy (or a combined group of the not so wealthy) lending money to invest in new business and infrastructure is a good thing because both sides benefit.

But when gold is withheld and made artificially scarce, those without gold become paupers. This is when the gold-bearers can swoop in and take back the productivity of years of labor essentially because of deflation. The paupers can't afford to keep their durable goods because they need to buy food. They can't pass on wealth to their children, so their children have to go through the same insanity. Combined with the ingenious idea of Rothschild FRB, this effect can be maximized. Combined with central banking and it is government-mandated theft.

Again, that's only part of it and honestly it is the part that bothers me less.

While I've avoided mentioning it because I don't want to sound like I'm advertising, the link in my sig explains how a cryptocurrency could be created that solves the economic issues I have with bitcoin, gold, and modern fiat. It isn't about the initial distribution, it is about the ability of the people to create money at cost (or below cost in the case of the wealthy causing undue deflation). But it's also much more than that, though I haven't delved into what I see as being the economic result of such a currency. But it's freedom, in a word. Feel free to post questions in that thread though and you can be sure I'll give a long-winded response.

I'm only playing devil's advocate for demurrage. It isn't my idea, and I have hotly debated it with jtimon and the others behind it in the past because I don't think it will be a successful idea and I think they're wasting their time.

I agree that a currency offering perfect information is a huge, unbelievable boon, but it can't overcome the faults of the other economic properties of bitcoin. And, if you ask my biased opinion, I would say that Decrits would have a significantly better chance of being the currency that people will use for trade. And there is no reason it couldn't facilitate the storage of wealth, either. You just aren't going to earn interest for doing so in a steady state economy (though you will in an expanding one), but nor will you lose value. Since it would have all the same valuable properties of a cryptocurrency, new people to the cryptocurrency market may fear being left holding the bag for bitcoin and avoid it altogether. Pure speculation though, of course.

Here's the gigantic hole in your theory:

Rich people gotta eat, too. (hint: you can't eat gold)

The point has never been that early adopters should all run out now and invest immediately. The point is that there will rarely ever be a profitable opportunity for them to do so. Unless the money cartel starts churning, gets everyone hooked on bitcoins at low interest, then eventually calls in all the loans without recirculating the money. This is a far worse case and one that I think is guaranteed to happen if bitcoin insinuates itself into the world economy. There will be a new wall street and it will be just as effective as the old wall street, except that perhaps there will be new ownership. JP Morgan was a master at manipulating the economy before the advent of the central banking system in the US. Then he simply manipulated the government into central banking because it's a lot easier to keep the people happy if they can still put food on the table while their productivity is stolen.

I've been accused of being a labor theory of value proponent before and discussed it to death then, I don't feel like getting into it. Nor discussing the taint that Marx added to it. The LTV still requires an exchange of which there is none when discussing the point of a currency that accrues interest for doing nothing, so I also don't see how it even applies to the statement you quoted.

I don't particularly disagree or dispute any of the other points as they stand now (read: not the case in the future), but the Bitcoin economy is growing primarily on speculation. Without the massive hills and valleys, Bitcoin could have easily grown much faster and much harder. Instead, a large portion of the actual growth has been ways to separate bitcoin from it's volatility--e.g. BitPay.

If bitcoin fails due to the actions of speculators then it was meant to fail.

It was designed to attract such people. Personally,bitcoin got me interested and getting interested in the economics of how the world turns has opened my eyes. I was completely ignorant beforehand. Now I see that if you do not understand money you do not understand the world around you.

The alternative coin suggested here would not have done that for me.

What about BTC over email, the Android wallet and the multiple card systems in development?

Those are some pretty big new services after just 3-4 years of Bitcoins lifetime. If we say Bitcoin has only been really known 2-3 years,
I'm not even sure Google added that many new features in their first 2 years!


Also BTC does not inherently increase in value over time - BTC ONLY become worth more if the economy is growing. So if a large number of people do nothing with their BTC and there are no new adopters the value would start to drop.

