Bitcoin Forum

Most of the time when I read an article or watch a video about how terrible is inflation to economy, I kind of feel that there's something missing.

Usually the author insists on how much the price of goods can have increased in, say, fourty years, and therefore how futile it is to save money.  But who saves money for fourty years anyway ?  I mean, there are certainly many better long term savings than cash.  Nobody saves large amounts of money for that long.

To me, the most obvious problem with inflation is the theft of value from the money printers.  And this occurs in real time, not with a 40 years delay.  When a banker receive some freshly printed money from a central bank, this money looks exactly identical to currently existing money.  Thus, this guy can obtain some good or services, ie real value, for this money, although this money has been obtained with absolutely no counterparting real value, apart from the pressing of a button.

When some banker wants his shoes to be polished, all he has to do is to print money and to give it to a shoeshiner.   The shoeshiner is immediately stolen, although he will probably realize that in a few years, when he witnesses inflation.  This, is what's outrageous with inflation.

This is not rethoric.   I used to work in an investment bank and I was personnaly advised not to seek a job in an other sector because it was important to stay "near from the tap".   Money supply was compared to a tap from which it was crucial not to be too far away.  Do we really need a better explanation of how corrupted is this system ?

Its even worse.

Not only inflation steals from some to give to a few (as you describe it), but it also makes the economy underperform because it creates malinvestments and in extreme cases bubbles. So its not only stealing a part of the pie for a few, its making the pie smaller or not as big as it could be.

Inflation really makes the middle class and specially the poor miserable.

Exactly. In central banking, Keynesian systems, inflation is used to manipulate the interest rate. The interest rate is a fundamental price that guides people planning in what concerns time. ("The market coordinates time with interest" http://www.youtube.com/watch?v=d0nERTFo-Sk )

Inflation alone is bad thing because it's a "hidden tax". Taxes are all bad, and the more hidden they are, the worse. But inflation in our current system is even worse, as it creates business cycles that end up destroying lots of capital.

I don't think it works that way. The banker can't get a shoe shine with the new money, because it does not belong to him. It belongs to the bank. And what the bank does with the new money is lend it out.

Who really creates new money is the state through the central bank, not bankers.* And it does use it as a form of spending since the central bank is constantly buying state debt, and when the debt bonds expire in the hand of the central bank, the treasury doesn't pay for it (as it would be the state paying to the state...). Inflation is also hidden tax. And it's worse than that, due to the reasons explained above.

* Okay, when the compulsory decreases, banks do create new money through the fractional reserve system. But the compulsory stays constant most of the time. It's the central bank that really drives inflation.

And the difference between the state and the bankers is...??

We use these names like 'the state' and 'the banks' as abstract concepts, but the actions are all done by people -- people who are part of the state gang, people who are part of the banker gang.

Often the same people belong to both gangs, e.g., the 'revolving door' between Goldman Sachs, the USFed, and the USDeptTreasury.  These people are criminals.  They may have bent the government law to make their actions 'legal', but a thief is a thief, no matter whether the theft has been 'legalized' or not.

The banker is the closest person from the money supply.  His salary is paid directly with it.  Again, a financial director from an investment bank told it to me himself : "stay near from the tap".

hehehe, okay, fair enough...

You can of course exploit the system yourself. Which adds a welcome libertarian scent to the situation.

All money is debt based. When you loan money to buy a house or a car it is created in that instance. The only difference between your debt and the debt the bank uses to consolidate real assets to itself is the interest rate. Banks and governments pay almost no interest and generally at a rate lower than the inflation of the money supply. Once in control of real assets bought with funny money their debt is no longer a problem.

The "good" news about this is that the same mechanism is available to you and me. We to can get loans, effectively printing money from nothing which we can use to acquire assets. At higher interest rates we need to be more selective about our asset choices but it can and has been done. We are also not at the mercy of the interest rates we are offered. Once you understand the bureaucracy a bit there are really amazing deals available.

This is not really true even in a central bank system. The fractional banks protected by a central bank do create money through credit, but that does not mean all the money in circulation is debt based, just most of it.

And during this crisis it has become evident that considering only the banking system as the source of money in the present monetary system will make you get the economy wrong. Understanding the present banking system is important, but there are more parts to the monetary system. If money was all debt and the banking system was the only way to create/destroy money there would be heavy deflation right now. But there is not.

There is heavy M3 deflation right now. Or rather there is suspected heavy M3 deflation right now, since the fed no longer measures it. It is one of the reasons the Fed can temporarily get away with monetizing government debt. It is simply keeping trying to keep the money supply stable by creating money via gov debt instead of private debt.

If you say there is money that is not backed by a debt instrument I would like to see an example? The only exception I know of is the very small pile of gold central banks still hold because they know they cannot trust each other.

The compulsory reserves banks hold on the central bank.

When the central bank monetizes the government debt, that is the government printing money, there is no debt there. Now you are saying hey! you just said the central bank bought government debt. Lets see:

The central bank buys government bonds and, in the mid-long term, never sells them. If you check any central bank, they just keep buying more and more government debt. There are some short term operations where they sell gov bonds, but in the mid-long run they always increase the amount of bonds. When the bonds mature they renew them. In the mid-long run, central banks always increase their bond holdings. So basically the government is never going to return the principal on a monetized bond, because its always going to be renewed.

Now what about the interests? The interests the government pays on the bonds are central bank profits. The central bank profits go back to the government (check the law). So basically the government gets back the interest, its like it does not pay it.

So when the central bank monetizes government debt, neither the pricnipal nor the interests are going to be payed in reality. So basically its not debt, its an accounting trick. The central bank uses the government debt as collateral to increase the money supply.

If you still think monetizes bonds are debt, I will borrow from you all the money you have in those conditions (not repaying it and not paying the interests). When the central bank monetizes government bonds its equivalent to the government printing money.

Yeah, but still, that's the monetary base... as soon as it reaches banks, through the fractional reserves system, most of this increase in money supply becomes debt... (at least until before 2008 it did :D)
Only the compulsory reserves remain, which normally is a small fraction.

You know, I mostly agree - inflation is a hidden tax.  Only it's worse, it's like a cumulative tax.  If you earn €100k and pay income tax of 40%, then you get €60k in your pocket.  But with inflation, that €60k is taxed again, and then next year, again, and then again and again and it never stops until a year's work is worth the price of a loaf of bread.

But, just in the spirit of discussion, I'd like to say something.  In order to have a functioning economy, people must spend their hard-earned money (and by "money", I mean anything that is generally accepted as payment for goods or services).  However, in deflationary or zero-inflation situations, there is no incentive to spend extra money.  I, for example, hate to have money in the bank or even in my pocket, now, because real inflation is huge (what, it must be at least 5 or 6% - not official inflation figures, but real inflation).

So, this incentive to spend (related to "the velocity of money" or how many times a single note is spent in the year) is high right now on account of inflation, even though there is a huge lack of liquidity.  If people had money now, inflation would cause them to spend and the economy might just recover.  It's just that there's no money in the general economy - all the bailouts etc went either into bankers' bonuses, or to shore up bank reserves in the wake of the real estate crash.

Now, what about bitcoin?  If all goes according to plan, there'll never be any long-term inflation.  Therefore we can assume that people will only spend what they consider necessary, and save the remainder for a rainy day.  The velocity of money will be much lower, and the relatively fewer bitcoins that do circulate will have to represent much more wealth than otherwise.

So maybe inflation isn't *all* bad, as long as it's kept to some reasonable value - the ECB's target, I think, is to keep it below 2%.

Comments?

This is "simple inflation", not exactly what we have in central banking economies.
In our current system, it's worse than a commutative-hidden-tax. They use inflation to lower the interest rates which provokes business cycles and lots of capital destruction.


This is fallacy spread by Keynesians. There are many other topics on this very forum explaining why this is wrong, and you'll certainly find good articles on the web. Check www.mises.org for example, there are very good articles there on the subject.
Just think of hightec products... their productivity raises even higher than inflation, what make their prices deflationary. And that doesn't prevent people from buying them...
And by the way, savings is good. That's what feeds investments which bring economic growth.

I don't agree at all.  This has been discussed many times on this forum.


All money is a debt from society to its owner.  Thus, someone who hoards money without actually spending it, is actually freeing society from this debt.  There is nothing wrong in that.

This 2% target comes out from nothing.  It is actually a theft of increasing productivity which should normally make prices reduce.

You don't have to give people any incentive to spend money whatsoever.  Who are you to tell them what they should do ?  If they want to spend money only for what they think is absolutely necessary, it is their right.  Don't you believe in freedom at all ?

Why don't you just have police beat them in order to force them to go shopping ?  It would be much simpler.

It's a misconception that "the economy" is an entity of its own, that it is anything other than the aggregate of what is done by people. You are essentially saying that people should be forced to do something other than what is in their best interests, for the benefit of a statistic called "the economy".

But if "the economy" can only show the statistics that you want to see, when society is structured against the best interests of the people within it, then I think you're looking at the wrong side of the equation.

I think the keynesian's point of view is the one of a farmer.  Sure, a farm would be a mess if cows were free to do what they want, and if chickens could just wander everywhere they want.

But we are not cows, nor chickens, damned it.

Absolutely. There is nothing that is good for my family that is bad for my family members. There is no such thing as hurting the trees to help a forest. If you want to help then help individuals; they actually exist.

You have all raised good points.  But the fact is, if there were deflation, I would *NOT* buy a new cellular phone, I would *NOT* buy anything I considered unnecessary (taking into account how high the deflation actually is).  As a matter of fact, I'm doing exactly that with the bitcoins I have - they're still going up, and I'm keeping them until I need them.  I wouldn't invest unless I was guaranteed a return greater than the appreciation of my currency (measured in purchasing power).

There are many examples of where something that harms an individual can be good for society in general.  e.g. traffic, environment, queues, paying taxes, damn I've a mind-blank and can't think of others.  But the Prisoner's Dilemma is a great place to start studying these phenomena.  (this goes way back to a long debate about morality, see "should you kill the fat man" on philosophyexperiments.com; let's not get so deep here.).

The economy may be a statistic, but it's important.  Do you deny when the economy suffers (i.e. recession, depression) that people suffer more?  Or that people are better off when the economy improves?  It is a statistic - a very important one, something like the average of people's earnings or wealth.