Maybe 10% of the people holding BTC can enjoy the free ride to some extent, but they still need to eat at some point which will chisel away at their fortune.

If any more than that in a stable BTC economy try to live from BTC deflation, the BTC economy would likely shrink as a result of their lack of productivity and hence the BTC value would drop.

It's true that perfect money isn't deflationary, but it also isn't inflationary, it just is.

Money is just information. Who owes what to whom.

Ideally it would be invisible. Just like a designer would tell you the best tools are those that are "not in the way", that are invisible.

A giant computer network that's tracking all production, all consumption, all economic activity, would surely be dystopian but it could tell us exactly how much more we'd have to work in that factory before we're finally eligible for this nice Porsche car. This would be the invisible money I mean.

Something like Ripple comes close to this, especially when using "hours of unskilled labor" as the base accounting unit. People essentially print their money themselves here, and the interesting thing is you don't need to centrally control the money supply because everybody knows and agrees on how much hours a day has and what it's worth for them. Also, an hour today is still an hour in 20 years.

Of course concepts like this are inherently trust- and reputation-based though. So one (or more) cryptoanarchist came and didn't like a money being attached to identities that way, so they created Bitcoin which almost necessarily has to be modeled after a commodity with limited supply in order to allow for reasonable privacy, which is also the feature which made it almost instantly available world-wide.

So every approach to money has advantages and drawbacks. The perfect money can't exist. Thus I believe the future of money is parallel systems anyhow. If there's a problem that bitcoins become too scarce and unevenly distributed, people will substitute part of their economic activity with a Ripple-like system.

It depends what you want that currency to be used for.

Store of value or a facilitator of trade?

The two ideals are indelibly mutually exclusive.

Um.... No.

Gold is both, and performs each service admirably.

Gold can be saved indefinitely without losing value, and is a hell of a lot easier to transport than the number of chickens it can buy.

Bitcoin improves on both: It can be stored indefinitely without losing value, and all things being equal, will probably increase in value; and it is infinitely easier to transport than even the amount of gold it can buy.

Trade is maximized when the cost of trade is minimized. Bitcoin takes that cost down as much as possible.

Guns don't kill people. People kill people.

Money doesn't invest, innovate, or produce.  People invest, innovate, and produce.

Savings provide capital to those who earn it.  Banks provide capital to those who beg for it.

Investment is a boon to an economy.  Malinvestment is a burden.

So you'll wait around for an hour each time you want to buy a coffee, will you? Why don't you use gold backed currency now? Or do you? Who buys lots of chicken every day? As a facilitator of trade, practicality is paramount.

The cost of a $ is far less than the cost of a btc, for everyday purchases, and the only way to make bitcoins work as effectively as fiat in this regard, is to remove one of the very things that make btc/gold what they are.

Bitcoin is a horrible currency for in-person transactions, unless you're willing to accept 0-confirmation transactions. The main reason I don't use a metal or metal-backed currency right now is the same reason I don't spend a lot of Bitcoins: because none of the people I do business with in everyday life don't accept it. When McDonalds starts accepting silver for their burgers, I'll be on that like white on rice. As to the chickens, I was making (an apparently failed) reference to barter. Gold beats barter, and for internet business, Bitcoins blow gold out of the water. (Ever try to email a gold coin?)

If you can make that distinction, you can make the next. You may be satisfied with "ending up" with gold or bitcoins to finalize a trade, but what of the interim? What if someone doesn't have gold or a bitcoin to give you today, but they will tomorrow, and you want to get your thing off your hands in the mean time? Money is the answer. It is an IOU; a credit; an "I'll pay you with something of value tomorrow, but here's a token which represents that today". Fiat banks and money deal in the facility of time lagged trade, not the goods or services themselves.

Gold and bitcoins are the items of value that are traded. They have inherent value due to scarcity or usage or whatever. Fiat is much cheaper to deal with, regarding volatility, because it has no value except as a trade token. It's only use is to represent giving something of value to someone else, but not yet getting a return on it. If you try to use gold or btc as a facilitator of trade, you will be paying not only it's value as a trade token, but also its varying value as a scarce commodity. Fiat, which is worthless in every other way, will always be cheaper than anything of inherent value.