#grondilu: someone who hoards is restricting others' ability to make their necessary purchases, *especially* if there's no new money coming into the market.  Your suggestion about the police is curious - how long before that actually happens do you suppose?  Ever read "Brave New World" by Aldous Huxley?  As for us not being cows and sheep... are you sure?  Cows behave uniquely for their own benefit, not the herd's; exactly unlike that feature of human society that you would remove. So maybe we're not cows, but you would make us so.  And freedom - "freedom's just another word for nothin' left to lose" (Kris Kristofferson) - you want to have all your wealth, and keep your freedom.  But we can't all have both.

@caveden: how can savings feed investment?  You need fractional reserve banking for that - otherwise the bank has to keep all your savings in its coffers, and can't give it out as investments.  I'll try to check out mises.org when I have time.  But saying hi-tech prices are deflationary is, I think, wrong.  Their prices decrease, not because of deflation, but because the *inherent value* of the object decreases.  If you compare dollars to bread (or whatever basket you choose), you can calculate inflation or deflation.  Compare hi-tech prices to bread, though, and you get an estimate of value, and I'll bet that the price of mobile phones in loaves of bread (i.e. their value) has been coming down too - and I'm sure you wouldn't say the bread is inflating there.  With deflation, if people like me don't buy phones, then the lack of income will cause R&D to falter, and the hi-tech stuff won't get cheaper quite so much.

#ribuck: the economy *is* an entity of its own.  That's the central message of the science of complexity - the whole is more than the sum of the parts.  Look at an ant colony for example.  Look at your own brain, or your DNA.  The economy does *not* follow the same rules as its members and, therefore, something good for its members is not necessarily good for itself, and vice-versa.

Thanks for the discussion folks.

Maybe you are unusual. I have a really hard time believing that when the newest cool cell phone of 2015 comes out and you still have your 100BTC that you aren't going to part with .00001 of them to get your holographic phone. But if you insist that there is nothing you'll ever pay any fraction of a coin for, I can buy it and I'll play along.

Why are you holding them if you are never going to spend a single tiny bit of one?!

I can't answer your question about the economy, maybe you can answer this: Is it better to care for your garden and hope this improves your plants or to care for your plants and hope this improves your garden?

Do you realize cellular phones do go down in prices all the time and you have bought it anyways? It seems to me you are contradicting yourself.

Electronics in general go down in price all the time, and people keep buying it. Everybody knows that if they wait 6 months the phone, the tv, the computer,... they are going to buy will be cheaper. And yet, they still buy it.


This is actually good. You should not buy anything that you dont want to buy just because you know you need to spend the money before it devaluates. The function of the economy is not to make people consume, consume and consume more. The function of the economy is to provide what people need and want. And if someday (that I dont think I will see) we have too much of everything, that day we can stop working this much and just work 1 day a week (in fact this has happened a bit, since 200-300 years ago, people used to work a lot more hours).


Bitcoin is a special case, because is starting, mainly for two reasons.

1. As much as it hurts to admit, there is still not much you can buy with bitcoins.
2.Also, there is still not a financial system that operates in bitcoins that allows to transmit bitcoins savings into bitcoin investments.


This is a fallacy as big as it gets. First of all you need to define what is good for society in general, because this is the typiucal discourse the elite use to mean you do as I command. But assuming you mean what its better for the majority or for the longer term, its still false.

Traffic? The first roads in the USA where privately built by cooperatives formed in the different towns. There are examples of private roads that work fine.

Environment? Precisely this is an example how the government is managing it and not letting the market manage it by not allowing environmental property rights. You can see the horrible results.

Queues????

Paying taxes?????


So? It seems to me you are implying that more spending can heal the economy. If this were true, all the government spening should have taken the USA out of the recession. It has not. Its an economic fallacy.

Only the people working and producing what they need through NON DISTORTED market signals are going to solve the depression. All the government spending its hurting the economy.


Prices go down if there is less money. Also the banking system reacts (or should react) creating more bills if there is an increase in the deman for money. This is not an issue.

I could keep going.

Well, you are an individual, so of course only you know what you think you would do.

For the masses, deflation means going into the cellular phone shop and saying "wow, I thought I could only afford a dumphone, but it turns out I can buy a smartphone". Deflation means Joe Public saying "My TV has broken, and it seems that I can buy a 46-inch TV rather than a 32-inch TV like my old one". Deflation means Fred saying to Martha "Last year we could only afford a week's holiday just across the state border. This year let's have two weeks in the Bahamas".

This, of course, is good for the individual. Some might even say it's good for the "economy".

fergalish, I see now that you said 'unnecessary', so my post isn't quite right.
 

For certain definitions of free:

http://i55.tinypic.com/30mlbhu.jpg

Here's an excerpt:
http://www.youtube.com/watch?v=SvSJY3Xiwdg

Yeah, margaritaville is indeed quite a smart South Park episode.

I have just discovered this site today, and have been looking at monetary reform for a few years - see Stephen Zarlenga in the US and Ben Dyson's Positive Money site in the UK. I feel reform of the current world money system is nearly impossible as the bankers have a vice like grip on the creation of money, they are able to do legal forgery by issuing new money as a debt with interest. As many here know, this causes ever increasing debt, high taxation, reductions in public spending, poverty, boom, bust, and huge inflation, and enriching a few at the expense of the many.

My question is this - How, if at all can I transfer my wealth (in my case UK £s), into Bitcoins, and then can I use Bitcoins to buy the essentials of life, ie food and energy ?? It would be great if I could because the £, $ and Euro are corrupted by the banking system, and we all suffer loss of wealth through inflation whichever currency we use. The present debt based world money system is the greatest form of slavery ever devised -

" Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take this power away from them, and all the great fortunes disappear, and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit." Attributed to Josiah Stamp, governor of the Bank of England in the 1940s.

Bitcoin may be in it's infancy, but if it could become a large trading community where essentials like food can be bought and sold, then the power of the bankers can be gradually eroded, and the majority will be very much better off, and not enslaved by debt.

I think it would be unwise to transfer all of your wealth into bitcoins. Bitcoin is still in its infancy, and problems might emerge that would make bitcoins worthless.

You could transfer some part of your wealth into bitcoins. You can use an exchange like MtGox (http://mtgox.com/), or you can trade person-to-person via #bitcoin-otc (http://bitcoin-otc.com/).

You can't yet buy all "the essentials of life, ie food and energy" using bitcoins. But the number of things that you can buy is increasing every week. Many of them are listed on the "Trade" page at bitcoin.org (http://www.bitcoin.org/trade).

If you can't wait to get started, you can get 0.05 bitcoins for free from the Bitcoin Faucet (https://freebitcoins.appspot.com/), thanks to the kindness of Gavin Andresen and those who have donated coins to the site.

Enjoy the ride!

The "I considered unnecessary" bit is important, I expect it actually translates as "is economically rational to buy".

From a mathematical point of view, consider you want to buy a computer. The computer provides you with b benefits in efficiency savings per unit of time and costs p(t) at time t. If I decide to buy the computer later when the price has decreased, I will save p(t) - p(0), but I will lose bt in efficiency savings. The rational thing to do is to maximize bt - p(t) + p(0). Since p(0) is a constant, that is equivelent to maximizing bt - p(t). If b is positive (i.e. the computer is beneficial to you) and p(t) is never negative (buying something costs money), then bt - p(t) over (t >= 0) must have a maximum somewhere (because to decrease p(t) must increase faster than bt, if this happens p(t) will eventually go negative), so you people will still buy stuff eventually if the price is going down.

I very much doubt so.  I don't see how anyway.   To me if somehow the amount of money in circulation decreases, because of hoarding from a few people, then there is deflation and thus falling prices.  Then people can buy again with whatever money they have left.

I wasn't quite serious.   It was rather ironic.


Yeah, but I don't remember anything about policemen beating people to force them to shop.


I'm not advocating for removing cooperation from society.  Not at all.   Is it possible that you think the state is the only kind of social organisation ?

No, it's the other way around. Someone who hoards is abstaining himself to consume his share of production. His hoarding will make prices lower what will make it easier for others to consume and invest. He's making it easier for others.


What else could?
"Real savings come first, if you want to invest." http://www.youtube.com/watch?v=d0nERTFo-Sk

Investment means employing goods and services with the goal of increasing productivity capacity by accumulating capital (=means of production).
Savings means sparing a share of what was produced (consuming less that your share of production).
If all goods and services produced by the economy are consumed (no savings), nothing is left for investment.
Some amount of production has to be saved and redirected to investments so there can be economic growth.

Savings => Investments => More capital => More production => Possible increase in consumption

Often people tend to view only the last part of this cycle (increase in consumption) and try to stimulate that, with authoritarian policies like lowering the interest rates through inflation, for example. This is awful, as by stimulating consumption you'll decrease savings. In the short run, you'll get an economic expansion. But that's unsustainable. Lots of capital will be lost in bad investments, who should not have started in the first place.


First, there's no such a thing as "inherent value". This is a fallacy: http://www.thefreemanonline.org/featured/the-fallacy-of-quotintrinsic-valuequot/
Value is on the eye of the beholder. It's a subjective opinion people have on stuff, not an inherent attribute of valued stuff.

So, I don't know what you mean exactly. Do you mean that the demand decreases? I think that's more the supply which increases fast, but it doesn't make any difference actually. The fact is that it's very well known by everyone that eletronic prices fall down quite quickly, and that doesn't stop people from consuming them at all. And electronics are superfluous! Do you really think people would stop consuming "important" stuff just because it might get like 5% or 10% cheaper the next year?
And even if a percentage of society decides to go ultra-hoarding under price deflation, they'll just be making it even easier for those who want to consume or invest as I said before. No problem there.

And by the way, another thing that people often don't pay attention is that, for price deflation to happen in a scenario of stable monetary base, economic growth must have happened before. Otherwise prices will be stable. So, this claim that deflation would stop economic growth is quite weird since deflation would only happen after economic growth. :P


Sorry, this is nonsense.
The economy and entity of its own?
Something good for people is bad for the economy these people participate in?
 ??? ???

Individuals are an end in themselves. They are not ants in a colony or pieces in a body.

OMG I had missed that part.  Yeah I know about this kind of emergence of complexity out of a large number of small simple entities.  Very interesting stuffs.

But I am not an ant, nor am I a brain cell or a DNA molecule.  An ant would immediately give its life for its queen, just because it will blindely obey olfactive orders.  I won't.  Maybe it's because I am diploïd, and not haploïd.  Maybe it's because I have a bigger brain, and thus I don't obey simple chemical and olfactive signals.

I don't consider myself as a part of a larger organisation that I would value more than my own existence.  Call me selfish if you want, I don't care.

Please feel free to cut your arm and give it to society if you think it's better for human kind as a whole.  But don't expect people to be as fool as you are.

The forest analogy is inaccurate.  Forest fires are an important part of a forest ecology, by clearing out the tall trees they allow fast growing undergrowth to flourish and keep he forest from stagnating and becoming a bog.  Forest fires are absolutely bad for a great deal of individual trees while good for the forest as a whole.

The economy meanwhile, is going to be structured to favor one group or another, traditionally this has been by government intervention of one sort or another, it would still be the case in a stateless society however simply due to distribution of resources and local social pressures.  An ideal market favors the have nots at the expense of the haves because this encourages a constant flow of resources, haves that become have nots due to the markets forces are then favored, and able to become haves once again.

A market that favors the haves over the have nots leads to increased concentration of wealth and the have nots being trapped in a cycle of poverty.

How to accomplish a market that favors the have nots is, of course, a matter of debate.  I maintain that without the state to maintain the privilege of the haves that it would soon fall.

<Shrug>

I'm not tied to the analogy, but it seems to me that the old forest would be gone and a new one would grow.

But if there is a decision to be made between burning most individuals or not; I'd rather no one burned us, regardless of how it will help the economy.

Sorrry for the long reply folks.

Touché!  Like I said though, I'd weigh things up - how bad is the deflation, how necessary is the object.  I hate mobile phones (didn't get one until 2002), but they have become, there you go, a necessity of modern western life.  I guess I'm just not a good consumer - I don't have a tv, I prefer small cars, I eat at home, I sew my clothes up instead of buying new, and I only buy a new mobile phone when the old one dies... etc.  But here's what I think would happen in a deflationary scenario - there's less money so many people can afford only necessities, those that can afford luxuries see their money appreciating and hoard.  Nobody buys new mobile phones, so the mobile phone manufacturers stop investing in R&D.  Existing mobile phones, therefore, don't get any easier to manufacture (though their monetary price might still decrease due to deflation), AND your lovely holographic phone won't ever get invented. (But I really need to read up at mises.org). All the phone employees are laid off and then have no money, so even though prices are decreasing they can't buy necessities, let alone luxuries.  That's fine is when only a few hoard, and most people still have jobs.  But when this cascades throughout all sectors of the economy, it's a disaster.  Correct me if I'm wrong, but wasn't that the Great Depression?  Plenty of money there, but it wasn't circulating and there weren't any jobs.

I'm saving them.  When I need to, or want something enough, then I will spend them.  Do you ever save?  The modern economy is based on debt not credit, and the libertarians of this very forum deplore that fact.

I'd say best care for the garden.  Do I understand you'd say the opposite?  All you need are a few snails, or mold, or greenfly, or whatever, undetected in one corner and in the space of a season, they'll destroy all your plants.  Instead of plants and a garden, I'd ask the same question about the economy and the environment.  What d'ya think?

@ribuck: The masses confuse deflation with reductions in cost.  Deflation is when your money buys more because the money has become more valuable, NOT because you buying things that have a fundamentally lower value.  Let's try to use the correct terminology instead of making the same mistake as Joe Public.  (p.s. cheaper holidays, I gather, are largely due to government subsidies for the airlines - can anyone verify?).  Imagine if someone discovered a process of making bread from thin air.  Bread becomes virtually free.  Is that deflation?  Assuredly not.

@hugolp:
traffic: if everyone drove more reasonably, there would be less traffic jams and, on average, all trips would be quicker. However, such a situation is open to abuse by people who drive agressively who can, at everyone else's expense, shorten their own trip. Individual benefit, system wide harm.
environment: clear example: farmers in Bangladesh can choose to remove trees and increase their crop.  This reduces soil quality and increases the probability of flood for everyone.  Or Brazil chops trees for its own benefit, amazon dies, world suffers.
queues: you can join the end of the queue, or skip to the front. The confusion at the front causes, on average, longer delays for everyone, except you.
taxes: you can pay taxes with money you don't "need" - no loss to you, benefit to society (let's ignore govt corruption and inefficiencies).
Government spending might end the recession, but at the moment the spending is not finding it's way into the economy.  It's staying in the banks' and their bankers' coffers.  But you're right, the govt spending distorts the market.
Central banks printing more money when people hoard is risky.  If the bank prints too much, inflation occurs, all those hoarders stop hoarding, and suddenly the market is awash with liquidity and you've the opposite problem.

Oh crap, there are loads more replies (I started this yesterday).

@grondilu:
brave new world: just as a mobile phone is a modern necessity, in that book, many other luxuries had become (let's say frivolous) necessities, and the point of existence was simply to spend. there were no police, because they weren't necessary - social engineering had obtained the desired result.
cooperation: depends on how big you make the state - a village chief, a town council, city state, nation state, international union, intergalactic federation...
My point is that people suffer *exactly* because some seek personal gain at the expense of others, like the twat who uses the turn-right lane to turn left, and so causes a delay for everyone who wanted to turn left.  We all do that in one way or another, and we all suffer because of all the others that do it.  We're all selfish, 'cos that's how we're 'programmed'.  Really, check out the prisoner's dilemma - when there are only two they can easily cooperate, but when there are 7 billion, cooperation becomes extraordinarily unlikely.  If I hoard (under deflation), then people who *need* money to buy bread will suffer - the fact that the price is decreasing means nothing because they have no money.  I gain, they lose.
cut off arm: some people have done this and more. They're called martyrs.  I'm not a martyr.  Look at the riots in Egypt and Tunisia - people confronting police and suffering brutality, because they want a better society for everyone.
police: me too (being ironic).

@caveden:
savings/investment: debt can create investment. no savings necessary. But you're right, investments through savings would be much better; of course it involves risk for the investor, and this has been centralised in the present system of fractional reserve banking.
inherent value: someone said "energy is the only real currency". You could use that as an estimate of intrinsic value, and then modify it according to individuals' requirements and expectations.  I'll bet if you look at the energy required to produce a 80386 in 1990 and a CoreII x4 today, the coreII requires MUCH less energy per FLOPS/MIPS.  That's technological progress in a nutshell - doing the same or better with less energy.  But maybe you're right too - even energy is too abstract an estimate, so let's talk of *relative* inherent value - bread made with flour and water becomes inherently less valuable after the discovery of air-made bread.
price decreases: see ptd's post.
economy an entity: I didn't explain myself properly.  I mean that some members can profit at the expense of others in such a way that *the average* is a loss, i.e. the "economy" suffers.  But there is nothing can can produce an *average loss* and yet be good for the economy, or vice-versa.
electronics: are certainly NOT superfluous. How could any business or individual survive in the modern economy without electronics?  Unless you're willing to abandon all and live as a peasant scratching a living from the earth without even so much as a clock on the wall.

folks, I have to stop now, this post is *way* too big.

Well, I don't have a mobile phone (or at least none with an active SIM card).   Yet, I'm still breathing.


I don't get it.  Do you actually whish you lived in Huxley's world ?


Most people here think that personal gain doesn't have to be at the expense of others.  We beleive free market is a win-win game.  Most of the things I use in my every day life come from free market, i.e. from people wanting to reach personal gain.  I'm thankful to them.

F.cking prisonner dilemma, I always forget about it.  Nah, I don't see it as important as you seem to think.  Yes, cooperation is usefull.  But please let people make their own associations and decide how and with whom they want to cooperate.  Forced cooperation is not cooperation, it's slavery.


If they have no money then money has become useless and people will use an other one.  It's just an accounting tool, it's not real wealth, damned it !  Think about this.

PS. The very success of bitcoin could prove this point.  We're not happy with national currencies, so we're using a new one.


So ???  Some people kill themselves too.  It's not because some people do silly or desperate things that I should copy them.

You have not answer to the main issue. You said that you would not buy things if prices were going down, but you have a cellphone and a computer...


So? What does this has to do with individual rights? This issue you are talking about can be dealt with private roads.


Right, and they would reduce their soil quality and hurt their property in mass. I dont know the system in Bangladesh, but it sounds terribly similar to India, where the market was accused, and turns out the problem was that government imposed regulations to favour Monsanto seeds that comsumed much more water. I am sure that if I dig into Bangladesh agricultural system something similar will come up.


Right, and where in the process are individual rights respected? Do you realize that in the amazon the government is taking away the land from its rightful owners to allow foreign corporations to cut the trees?


................


You are confusing things. The money the government is spending its (obviously) "finding its way into the economy". The money that is stuck is the money given to the banks (mainly by the central bank).

But tell me how government spending helps the economy.

Most people here appreciate the distinction between price deflation and monetary deflation. But the consumer doesn't care about the difference.

Suppose you want to buy a new cellphone which costs $100. You have $200, which also needs to cover your expenses for the rest of the month, which you estimate at $100.

If you think there will be price inflation, $100 may not be enough to cover your expenses for the rest of the month. With prices going up, you might need $120 for the rest of the month. So maybe you won't buy the phone this month. Or maybe you'll buy a cheaper one for $80.

If you think there will be price deflation, you'll happily buy the phone because you might only need to use $80 of your remaining $100 for your expenses for the rest of the month. If you're not a cautious type, you might even splash out on a $120 phone.

The consumer doesn't care whether the price inflation/deflation is due to monetary policy or due to technological change. That's not what they base their behavior on.

The "inflation is good" myth is promulgated by those who have gotten themselves into debt, and want their burden to be eased at the expense of those who haven't.

One's wages will also go down in times of deflation.

Yeah, and what about we let people who like inflation use an inflationic currency, and let the others use an other kind of currency, hum ?

What do you think of that, fergalish ?  You like paper worthless money ?  Good for you.  Personnaly I'll stick to gold and bitcoins.

What I mean is that with current IT technology it should be easy to have many currencies cohabitate.  Currency conversion should take seconds so that it should be easy to enter a dollar only accepting shop and instantanously convert bitcoins in dollars in order to pay the merchand.

True. However, the problem in the bitcoin economy is the lack of demand for labor, not the other way around. As a result, I don't specialize in any kind of jobs. Instead, I do writing, drawing, and programming. In addition, I need to accept cheap compensation compared to the larger US dollars economy in order to make it palatable to my clients.

I did at least double my saving in the end. It went from 250 BTC ish at the beginning of the month to 581 bitcoins so far. Even though I have plenty of spare capacity unfulfilled, I can't really complain much.

The topic has grown a lot, I'll answer only what was directed to me.


Savings is totally necessary. It's the only way. Investments need to use good and services. These good and services had to be produced before the investment take place, and they must not had been consumed. Something that is produced and not consumed = savings.