If McDonalds accept both fiat and silver for a burger, are you telling me that you'd seriously trade appreciating silver than any spare depreciating fiat you have? I don't think so. If you want to use PMs in a trade, that's all well and good, but you no longer have a need to facilitate trade, and no need for a currency either. You're simply bartering. Fiat money satisfies a need which bartering simply cannot.

The only people who are seriously going to use BTC "only" are those for whom fiat is otherwise unacceptable or draws unwanted attention...for whom the cost of BTC is outweighed by its benefits.

So when I said:


I was referring to "store of value" as "settle immediately", and "facilitator of trade" as "settle at a later date". The two ideals are mutually exclusive, because you cannot both settle now and at a later date also.

Then that's a loan, not "money." Gold is money, Bitcoin is money, gold or other commodity-backed currency is money, I'll even allow that fiat is money, albeit only backed by your trust in the issuer. But fiat is not an IOU for anything. Accepting fiat is not accepting an IOU for something later, it's accepting that the issuer won't ruin the exchange value of the fiat by printing up more.

I agree, that fiat will always have a lower value than anything of inherent value. That doesn't necessarily make it a better facilitator of trade. Using gold, or silver, or BTC for trade doesn't mean that you're "paying for" the inherent value, but that what you are paying for is worth more than the inherent value, whether that is the labor of a worker, or a hamburger. And gold is not volatile at all. Neither is silver. Volatility only applies when comparing to another currency. It's not the gold that's volatile, it's the Dollar.

If McDonalds started taking silver, I'd get the fuck out of fiat as fast as possible. That would be a sure sign of the the end. Again, silver doesn't appreciate, the dollar depreciates.


Well, here, at least, we finally agree. You cannot both settle a debt now and settle that debt at a later date. Thankfully, not even fiat claims to be an attempt to settle debt at a later date. So your definition of "facilitator of trade" is false.

No way. Gold, Bitcoin, and fiat are ALL money because they have significant value above industrial/direct-use value, and they can all facilitate trade. They certainly vary quite a bit in terms of various properties (ease of transacting, ease of storing, time-preference for holding, etc), but they're all money. The "inherent value" you reference is the same for all; it comes from scarcity (real or perceived) for all three, combined with trust that other people will still value it in the future.



The world used gold and silver for quite some time before fiat came to dominate. That was not barter.



Bitcoin is great for modern transactions. Obviously it's impractical to use *only* bitcoin without more places accepting it, but one of its best properties is ease of transaction.

Well, under a very loose definition of "barter", yes, it was (and still is). But commodity money is still money.

Under the same loose definition of "barter", that would also apply to fiat (slips of paper in trade for goods). :-)

Sounds silly, but the key point is that gold, bitcoin, and fiat all derive the vast majority of their value from their monetary purpose. Strip away monetary purpose, and for gold you have some industrial use (maybe 1/8th of current value); for fiat, you can burn it and whatnot; and for bitcoin, you've got some public/private key pairs and an indisputable time-log of when people did what with them. Point being, none of the above are very interesting without the monetary purpose; thus, all are money.

/thread.

I meant "fiat money is the answer", not "all money", and I didn't think I needed to clarify that, but in hindsight perhaps I should have. All money can be used to satisfy a debt, sure, but only fiat money is loaned into existence by a bank for the purpose of a specific purchase - from bonds to cars to coffees. There is no naturally found fiat money anywhere in the universe. Fiat money is a loan between a bank and a borrower. Just because you got the money off that borrower, doesn't destroy that loan. All other forms of money are representations of themselves, or of a specific quantity of something in a vault. The fact that everyone predominantly trades fiat money like other forms of money, when all these other commodities still exist to freely trade right now, just goes to show you how cheap and convenient it is in comparison to everything else. That might change, but it needs a good reason to.

While BTC are also not naturally found anywhere in the universe, they still require some competitive "work" to produce, and are thus fundamentally closer to gold than fiat, which is created by tapping a few keys in a central bank. Even fiat requires some work to create, but its cost is orders of magnitude lower.


PMs have industrial use, and even if it's marginal it's still a non-zero cost. If demand skyrockets tomorrow because of a new discovery (or any other reason), those using gold as a trade token suddenly benefit by "momentarily" having it, and those temporarily without it are at a sudden disadvantage, and the same is true in reverse...not in the ongoing trade, but in the time lagged trade. Every moment that you do or don't have gold you're risking usage volatility and trade volatility...the same thing any business looking to trade in BTC faces today. Think you're getting $10 by selling for 1btc today, and only get $9 when you cash out tomorrow does not make for a happy owner. You can make the cashout instantaneous to avoid this, but B2B transactions, which happen over months, will prefer the currency that provides stability over months. You can conduct trade however you want, but people will naturally flock to the cheapest.

Fiat will never have any such "new use" discovery, and you only ever risk trade volatility. QE is a new spin on the same old idea.

Like fiat, Bitcoins don't really have an industrial use, but they still deride their holding value via some difficult competitive work to create, and that plus it's actual trade token value gives it an exchange of around $10/coin. Do you think 100% of the BTC price is because people are buying it because it's sooooo much better to buy their coffees with than fiat? If not 100%, how much? When big business cares about a 0.01% increase in profit, when will BTCs have a lower running risk than fiat?

Saying the $ is volatile and responsible for pm/btc appreciation is only a half truth. If it was completely true, since we *know* the $ always depreciates, how could the price of btc go from $32 to $2 in 6 months? Did the $ deflate that much in that same time period?


Of course, industrial demand has no effect on the price of silver.  ::) Even if it is a marginal difference, it's still non-zero, and that matters.


The debt that is to be settled with fiat, is the one in which an entity promised to pay back fiat to a bank (plus interest) in return for creating the fiat for a loan they wanted to take. They have to figure out a way to get the fiat they gave you, back off you, or go bankrupt.


Fiat money is the only one without any and which will never have any industrial value, except for bitcoins. Something like 97% of fiat money is digital now, too, so it can't even be used for toilet paper any more. Bitcoins share this advantage with money, but are currently too inconvenient for fast transactions.


The need is for legitimized and standardized credit. I don't think many civilizations actually worked on a bartering system at all. Perhaps in the ancient days when you were unlikely to see someone ever again, but there was evidence that all civilizations had a currency with a trivial placeholder.


It won't replace fiat unless it's cheaper. Being novel does not make it "great". More places won't accept it unless they make more money from doing so.

OK, granted, fiat money, as created, is a debt. It's still not an IOU in the sense you're using. If anything, accepting a dollar is accepting obligation for that debt.

What I don't see is why you're conflating "cost to create" with "cost to transfer" the cost to create a gold coin is part of it's intrinsic value, not part of the cost of transferring that coin. The cost of trade I spoke of earlier is the effort wasted in getting that coin from one hand to another, or the goods back the other direction. Before the advent of PM coins (gold, silver, sometimes copper) or other means of scarce commodity trade (such as cowrie shells, or salt), all trade was done with barter - back to the chickens again - If I wanted to trade chickens for cows, I'd have to find someone with cows who wanted chickens. With the advent of money - a common item that trades can be denominated in - I need only find someone with money who wants chickens, and then find someone with cows who wants money. Since people who want chickens and have money, and people who want money and have cows are more common than people who want chickens and have cows, money has facilitated that trade. It has made my trade of chickens for cows that much easier.



Tsk tsk.... I detect a Strawman... I never said the dollar caused the volatility of BTC. Look again what I did say:

Where's the BTC in there? Answer: It's not. I never said what you want to make it look like I said. And what you want to make it look like I said is much easier for you to defeat. That's the definition of a strawman. Nice try, but I'm smarter than that.