A debt contract is nothing more than a "savings rental" contract. Somebody has savings, somebody else hasn't but need it for now, they loan. The interest rate is the price of such rental.
As of any price, in a free market it reflects the supply/demand. So, in a free market, the interest rate reflect the supply/demand of savings available for "renting" (lending).
When the government intervenes with its authoritarian inflation to push down interest rates, it causes price distortion. When the price of something decreases, that normally stimulate consumption of this something and inhibits its production. That's what happen when government artificially pushes down interest rates: people spend more and save less. But newly printed money is not real savings. People are consuming as if there were lots of savings to back up their long term projects, but there isn't. Voluptuous investments will start and won't be able to finish. You have a boom followed by a bust that destroys capital.

And the worst of all is that it all takes years, normally more than the term of the despots who rule us under most democracies... their goal is always to push to the future the more they can, and enjoy only from the boom.



I don't get your point. There's no inherent value, value is subjective. Your bread just got "less valuable" not "less inherently valuable" as value is not a property of bread.


Ok, some members can do that, sure. Particularly those who are allowed to use coercion. If property rights were respected, that wouldn't happen.

A friend of mine disagrees and wrote a blog post (http://indsovu.comoro.net/tiki-view_blog_post.php?postId=25) about this topic.

What vladimir says indicates that either he or I have a gross misunderstanding of deflation.  Gold does NOT deflate OR inflate, and by design, bitcoins can't either.  There is a fixed quantity of gold in the world, inflation and deflation are caused by changes in quantities of money. Ok, let me qualify that, they're caused by changes in /availability/ of money.  So, yeah, if everyone suddenly started trading in gold, it would become much more available, and the price of bread, measured in gold, would decrease.  But there's no long-term change.  Damn, I remember I saw a graph of the price of oil in terms of gold, from the 1900's to today.  It went up & down like a yo-yo, but the long-term trend was flat.  That's also what I meant by "the only real currency is energy". http://www.incrediblecharts.com/economy/gold_oil_ratio.php  (that's the best I could find now - 1973 to today).

Right now, dollars (and €) are inflating, and everybody should be spending, but they're not.  I don't understand why.  I can only assume it's because the money supply is shrinking, even though there have been huge injections of liquidity.  Some have said that we're in a "liquidity trap" right now http://en.wikipedia.org/wiki/Liquidity_trap .  "Liquidity traps typically occur when expectations of adverse events (e.g., deflation, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest."  If this leads to widespread unemployment as it seems to be doing, then deflation will eventually set in.  The only way out of deflation is to inject more liquidity, and the result of that would eventually be hyperinflation.  Isn't this one of the main bones of contention between modern schools of economic thought?  What are they called, Austrian Vs neo-Keynesian?  Can anyone clarify please?  (e.g.
http://www.humanaction.co.za/2010/09/hyper-inflation-and-deflation-are-two-sides-of-the-same-coin/ )

@grondilu: Paper money is not yet worthless.  You can buy stuff to eat with it.
accounting tool: yes, money is just that.  But when an economy fails, it takes time to generate a new currency, and to get the new currency into circulation.  The transition is tough, because it takes time for people to understand the value of the new currency, and they will be reluctant to buy or sell at any price.

@hugolp: cellphone and computer are necessities for my job. I could not compete in the economy without them.
re. brazil: I mean, Brazil benefits by chopping down the Amazon.  Brazil (one member) benefits, world (society) suffers.  In the long run, I daresay Brazil will suffer too.
govt. spending: it helps the economy because all those civil servants buy stuff with their salaries - bread, mobile phones, everything. Giving jobs to loads of other people, who spend in turn etc etc.  Right now it would be a disaster for the govt to significantly cut spending.  It would be like putting a choke on the economy.  Now, that's a discussion of the status quo.  I'm not intending a discussion on whether Big Govt versus Small Govt, just how things are now.

@caveden:
bread: ask a hungry man if bread has inherent value. Then ask him if a half-a-kilo steak has a relatively greater inherent value.  Maybe you could think of inherent value, as the amount of time a person is willing to work in order to obtain that object.  Tell you what though, forget about "inherent value".  Your statement "Your bread just got "less valuable"" seems to me to indicate we're saying the same thing with different terminology.  "less valuable" is fine by me.  Now, is price reduction by deflation equivalent to price reduction due to a lesser value?  I'm sure you think not.
savings: the credit-fueled boom of the past 40 or more years has done some wonders for western society (and now eastern too). But I agree with you, the politicians are selling us the present at the expense of the future, though I don't understand why all the capital created should now be destroyed as you suggest.  Be sure your kids know how to train an ox to till a field :-)  But, in any case, fractional reserve banking FRB allows investment *without* savings.  Or, more precisely, it allows $10 investments for every $1 saved (or whatever the fraction in FRB is) (ok, it's not quite like that, but there are already threads about FRB).
despots: agreed. Politicians don't take a long term view anymore, if they ever did.
property rights: property rights will never stop people abusing the rules at the expense of others, *except* in small communities.  And rights are worthless unless there is a police force to enforce them, and libertarians don't like things like police forces.

#bittertea: that's a good post by your friend, it say things much better than I could, and goes back to a post I wrote a long while ago: in the long term, you can't have inflation without interest and vice-versa.  Since bitcoins can't inflate, then the bitcoin economy can't support, in the long term, anyone who charges interest for a loan. (see "pros and cons of anonymous digital cash" http://bitcointalk.org/index.php?topic=67.0;all).

keep it up folks!

Ok, sorry, you're right.  I had made the assumption of a constant economy, neither growing nor shrinking.

Price reduction either means society values less the priced thing, or values more whatever you're using to measure such price (the money), or both at some degree.

In a scenario of monetary stability (insignificant or zero monetary inflation/deflation - not to confuse with price inflation/deflation), it's normal for most prices to fall on the long run because society will accumulate more capital, what will make it more productive. More production, the supply of "stuff" increases. The supply increasing, the value decreases.

Did I answer your question? By the way, why the question, I'm not sure I understood?


I didn't say all. If I did, it was a mistake, sorry.
What I think I said was that lots of capital will have to be destroyed. And this is simply because the boom was artificial. There were no real savings to sustain it. And the projects that can't be continued due to lack of savings might have to be abandoned, what implies in capital loss.

The typical example is the guy that starts building his home believing he'll be able to spend the equivalent of 1 millions dollars in resources and labor, but in reality there are only 500k available, and he doesn't know. He'll probably start a voluptuous project that he'll not be able to finish. If he discovers the problem in the beginning, say, after having spent 50k somebody prevents him there are only 450k more available instead of 950k, he might still be able to "patch" the project and in one way or another reuse part of the resources already spent. But if he figures out the issue after having spent something like 400k, he's probably screwed and will have to abandon the whole project. All the savings spent will be lost.

This is what happens when people start big investments possible only due to the artificially low interest rates central banks produce with their inflation. And, as in the example, the longer the illusion keeps going on, the bigger the damages will be. That's why the best thing would be not to prevent the recession, but let it come with all its strength to reorganize prices and capital allocation as fast as possible.


No... FRB doesn't create actual resources, it only creates new money. How is that going to allow investments to take place? Capital is not made of dollar bills. :)

Investments need resources. These resources had to be previously produced and not consumed, otherwise they wouldn't be available for the investment. Resources that are produced but not consumed is the definition of savings. Conclusion, investments need savings.

What might be said about FRB alone (without central banking) is that it puts saved resources available for investments more efficiently. I confess I'm not sure whether this is true or false, there's a big debate there. But, in spite of that, it's quite clear that central bank inflation only does damage.


We don't like state police, don't mix things up. ;)
Voluntarily providing protection services is perfectly fine and fundamental, as you note.

This is great!  For about the first time, I find myself agreeing with the forum. I can't figure out if it's because the forum convinced me, or I convinced the forum.  I think, mostly, I just learned the correct terminology for what I was thinking.  Thanks to all!

More goods are chaising the same money, hence the same amount of money buys more goods, therefore one unit of money becomes more valuable, hence we have deflation.
[/quote]
So, let's imagine a deflationary scenario sets in, causing (my hypothesis) people to reduce spending.  The lack of spending causes companies to lay off employees to reduce costs.  This further reduces the spending *BUT* increases the value of the remaining currency because you now have less currency chasing an equal amount of goods.  HOWEVER, what if companies ALSO decrease production to save costs?  Well, now you have a deflating currency chasing less goods - which wins?  Will the price of goods go up or down?  Depends, I guess on whether the economy shrinks faster than the money supply, or vice-versa.  So, therefore, this forum's assumption (see earlier) that hoarders cause others' currency to become more valuable, is not necessarily a valid assumption.  Then is just depends on whether the reduced-spending -> cost-cutting-and-reduced-production -> reduced-spending spiral becomes epidemic or not.  The monetary powers have to walk a tightrope between deflation and inflation, trying to match the money supply to economic growth or decline.

That's what the study of complexity is all about.

You did - it's the difference btw monetary and price deflation.  I didn't realise there existed the term "price deflation".  That's what I was trying to express by "reduced value" - the reduction in price due to "progress", even though monetary inflation is zero (i.e. the "value" of money is appx. constant).

You didn't, my mistake.  Your example of the guy building his house explains it, but only for work-in-progress.  All the roads, hospitals, bridges etc, already built and completed, will not be destroyed (except after N years of degradation).

No, but since debt-$ are equivalent to savings-$, then you can use debt to /stimulate/ increased production. i.e. you can buy stuff with debt just as easily as with savings.  And they don't have to have been previously produced.  They just need to be produced in the near future.   Have you seen "money as debt" (see other thread)?  It's a great video explaining (amongst other things) how the colonial powers needed debt to fuel their continued expansion.

But this just begs the question.  What if two protection services have a dispute?  Is there a voluntarily provided protection-services-dispute centre?  And if two of /those/ disagree?  Etc.  Eventually, you need a Supreme Court whose decision is final and binding.  But for that to be final and binding, you need a "special" police force that can legitimately enforce the supreme court's rulings.  Hey, I don't want to get into a discussion of libertarianism, these are old debates that have never been adequately resolved (at least, not for me).  And, I'm also playing devil's advocate.  While a Non-State would be great, I just have a feeling that it would never work.  It would either dissolve from within, or be taken over by a foreign power.

People like me chase money by lowering our price so that we can acquire goodies. So labor can remain constant, or even increase in quality.

/quote caveden
No... FRB doesn't create actual resources, it only creates new money. How is that going to allow investments to take place? Capital is not made of dollar bills. Smiley
/quote

Someone else already mentioned that when you offer to buy, even with debt, production of resources can maybe be started up to meet your offer.

But I am reminded of a post I saw elsewhere in these forums claiming that the fact that some sequences of bits have in the past been sold, and some might likely in the future be sold, can be construed as a tax obligation on the part of people coming into possession of sequences of bits. Specifically, a miner making a block during the 50 botcoin block regime might be liable for tax on whatever some other bitcoins had around that time in history contrived to get exchanged into dollars for, or maybe even the mere existence of an offer at or around that time might suffice to create a tax obligation.

So when a banker's magickal flourish of his magickal pen conjures yet more megabucks into existence, if someone, including that banker, chose to offer some of those magickal megabucks in return for some resource, presto that resource can be purported to be worth those megabucks, whoever has that resource however desperately their survival might depend on it and however totally lacking in money they might be possibly due to previous magickal flourishes of such magickal pens, that "unfortunate" holder of the resource suddenly is liable for the tax on those megabucks their crumb of bread uh I mean desired resource has magickally been fiat-ed to be "worth" as a lever for coercing its holder, and .... this seems to be particularly cruel .... if the banker then decides instead to purchase his cousin's room-mate's cousin's crumb instead, the poor sucker stuck with the crumb that wasn't actually bought owes taxes on the totally "didn't actually happen" imaginary "value" of that crumb!

Given such weirdness, if the terrabucks say let there be investment, how many people having to die to enable it would even matter? Aren't they merely collateral damage compared to the grand schemes of the terrabuck-pen-wielders?

(Back when controversy over Lindens and WoW gold and large value ebay auctioned magick swords one could conjure up 32767 of as easily as one could conjure up 257 of was quite heated some politicians actually seemed to figure if I had MAXLONGINT such swords their value for tax purposes presumably should be MAXLONGINT times whatever one somehow sold on e-bay for! Imagine my tax liability then! How long an int's max of such "goods" would have to go up for auction to demonstrate to such thinking that it might not quite have it's estimate of the value of unsold and potentially unselleable goods quite right?)

-MarkM- (s/botcoin/bitcoin/ left unexecuted as the typo seems nicely fortuitous.)

You are not answering to my questions,


That is exactly my point and proves what you said before wrong. When prices go down people keep buying.


Again, you deflect the issue. Brazil is a clear example of the violation of individual rights (in this case mainly property of the natives) by a collective organization (the brazillian governement). If individualism* was respected in Brazil the Amazon would be a lot better.

*Individualism in politics mean respecting individual rights, NOT going along in live. Individualism is a set of rules for cooperation between people.


This is totally false. It seems to me you think gov spending comes from nowhere like magic, and also that gov spending is as efficient and looks towards people needs as the private sector.

Sorry, I must have missed exactly the questions.  I thought I was answering, but maybe I didn't fully understand.  Could you repeat the specific questions I didn't answer please?

I disagree.  When my phone breaks I will get a new one, but not before then (I have a crappy phone, I hate it, but refuse to buy another because this one still works).  A phone and computer, for me, are necessities, like bread and water (not *exactly* like them, just similar).  If I didn't have them, I'd lose my job.  People will *always* buy bread (assuming they can) irrespective of the price, just like me and my phone.  However, I will not buy any unnecessary phone or bread.  In an economy undergoing monetary deflation, people will minimize unnecessary purchases.  Price deflation (e.g. tech products) due to reduced production costs does not have this effect.

There are levels of collectivism, I'm referring to a community of nations.  The world, at present, is respecting Brazil's right to do what it wants with its own land.  Is that a good thing?  Do you think that the Forces-Of-The-West should invade Brazil in order to install a better western style democracy with greater respect for individual rights?  And, how can you be so sure that individual farmers, in the Amazon basin, wouldn't do even worse?  Lovely fertile land, all you need is to chop down some irritating trees first.  I'm not being sarcastic - I'm really asking how you can be so sure.  It's not clear to me.

Part of govt. spending comes from tax, the rest from debt .  Right?  And if you watch money-as-debt, then I guess debt spending /is/ a bit like magic, yeah?  Money-from-nothing?  Like I said, I'm trying to discuss the present situation in which there is a Big Govt, NOT whether there should be a Big Govt or not.  If Big Govt significantly reduced spending now, there would be an economic disaster even ignoring all the extra unemployed.  There will probably be an economic disaster anyway, and the longer it's put off, the worse it will be.  But, right now, politicians don't want any economic disasters so they keep spending up.  The best path might be to slowly change from Big Govt to Small Govt (slowly, like over 20 years), and then private spending could make up, perhaps more efficiently, the loss of all that govt spending.  Personally I'd be worried about corporate irresponsibility in an unregulated world, but that's just me.

@kiba: self-employed people that can reduce their own price are a minority. And I'm guessing even you won't reduce your prices below how much it costs you to produce.  If it gets that bad you'll stop producing, and the economy will shrink just that little bit more.

Just a post about this particular subject. It seems both of you are mislead in your arguing. It's the same kind of mistake I see often when people talk about smoke-free environments. The pro-market people try to argue how a free market would create all sort of smoke-free and non-smoke-free environments for all tastes, and the other side remains skeptical. Same thing here with "how would the free market preserve the Amazon".

The first thing that is important to remember is: the free market pushes towards the best resource allocation humanly possible. That's what it does, always. The definition of what is the best allocation is where you both might be mistaken there. Who says the Amazon has to be preserved in the first place?

The free market "criterion" is utility to mankind. We have to remember that everything has a cost. Maybe having lots of smoke-free environments is not the best resource allocation due to high costs and reduced benefits.
Same thing for the amazon. I strongly doubt that preserving that huge forest as is is the best resource allocation to mankind. It's really a huge amount of land that could be much better used than just let it there for monkeys and snakes. Of course, in a true free market, some would acquire land in the amazon to preserve it, either for tourism, or for science researches, or whatever reason these owners decide to give to their land. But I bet that most of the forest would be destroyed to give place to something more useful to human beings, like agriculture and livestock for example.
Am I wrong? Maybe. The only way to really know is to let people free and see what they prefer to do.

You said people dont buy stuff when prices go down. I said they do. Now you say that you buy stuff you need even when prices go down. You are disagreeing with yourself. This is getting a bit ridiculous. Either people buy stuff (for whatever reasons) when prices go down or they dont.


We have been talking of prices going down all the time. If you realize I have been trying to avoid the word "deflation" and always used the expression "prices going down" to avoid confusion. Again you are agreeing with me, people buy stuff when prices go down.

Nobody here is advocating persistent monetary deflation as monetary system (at least not me). Anyways, I am glad we came to an agreement.


Expreading democracy around the world... Is there anyone that stills believes this bullshit? Havent we seen enough damage and deads in the name of expreading democracy? In case you are interested the expression was coined by the early progressive movement that was a creation of big companies, specially the Rockefeller and the Morgans to create a moral justification to regulate the market and gain competitive advantage through political means. This has been extremely well documented. In fact, the first meeting towards creating the progressive party was full of Rockefeller and Morgan men.

There is a saying, that I never remember who said it, but its brilliant and it goes something like this: The more beautiful and utopic the promises from a politician are, the more darker his intentions. This really describes well the idea of "Expreading democracy around the world" that is nothing more than USA imperialism. In fact, its funny because the early progressive economists justified invading other countries by saying that business in the USA was too developed (late XIX century) and the USA government needed to invade other countries to guarantee new markets for the USA industries.

About the question, no, I would not justify invading a foreign country to impose any system. We should have learnt by now that the reasons for war are never charitable. The charitable part are just excuses for the mases.

Btw, I understand if you dont take my word for all this historic points I made and you can ask for references if you are interested in knowing the origins of the USA progressive movement.


The fact that the Amazon was there and its owners did not cut it down should tell you something about it. It took an organized government to do it.

I understand you have been educated to believe government cares for you and the environment. I was educated the same way (socialdemocrat parents and socialdemocrat myself until I was 27). Its not that way. Men get together and organize a monopolistic entity only to have control and profit violating other peoples rights.


Ok. I understand what you say. Let me make some points.

1. Money as debt is not the best source of economic theory. They explain very well how the fractional system works under a central bank, but they never mention the incentives the central bank creates to provoque that behaviour in banks, and they dont explain that without a central bank fractional reserve is very different.

2. Now to the point. Government spending can keep the GDP numbers going up. That does not mean economic growth. If you go on debt and start paying people to dig a whole and then cover it back the GDP will go up, but you have not improved the economic situation, in fact you are worse, because you have the same goods (filling and covering wholes produced nothing) and you have more debt.

So yes, government spending can create a statistic boom in the economic indicators, but, as I explained before, the government does not know how to satisfy the people, mainly because it does not operate under the price mechanism, so the government spending its just mainly waste (and you can litterally check that with the Obama stimulus and how it was used). It does not lead to recovery. Just for the record, right now its not the time to reduce basic welfare spending like food stamps and stuff like that. The poor people has been hit enough by government regulations, and there is no need to make them pay. There are a lot of places to reduce first. But as government are always an agent for the big interests the reductions are always towards the people.

As an example, you have the crisis at the beginning of the 1920's, caused when the bubble created by the Fed to pay for IWW went bust. The president then reduced taxes, reduced spending and the Fed did not had power to inflate until 1922 (it got special powers during the war that were removed when it ended). The crisis started worst than the Great Depression, but it was over in year and a half. Why? Because government reducing taxes and spending allowed room for the market to coordinate itself again. Entrepeneurs created the industries that produced what people wanted (not just government silly spending) and real wealth appeared.

The macroeconomic mentallity that any spending is good is totally wrong. You can not pretend that just spending in anything is going to produce real wealth. If you spend in useless stuff in fact you are squandering wealth, and becoming poorer. Yes, spending a lot boosts economic indicators but its not a real recovery, its not sustainable. It will prolong the depression. Yes, reducing government spending will make the economic indicators go down a lot more, but it will lead to a quick recovery.

Please differentiate between NECESSITIES and LUXURIES.  I never said people don't buy stuff when prices go down, I said people don't buy UNNECCESSARY stuff during periods of MONETARY DEFLATION - and everyone has a different idea of what's "necessary" (I might not have been clear about the "monetary deflation" bit in my first posts, confusing it with price deflation).  If my phone breaks, then I'll buy a new one regardless of whether prices are going up or down, because I NEED one.  But if there is monetary deflation, then I definitely won't buy that new computer game, because I DON'T NEED it.  What about you?  If your money is deflating, would you concentrate your purchases more on necessities, or would you splash out on a new pair of $250 shoes (for you, or your GF) just because they're nice, or would you wait until next month when you can buy the same shoes AND a burger&fries for $250?  What if you lost your job at the same time?  What then?  Now think about people who are investing $millions.  Even low deflation could mean they can afford to buy a new luxury car for their children if they just wait one month before investing.