BTC does not get it's value from the hashing, the proof of work, the cryptography, or any of that. BTC gets it's value from the users' desire to own and trade it. (just like gold) The price of BTC fluctuated from $5 to $32 and then back down to $2, because of users' desire - or lack thereof - to use it as money in comparison to the USD.



Silver is being mined much faster than it is being used up in the industrial uses. Yet it's $ price still increases. It's an inflationary currency, but it's real world value remains nearly constant. In 1961, gas was $0.30 per gallon. Now, if you use silver dimes, it's $0.20. http://inflationdata.com/articles/wp-content/uploads/2012/02/Gas_20_cents.jpg

Sound familiar?

Does the idea of deferred consumption necessarily make economic sense though? I mean, you certainly can't do it with labour - you can't just say, oh, I don't need those 40 hours/week of this person's labour right now, I'll defer using it for a few years. If no-one uses that labour right now it's gone, wasted, poof, and if you need labour in the future you're basically using new resources that would've been there regardless of what you consumed in the past.

In fact, let me just quote from an article I saw linked elsewhere (http://www.thedailybeast.com/newsweek/2012/08/19/megan-mcardle-on-arbitrage-and-why-we-love-being-conned.html):


The same argument applies just as well to Bitcoins as it does to any other investment scheme; we're still trading our consumption right now for future consumption that we have no rational reason to believe should be available to us at a reasonable price. Doesn't matter whether the currency is inflationary or deflationary or goes-sidewaysey because the problem isn't with the tokens we use to represent resources, the problem is with the underlying resources themselves. Actually, I suspect this might be even worse with a deflationary currency like Bitcoins.

Fantastic read that sounds like the all too familiar preachers around here desperately trying to rationalize the bitcoin economy.

I would also like to point out that maybe, just maybe, if we can advance as a race beyond this ridiculous need to take advantage of each other, perhaps we would invest in things that require lots and lots of labor to improve humanity but require little in the way of actual natural resources. Like investing in new forms of energy, space exploration, pharmaceuticals (away from big pharma), and more.

Actually there is a situation when it is more profitable to spend Bitcoins than to save them.

That is namely in a *recession*. When the economy shrinks the value of Bitcoins is expected to go down, so it would usually be more profitable to actually spend the Bitcoins in this case than to hoard them.

The interesting thing is that Bitcoin works anticyclical. If the economy grows then the value of Bitcoins grows too thus people are encouraged to save more this means less investment/consumption and thus reduces the growth. In a recession people would tend to spend/invest more thus stimulating the economy and thus ending the recession. Thus Bitcoin would help reduce the extremes of the boom/bust business cycles.

This is the opposite of Fiat currencies which actually worsen or create the boom/bust cycles.

Yeah.... everybody needs to stop that recession crap now, just admit it already. We've been in a full out depression for years, yet people are so high on their crystal egophetamines that admitting something negative about their homeland is unpatriotic/unamerican and goes against what they've been taught day in and day out by their favorite news stations.

I have no idea if what i just stated has anything to do with the rest of the thread, its just that when i see the word "recession" used by anybody, it makes me want to slam their head up against a plate glass window and sodomize them with their trendy pocket gadgets like ipads/droidx or 2 or what ever theyre calling it these days. Same goes with those that use the letter T in the word alzheimers.... stupid people like this make eugenics sound like a good idea.

I would claim that in a recession people's demand for money increases, which causes the price of money to increase, and declining prices follow. Actually, I'd almost say that a recession - as we know it - is defined by an increased propensity to save, thus driving prices down. If it weren't for the massive money printing by central banks, dollars and euros would by more now than they would have in 2007.

This is a really good point. I don't think I've fully understood this until now. It's amazing how often this is glossed over by mainstream economists.

JoelKatz, from where have you learned the economic theory you know? Which book(s) would you recommend to me, that teaches concepts like the one above?

My top recommendations would be Economics in One Lesson (by Henry Hazlitt) and The Road to Serfdom (by Hayek).

I will take a look at those. Thanks!