We did?  Good, I'm glad too.

I'm sure you realised I was being sarcastic when I wrote about invading Brazil??? I didn't know some of those things you wrote, but they wouldn't be so surprising.  I'll bet the amazon was never destroyed for many years because the population density (of humans) was simply too low.  A few hundred tribes living in and around it would never do more damage than regrowth - you'd need big, terrible, fast machines to do significant damage, and that didn't come about until, how long ago, maybe 40 or 60 years ago? (see youtube)

More than private enterprise cares for me, I think (see below).  I'm a big skeptic of modern government though - I have the feeling that once upon a time, politicians were driven by ideals, not greed and personal gain.  I'll tell you what, if I could only live 1000 years to collect, I'd bet that having no govt would eventually reduce mankind to Hobbes' "solitary, poor, nasty, brutish, and short" life.  And by "govt" I mean any persistent authority, even e.g. tribal chiefs.  My opinion, therefore, is that it's more important to have some set of laws by which all people can expect some guaranteed living standard, than that the set of laws be "the right ones", whatever that might be.  It's like driving, yeah?  Who knows, maybe driving on the left /is/ better than driving on the right, but it's much more important that everybody agrees which side to drive on, than that their choice be the "correct" one.

govt spending: what you say is right.  In short, those that perform services do not increase overall wealth.  Only the production of goods can do that.  And most of govt's work is services.  However, services do help money to circulate, allowing more people to demand produced goods.  I feel like we're almost coming to an agreement here too...???

This, for me, is the biggest drawback to pure capitalism.  It's shortsighted.  Destroying the amazon rainforest would bring great benefits to human society for a while.  Then, after many years, it would be clear that the amazon had a crucial role to play in keeping the atmosphere oxygenated (the lungs of the planet, anyone?), keeping floods under control, maintaining biodiversity, heck, I don't know what else.  Now I may well be wrong, and an oxygen-depleted atmosphere might well improve humanity's state somehow.  It just seems a bit risky to me, that's all.

I dont understand why you started discussing about monetary deflation when nobody supports a system based on monetary deflation. But hey, at least we agree. Btw, the fact that people dont buy what they dont need is a good thing.


No. Really no. The internet does not transmit all the information a voice conversation does, and I have heard heavy facists stuff coming from interventionist, so I am not surprised anymore. Im glad you were joking though.


Yep, all true. Still dodging the question. The collectivist system, the government, is violating individual rights (the property of the natives) to destroy the amazon. Collectivism always promises the moon and delivers destruction and poverty.

So many misconceptions in this (and I couldnt but to smile while reading because I use to belive most of it):


Its not that a person in charge of a company cares more for you. The same person can be in government and in a private company during his/her live, and he cares for you the same. Its not that the people in government care more or the people in the private companies care more. Its stupid to believe any of those. That is not the point. The important point is that the private sector is designed to focus the incentives towards pleasing the consumer because it can not use violence, it has to get the agreement of the buyer, while the government is a monopoly that uses force to acomplish its goals. Even if a good person gets to be dictator it would probably fuck up big time because there is no way anyone can know the necessities and desires of so many people. This is why voluntary exchange works and violence does not.


"Old times were always better"... There is a psycological study somewhere proving that the mind tends to focus on the good memories and tries to forget the bad ones, which is why people tend to think that the past is always better.

In the past people died everyday, there was rampant malnutrition, slavery, rape, etc... and the leaders did not give a fuck. This idea that old times were better is just fictional. I am glad I dont live in the past seriously, specially because the lower classes had it really tough compared to this days.


"If you all dont obey ME there will be caos"... Mubarak just used that line in Egypt. When it has been proven again and again that self-organization and spontaneous order always beats central planing, people still believe in the old idea. You know, Im fine with it as long as I get to be in power. ;) Leaders will always attribute themselves the achievements of a society (and blame the faults on others), when in reality is the people working and cooperating that makes anything possible.

Anarchy is order, government is chaos. If it was possible for the government to take control of every aspect there would be caos. Absolute caos and discordination. People would starve. This society only works because there are still some sort of self-organization and spontaneous order in the middle of all the government meddling.


Anarchy is not lawless. In fact, laws are respected more in an anarchic system than when there is a centralized system. Everything you said is possible under a non-government system.


Yes, definitevely government spending will create a statistical boom. Its just that it wont be a real recovery because the capital created wont be the addecuate to satisfiy the consumer needs and will collapse again.


Im not a capitalist, at least not in the popular sense. Im a market anarchists and I share some ideas with some self-proclaimed socialists and some other with some self-proclaimed capitalists. I really think the distinction is bullshit.

You seem to imply again that without the government there would be destruction or caos, and therefore anyone that wants to get rid of government is short sighed and crazy. What if what it is short sighted and crazy is believing that without government there would be destruction and caos?. You know, its funny because you see governments helping and enabling the destruction of nature, yet you keep hoping government will do something to stop it. Tell me this: if the majority of the people really wanted to destroy the Amazon to create agricultural land, how is a democratic government going to do anything else than destroying the Amazon?

hehehe, right, and governments are very longterm oriented... They plan everything they can for the next election! :D

Only by respecting private property rights you'll get people to worry about the future consequences of their acts, as the rightful owners will care about what happens to their property. Currently most of the amazon is owned by the Brazilian government. What do they care?
Had you understood what I tried to explain about how governments stimulate consumption, producing short term booms at the expense of long term recessions, you'd understand who's really shortsighted...


Seriously, the "world lung" hoax?? You still fall for it??
Try to remember the basic chemistry behind photosynthesis and you might realize how this is nonsense... the Amazon doesn't provide oxygen to the world.


I bet all these things can be done much more cheaply than the cost of not using such precious resource as all that land.

About biodiversity, what's the point, preserving just to preserve? Useful species will be preserved, you bet. Soon we'll even be inventing new species, DNA synthesis is a reality already.
You should watch this George Carlin video: http://www.youtube.com/watch?v=xjfiIow-eW0

I insist that it's probably useless to preserve such a huge jungle just for the sake of preserving it. It's pointless. Preserving small parts of it might be interesting, but not all.

I have to agree with caveden, although I'm not that extreme.

In any way, what we should do about tropical forests, is not for a bunch of ecolocrats to decide.

As you correctly said earlier, the market leads towards the optimum solution.

I would like to preserve the Amazon for aesthetic reasons, and I would contribute plenty of money towards that, as would some other people. I have no doubt that the optimum amount of jungle would end up being preserved.

Undeveloped land is actually really cheap to buy. Even in the United Kingdom, you can buy farmland for £5000 per acre. If you want land that comes with permission to build, that will cost you a hundred times as much (due to the government monopoly on approving building), but if you just want to preserve land it's cheap. I'm sure the prices in Brazil will be much lower than those in the UK.

http://www.therainforestsite.com/

-MarkM- ( have you eaten today? http://www.thehungersite.com/ )

Not possible, you could live on a loaf of bread a day at a pinch (although you would suffer nasty malnutrition). The fact I choose to buy and use a computer would be considered a luxury by many.
I brought a smartphone even though I was pretty sure that I could buy an equivelent one in 8 mouths or so. But since the phone cost me £60 I really didn't care. I could live without it, but the benefits of having a smartphone for 8 months outweighed the cost.

Those debates are useless.

Nobody should decide for me how I should spend or save my money.   This is only my decision to make.

People who think that a bit of inflation is good for the economy can just use paper money.

Other people will use precious metals and cryptocurrencies.

Planified economy sucks and has always failed.

We've gone *way* off topic here, so if we want to continue on this subject (anarcho-capitalism et al V govt), let's start a new thread.  I'd have more to say, but this post is huge already, and I've gotta go.

Arrrghhhhhhh WHAT question?????  Stop telling me I'm not answering questions that you haven't asked.

Read the title of this thread.

Take a look at wikipedia's page on the amazon rainforest - it's about half of the world's total rainforest.  Do you truly think that's unimportant?  I'm shocked at such ignorance of science just for political ideals.  I don't know whether the destruction of the amazon would have a big effect on the world's environment, please don't be so arrogant as to say that you *do*.

anarchy & lawlessness: you should correct wikipedia's page if you think anarchy is not lawless. My understanding is that anarchy is nothing other than voluntary cooperation between individuals.  By definition, an anarchic society has no regulations.  Even the etymology of the word itself suggests an absence of hierarchy and authority.  This leaves the society vulnerable to whosoever would abuse that situation.  Are you so naive as to assume that nobody would seek to do such abuse?

There's a clear question.  Absolutely nothing. [sarcasm]Apart from moving in the army[/sarcasm].  If everybody wanted to jump off a cliff, there's little anyone could do stop them either, right?

[quote from=caveden]
I bet all these things can be done much more cheaply than the cost of not using such precious resource as all that land.
[/quote]
ok. And I'll bet we could cover greenland with some mirrors (to better reflect sunlight), start melting all the ice, bottle it, and sell it as pristine million-year old, glacial water.  Damn, you could even sell it still frozen, or even cheaper, you could melt it and then re-freeze it - imagine: "pure glacier, the way nature intended".  Given how stupid most people are, can you doubt there would be a market for it?  And why stop with Greenland?  Now don't tell me that people wouldn't pay, they already pay up to ten thousand times the price for bottled than tap water.  And please don't embarrass yourself by suggesting that the market would punish the corporation that decided to abuse Greenland's ice sheet.  Nobody would stop them 'cos Greenland is far away from everyone except about 50000 greenlanders.  People wouldn't care about Greenland, just as you don't care that the tantalum in your mobile phone comes from environmentally destructive mines in Congo controlled by armed thugs engaging in a conflict counting millions dead.  And, you know what, maybe nothing would happen.  Maybe sea-levels wouldn't rise. But if they did, you can be damn sure the profits made would be in CEO and shareholders pockets, and nobody would cough up the money required to protect endangered coastlines.  Oh wait, what am I thinking, if the only point in preserving endangered coastlines is to preserve them, well we can just forget about it.  (That bit was pure sarcasm too, folks.  I hope you got it this time.)

I stand corrected, but that doesn't invalidate my point.  The amazon is important, even if only because we don't yet know how important it is.

And why do you think private corporations will respect private property rights?  In a corporate world, people are rewarded with money and power. That means the people who come to power are the ones that like to have money - greedy self-obsessed people (not much different from politicians of today).  Even hugolp agrees that politicians and corporate leaders are often one and the same.  Your politicians will just become your corporate leaders, and tell me this: why should they suddenly become "nice" in an anarchist society?  I'm not saying the present political leadership is any good, or that the regulations they impose are just and correct.  I just don't think corporate anarchy will do better.

I understand the Austrian theory of debt spending causing boom-n-bust business cycles.  I just don't think it's that simple.  The latest crisis, for example, is far more complex - not least because of the rising price of energy immediately prior to the crisis.  This limited growth for reasons *external* to the economy, which is something economic theories don't consider (as far as I can tell).  Furthermore, my understanding is that the Austrian boom-bust cycle is caused by a debt-inflated economy, thanks to fractional reserve banking, controlled (in the US) by the Federal Reserve.  Guess what?  A corporation specifically designed to safeguard the interests of privately owned member banks, largely independent of the government.  http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm#5

Who gets to decide what's useful?  Just their economic function?  If you start disrupting an ecology, there is no way to tell the end result.  It's a perfect complex system, with long range correlations between species and power-law extinction events.  What if those stupid pink frogs seem useless but then, after they're all dead, it turns out they were an essential dietary part of that lovely useful crocodile's prey?  Same comment for invention of new species.  GM food companies are playing a game that could have dire consequences - and nobody really knows how it could play out.  People talk alot, but nobody really knows.

Preserve it for it's potential economic utility, if nothing else.  Nobody knows what the future cost of destroying the amazon rainforest would be.

[quote from=grondilu]
In any way, what we should do about tropical forests, is not for a bunch of ecolocrats to decide.
[/quote]
[my ignorance, what's an ecolocrat? do you mean "econocrat"? if so:]  Agreed. I would have the decisions made by scientists, sociologists and philosophers - unfortunately in a pure corporate world scientists and sociologists without some funding bias would be hard to come by.

@ptd: you don't care because you have plenty of disposable income.  In a monetary deflation scenario, lots of people don't, and that chokes production.

OMG  Do you realy believe this?

So you'll allow people to use public force at their will, only because those people have a piece of paper called a diploma, saying they are "philosophs" or "scientists"?

That's a cop-out. It just gives the ultimate power to those politicians who make the decision as to which scientists, sociologists and philosophers are selected as decision-makers.

I am one of those who thinks the Amazon is important to the prosperity of humans, which is why neither the government nor its pressure-groups should be involved. Government rarely looks beyond the next election. But an owner of a forest who preserves a species that might otherwise become extinct, has tremendous opportunities to profit from that in the long-term future.

Quite the contrary, it makes my savings disposable (because all prices go down). It worth noting that monetary deflation is a result of economic growth (if you double the amount of stuff avalible, it halves in price).

I could just as well say:
It's no less true.

+1

Eh???  Can you think of anyone better qualified to make a scientific statement about the loss of biodiversity in the amazon that the *scientists* who have *actually studied it*???  Or do you think we should just take, what, like a /vote/???  Bear in mind how susceptible public opinion is to what some barbie in the latest hollywood action-crap says.

If you really believe what you're saying, then economists have no right to speak publicly about economics, and you can shove your von mises institute where the sun don't shine.  Right?  (or if you're of the other camp, then substitute for some other appropriate institute).

Some people are more educated about some topics, and, yes, that gives them the right to speak publicly, and it /should/ oblige other people to consider their opinion.

I noted the problem with finding unbiased scientists.  Is that what's bugging you?  That's not just government - it's big Pharma, big GMO, big Oil, big Internet, big IntellectualProperty, big Whatever, and all the lobbying that goes on behind closed doors (need I make it clear, by private corporations).  You can't have unbiased scientists without unbiased funding.  Corporations will never provide unbiased funding.

I have nothing against freedom of speech.

As far as how nature should be ruled, it should be ruled by whoever owns it.  Free market has shown already that it is perfectly capable of maintaining and protecting natural resources, including livestocks.  And if it can't, be it.

It's not an issue of freedom of speech.  It's about people who understand an issue being the decision makers, or at least having some significant influence on the decision makers.

As for the free market, what would you buy: cheap wood from company A, or expensive wood from company B which calculated future environmental-repair costs into its price?  Personally, if I could be sure that B would do that, then I would buy theirs.  But I wouldn't trust them as far as I could throw their tree trunks.  I can just imagine the board meeting - "Dear shareholders, we have $1B in the bank, but we don't want to give it to you 'cos we'll need it to help out those poor farmers in 20 years time."  "Dear CEO, we want to buy those cool new holographic phones. The door is over there, GTFO."

Free market has shown that it is perfectly capable of squashing chickens into such a small cage that they can't even turn around.  Free market has shown that it is perfectly capable of pumping livestock full of drugs and hormones to make the meat absorb more water, and so sell for more money (sold by weight); so much so that the hormones in the human food supply are causing male fertility leves to drop.  Can the forum come up with more examples of the free market's failings?  Just in case, I'd like to repeat that I don't have any great faith in government either.  I'm just skeptical that the free market would be this wonderful utopia that many people here here seem to think.

It's called suing their ass for violating your property right.


Chickens are food. They have no right.

If you don't like how chickens are treated, eat free range chickens.

Fifty years ago, a chicken cost three hours average wages. Today a farmed chicken costs fifteen minutes average wages, and an organic free range chicken costs two hours average wages.

The free market provides both choices, and provides them excellently.

It's the only rich snotty kid like you and me that can afford healthy food in the first place(Of course, even the poor, in the US at least, now eat like kings).

If there's a way to provide healthy food for the poor, it will eventually be explored.

Otherwise, industrial farming as it is done right now will continue to be a necessity to sustain the world's population.

No problem if they just speak and hope to have influence.  I'm not fluent in english but I think it's called "advise" or "opinion", not "decision".


Free market is capable of doing things right, but it's made of human being's actions.  Humans have the right to make mistakes.  Humans have the right to try things.  One thing is sure: noone has the right to use force to coerce him to do things just because he things he knows better.

PS. nobody forces you to buy a chicken if you don't like the way it has been farmed.

Are you suggesting that there should be some kind of "governing authority" where disputes can be resolved...?

Damned it Kiba, you gave him something to bite on.  Be carefull.

For minarchist, defense of property is one of the very few things a government is usefull for.

For anarcho-capitalists, the owner of a property must defend it himself, or with a private police.

No.

Correct.  Politicians often have "advisors". Unfortunately, the lobbyists are far more powerful.  Actually they're probably lobbying the damn advisors too.  Often, the advisors themselves come from a corporate or political background, and not a scientific one. 

What, like otherwise I'll discover the "dark secret" of anarchists that causes the whole house of cards to tumble down :-)  The private police doesn't solve the problem I earlier mentioned about conflicting private police forces.

Like I say, I'd have way more questions to ask, and challenges to yer messages here, and I'm really enjoying the discussion.  Thanks to all of you.  But I'm burning up way to much time on it.  I gotta stop.  Mostly, I gotta read up on the mises institute, and I ain't got time for that either.

In conclusion, my opinion is:

1. monetary deflation would be very nasty.

2. anarchism would be sweet, but possibly not practicable.

3. I genuinely find it baffling that some of you think a free market can solve long-term problems better than (independent) scientists who have studied the problem deeply.  Particularly when the problems associated with a free-market solution are far away (e.g. my Greenland Glacier Ice product, precious metals in Congo, etc).

4. Also that a free market will respect everyone's rights is bizarre.  A free market responds to the demands of large (i.e. profitable) groups.  Minorities will always find themselves subjugated.

That's it folks.  I bow out.  The last word is all yours.  Cheers.

The market always serves where money is available. Even the minorities.

A good economist would have realized by now that central planners can't beat the market in resource allocation! So you see, an economic expert would excuse himself from the central planning committee or possibly derail it.

What about anti-monopoly laws? Is it bad to prevent monopolisation or merely that only a monopoly on the disallowing of monopolies can prevent monopolies from forming?

-MarkM-

There is nothing wrong about monopolies, as long as it is not coerced.

A monopolistic company is just a company that fullfills whole market demands by itself.  We should congratulate, not blame it.


Google for instance has almost a monopoly on web research.  They are just that good about that.  But anyone who think they can do a better job, are free to try.

Those "anti-trust" law are often used to persecute smaller companies not large trusts.

Of course, monopolies often happen because of government regulations.

Why do you keep bringing the present corporate system like if it is something we defend or support? In  general libertarians oppose the present system as interventionist and government ruled, included the corporate world. For starters, a corporation is a entity that receives government privileges (it changes from country to country, but it usually involves things like limited liability) and libertarians are opposed to those. Corporations as we know them today are only possible because of government intervention. So please, I know there is a lot of bullshit around the internet with libertarians supporting corporations and stuff, but dont fall for it. Libertarians are not pro-business, libertarians are pro-free market.

And answering your concern, its because they would have no other option. Look all the example of unregulated markets (and I mean real unregulated markets, not hyper-regulated markets that are called deregulated for political propaganda). What do corporations do when business goes done? They lower the price, offer a better product or close. Its not that they have many more options. What else can they do if they can not lobby for government violence?

The telecomunications sector was usually an example of a sector that the market could not handle because of high natural barriers of entrace (expensive infrastructure). A lot of "economists" (for lack of a better word to describe them) said that only government could provide telecomunications efficently and respecting the poor (the poor is the preferred excuse of statists, like if they really care). Well, Somalia since it became anarchic developed a telecomunications industry that offers the cheapests rates in all Africa... And we are talking about an industry that supposedly the market could not handle. I bring this example, because it shows your misconceptions on how the market dynamics work. Without a government "to protect" the somalies from the private telecomunications companies, why are they getting the cheapest rates? Have the company owners suddenly become good people? Doubtful. Its just that they have no other option than to lower prices to not be eaten by the competition. If you had a government "to protect you", they would have used it to protect the already stablished companies from the competition and keep prices high, with some good sounding and caring excuse. But that wasnt an option, so they lowered prices. This is how things work in real live, not the wacko theories about government protecting people.

Again, its not that some person is going to be good or bad because of a different system. Its that the incentives and possibilities are different.


Austrian theory does not really talk about debt fuelled bubbles, it talks about inflation fuelled bubbles. It just happens that in the present system the way to inflate is mainly (but not only) through debt, so some people focus on the debt. But there could be other ways. The problem its inflation distorting the natural interest rates.

Also, the Fed can say what they want. The Fed also says its there to take care of the value of the dollar. The Fed is not independent. The board of governors is a federal government agency and its members are selected by the president and ratified by congress. You can check the Nixon Tapes to see how a president influences the Fed actions. But even if it was independent, whats your point? That it benefits private companies? Obviously, its a government intervention in the market. We have been telling you that government intervines in the market to benefit a few big companies and this is one of the best examples. Again, libertarians are not pro-business, libertarians are pro-free market. The fact that something is private does not make it libertarian. It has to be free of government intervention.

Btw, if people that supposedly cares about the environment started using their money to buy property with natural places they like to conserve, instead of using it for propaganda and government lobbying it would be much more efficiently use for the cause. The problem is that a lot of people that supposedly care about the environment in reality only care about politics.

Competition had occurred in telecom oligopolies to a certain extent that it is now ineffective to resist the tidal waves orchestrated by Google.  Telcom are now being reduced to bit haulers.
 
http://gigaom.com/mobile/cheap-android-smartphones/

It's an example that every agorist on the planet should aspire to, even if the example involve a multinational corporation whom privileges are granted by the state.

Quote: "What else can they do if they can not lobby for government violence?"

What happened to the private police / private army "solutions"? Not cost-effective even with (even your victims having cheap easy access to) modern weapons systems?

-MarkM- (Oh yeah, sure, cheap easy smratbombs. Pigeon powered guidance systems or hologram-brightspot car-counter parts or what?)

I am still researching the security part myself. I discovered libertarianism 4 years ago and it has been quite a intellectual travel, since I was a socialdemocrat, raised by socialdemocrat parents. What catched my eye was economics and I have focus in that part (and I have ended up writtign weekly in a national media of my country which I never expected to) but I am not so knowledgeable in other areas.

But for example, I have read about a nordic society in the middle ages that was basically voluntarely. It worked as a sort of "clans" but not clans as we understand them now. They were voluntary clans, where you could join and leave them freely. It was obviously a problem to not be in one of this organization since you had no protection or legal system, but competition worked. The society lasted 200-300 years. As an example, while in mainland Europe the literature heroes were all warriors, in this area the literature heroes were lawyers... Tell me which one do you think was a most violent and underdeveloped society.

Well, whaddya know.  I know it's not clear proof of my point, but it sure as hell puts in question the forum's majority opinion (i.e. that people will always buy tech products despite strong price deflation).

http://news.slashdot.org/story/11/02/26/2332243/Consumers-Buy-Less-Tech-Stuff-Keep-It-Longer

Yeah right, and you hink the solution to this is to increase the price?

"Oh my god, people don't buy my stuffs.  I know:  I'll just increase the price!"

What a weird conception of economics.

I'm not sure what point you think is being made by the Slashdot article.

Consumers are being squeezed because their food costs more than a year ago, their heating costs more than a year ago, their transport costs more than a year ago, their taxes are higher than a year ago, and their incomes have not kept pace. So of course they will prioritize essential purchases at the expense of discretionary purchases.

The amount of tech products they are buying now is higher than the amount they would be buying if the products hadn't dropped in price over the past few years.

I think you've forgotten what this thread was discussing, I'll try to summarize but if I get it wrong, please correct me (and I'll edit this post for serious errors):

[forum] Inflation is a nasty evil tax perpetrated by nasty evil governments.
[me] You may well be right, but inflation allows you to plan your economy better and possibly helps you avoid extremely destructive system-wide deflationary spirals, AS LONG as you can avoid hyperinflation [which seems to be the other side of deflation - someone else posted this link: http://www.humanaction.co.za/2010/09/hyper-inflation-and-deflation-are-two-sides-of-the-same-coin/ ].
[forum] Deflation isn't that bad, just 'cos prices go down doesn't mean people won't buy stuff.
[me] Actually, I think it does, check out the Great Depression.
[forum] Pah, check out tech goods: constant price deflation, people still buy.
[me] (today) Ok, let's check out tech goods so: slashdot sez people are reducing their tech spending.

But, you know, you're almost right anyway.  Inflation causes money to decrease in value, this will cause people to spend.  As far as I understand it, that's exactly the idea.  Check out the Wörgl experiment http://en.wikipedia.org/wiki/Local_currency#Historical_local_currencies - there was a local currency which, by design, decreased in value at a constant rate.  The experiment was very successful but, as you can imagine, it encroached on the central bank's turf and the central bank wasn't best pleased about that.

Next questions: if tech company revenues significantly fall, what are they going to do?  Will they increase R&D spending, or decrease it?  If they decrease it, what will happen to tech prices - will they increase, remain constant, or continue decreasing (assume zero monetary inflation).

I don't know what *would* happen.  I don't pretend to know and I don't care.  Moreover, I don't believe in central economic planification anyway.

I don't think prices would fall until the end of times, though.  At some point, an equilibrium should appear.  And if it doesn't:  be it!


Pro-inflation economists say that a bit of inflation is good because it prevents people from hoarding, and it makes them spend in shops before their money lose its value.

I have an other great tool to make people spend their money.  I think in english it's called the "whip".

Basically all you have to do is to hire cops to whip people if they refuse to enter shops and to buy stuffs.  Isn't that a great idea?

What about slavery?  I think slavery was pretty good for the economy.  It provided stable wages (zero is pretty much a constant number), so it was good for the companies which then could make predictable economic decisions.  So I guess whipping customers and enslaving workers would be a nice way to ensure economic stability and prosperity.

I'm getting tired of these Keynesian "deflation is bad and scary" thought police.  If I come up with a basket of essential goods (lets say what the average person needs to eat each day to survive) and publish a price index based on it, people could use it as a reference point when pricing goods and services in order to get a desirable and stable accounting unit...people could base loans and contracts on this index.  People could even choose to view all prices and bitcoin balances in terms of this index (given the necessary software infrastructure).  I don't need to invent any new currency or digital commodity to accomplish this feat.  Bitcoin is a commodity that acts as an anonymous, irrevocable medium of exchange on top of which all sorts of derived capabilities can be based.  Its value will rise as the infrastructure evolves and more people transact in it, but this rising value is not going to bring about any great economic calamity.

The real difference between inflationary fiat currency and a deflationary digital commodity like bitcoin is who benefits from the changing value.  In the case of bitcoin, deflation (loss of coins) dissipates wealth to all the current holders of bitcoin.  In the case of fiat, printing more money (inflation) transfers wealth from current holders of the currency to those with privileged access to the central bank.

Agreed.

They could, but if the people who have the limited resource (the currency) were smart, they wouldn't. They know that productivity and population will only increase, but the amount of money will stay the same, so unless you come up with some unusually good way to produce something more efficiently, keeping all your wealth in currency will be the best way to get richer. Of course, people seeing this will make them over invest in currency, creating bubbles. At some point it will burst when somebody starts selling, the price falls and everybody panics. Then the same will happen all over again. We see this cycle in the gold price, and it will also happen to bitcoins.

"keeping all your wealth in currency" ...well, that would be a really, really dumb idea.  Keeping all of your wealth in any one thing is a never a good thing.  Any financial planner preaches diversification.  What you describe is no different than keeping some of your wealth in land, gold, silver or just about anything else of value with intrinsic scarcity (something almost everyone does).

If bitcoin was widely used, then the wealth that you did store in bitcoin is effectively an investment in the overall economy.  It's a bit like investing in the S&P 500 (though it would be an even better proxy for the overall economy).  However, it's unlikely bitcoin will reach that great of a penetration any time soon (nor is that necessary for bitcoin to become very successful), in which case holding btc is like investing in the bitcoin oriented subset of the overall economy.  To the extent that the bitcoin economy is growing, such an investment would do well...to the extent it isn't growing, it would not do well.  Eventually, the bitcoin economy would stop growing as it reached a certain level of penetration, at which time bitcoin value would stabilize and not be a very attractive investment relative to other investment opportunities.  One shouldn't confuse the use of a commodity as a store of value with its utility as a medium of exchange.

The reason why people preach diversification is that you can't really know for sure what will be valuable in the future. If you do, diversification is stupid. Of course, in any economy you would diversify a little, but if you expect the currency to increase more than everything else in value, the rational thing is to keep as much exposure to it as you can afford, and not trade it away unless you have to.

Well said, grinder.

With Bitcoin, I would add one more reason to diversify, and that is because the absolute security of wallet.dat file cannot be 100% guaranteed.

But, you are completely ignoring the question of how much it is expected to increase.  With bitcoin, once all coins are mined (which won't be for a long while) and once it has reached a point of saturation (note: that may not mean everyone uses it or even a very large percentage of people use it), it is expected that it will experience deflation due to coin loss and/or continued adoption.  I'd argue that the returns you could expect from such deflation would fall far short of other investment opportunities that would be available to you.  Holding it would be viewed more as a savings activity than an investment activity (much like gold and silver holdings are savings, not investments).

The amount of currency will be the same, but the amount of available goods will increase with (increase in productivity) * (increase in population). This will most likely make the value of currency increase more than you could expect in return from an average investment in production.

Holding bitcoin actually is an investment in production, and that's where I believe your thinking betrays you...you view it simply as an unproductive medium, but that is grossly discounts the value that the platform is creating...you are investing in a community (rather than a company)...you are providing that community with liquidity to expand and improve the platform.  It is an interesting question...in a sense you are gaining as society as a whole is gaining...you are investing in something that better unlocks the potential of a community.

Respectful profit always benefits society.

If I'm keeping the currency to myself then I'm doing the exact opposite of providing liquidity.

Providing liquidity is neither saving nor investing.

But then I didn't say so, and since this is a smartass reply to another smartass reply I'm not going to elaborate either.

If you're keeping the currency, you must have the intention to use it eventually.

In the meantime, there is some amount of economic activity around Bitcoin. If you are keeping some coins, it doesn't affect the level of economic activity of others, but it does raise the value of those coins that are economically active, this increasing the size of the Bitcoin economy that can be supported when you and the other savers do eventually start spending.

The size of the economy does not increase because the value of bitcoins gets higher, it increases if there is more trade. People who hold on to their bitcoins do not contribute to trade. The value of the bitcoin compared to other things is just a reflection of how much competition there is for the coins that are available for trade, it does not say anything about how large the total economy is.

That's absolutely true, and I don't see anything that conflicts with my previous post when read carefully. But you need to consider the whole cycle. Not just "people who hold on to their bitcoins do not contribute to trade" but "people who hold on to their bitcoins do not contribute to trade yet".