In what way can the theory "money is a debt" explain inflation and deflation ?

You would think that if I sold you a loaf of bread today, and the money I receive is "a debt of society towards me good for a loaf of bread which I'll be able to claim", that there would be fixed way to tell me how that claim can be executed later.
Trivially, I would then think that my claim is good for a loaf of bread.  Why is my claim then 10 years later worth maybe only half a loaf of bread while economy has grown ?

In what way is the "debt society has towards me for a loaf of bread for 10 years" then only worth half a loaf ?

The theory "money is a speculative asset" can explain that very well (essentially through debasement which alters the meetingpoint between demand and offer, with rising offer).

Absolutely not, and this is an essential point in understanding monetary value.  There is no handwaving in the demand for store of value.

People find it hugely practical to use intermediate exchange: it allows you not only to split the barter trade into two steps (if I want eggs for apples, I do not have to find a single partner who is simultaneously interested in apples, and willing to offer eggs, but I can find a first partner interested in apples, and another partner interested in offering eggs) which reduces a N-square problem into an N-problem (N being the number of different kinds of commodities and services traded).  But it allows for two additional aspects:
1) the trade can be separated in time *without having to resort to an explicit debt* (which is what you still call "a debt" I start to figure).
2) very important: I don't have to decide already right away what I will be wanting in the future.  I can delay my choice for the second part of the trade to later.

These practical advantages of indirect trade make that people are having a DEMAND for storage of value, once the notion exists, and an asset allows one to do so (once money exists, in other ways).  That demand didn't exist before, but like i-phones, there was no demand for i-phones as long as they didn't exist.

That extra demand for the commodity that became money makes that the price of the commodity rises.  THAT is that premium value of money: the demand for storage of value.  

There's no more handwaving in that than in the demand for i-phones once they exist.  

The commodity working as an intermediate asset has a NEW USAGE, and that new usage goes with a new demand, and that demand engenders a price (especially against "sound money" where there is no or very small offer).

It is exactly what you find in the monetary formula:

P x Q = M x V when you re-write T as 1/V and B (the value of the monetary asset) as 1/P:

B = Q x T / M

The price of the monetary asset is determined by "the value one wants to store" (Q - the stuff one wants to buy) and "the time one wants to store that value" (T, the harmonic average holding time), divided by the amount of monetary assets that are in circulation.

In other words: the demand for storage of value is nothing else but Q x T: the amount of value one wants to store, and the time one wants to store it.  That demand has to be satisfied with a finite amount of circulating monetary assets M.

I don't see what is so handwaving about that.  It is crystal-clear.

Now, I can see what you will say: you will say that this is a "debt" Q over a time T.   The point is: it is a GAMBLE.  The *demand* for storage in a monetary asset is not related to what *really* be bought with it, but with what the demander THINKS he will be able to buy with it.

If it turns out that his money will not be accepted anymore next year, but he doesn't know this right away, and he still *speculates* onto the idea that people are going to be *willing* to accept his money, then he bases his DEMAND for money right now on that idea.  
So that money now is going to be in demand, and will have a certain price right now, if those wanting the money speculate on being able to exchange it for goods in the future.

The demand is hence based upon the *desire to store value* and not on the actual value they will obtain when they will finally exchange it.

The important point is that the "price of money" is depending on this demand for store of value (in that particular monetary asset).  That demand will vary according to the mood of people, and also according to the kind of monetary asset that is mostly "in" (that is, what people speculate that others will still want to accept, and at what price, later when they will want to get the value back).
As such, the value stored in a monetary asset is normally fluctuating.  One day there may be a high demand for money, and money will be worth a lot ; the next day, there may be a much lower demand for that kind of money, and it may become almost worthless.
In a fiat system, this is mainly stabilized, essentially by imposing monetary monopoly (merchants are obliged to accept that type of money against their goods and services), and by introducing feedback mechanisms with the central bank, buffering the money offer against the money demand.

In a "sound money" system with open competition between monetary assets, one can expect much higher volatility in the value of money, especially if the competition is very open between different kinds of money. 

Very well said.

In my opinion you perfectly illustrate the difficulty and the strange ways of thinking one has to go through to try to see money "as debt" ; while it is in fact such a simple notion if you just consider it as "an asset you essentially or solely acquire with the idea of trading it again later against something else".

One could add something.  What you describe here is the Menger view on the emergence of a monetary asset: it has to start out as a "normal useful commodity", but is then adopted as an intermediate good (and that's exactly what money is: a generally accepted intermediate asset).

This makes the final value mostly resulting from the demand for store of value, and has not much to do anymore with the initial market value of the commodity which was determined by its use as a normal commodity.  

But this allows in principle also to have money that has no initial use value.  Menger couldn't consider how such a non-existing commodity could become money through the process you described.  But once there are other monetary assets (which arrose probably in the way Menger, and you, decribed), such "value-less" commodities can just as well serve as store of value, and take over part or whole of the market of "demand for store of value".
This is what allows "value-less" assets such as fiat money or bitcoins to become money too, in principle.

Probably they cannot arise from scratch, and have to "eat" into the market of an existing "valued commodity money" first: like fiat did with gold.

I don't know what you mean by "human symbolic system".  Maybe you can give a clear definition of that notion.  

If you just mean that it is generally accepted, then what I define as money is just as good: that is the speculative aspect of money.


But I'm not talking at all about "inner value" and in that respect I also think the Austrians (*) were too restrictive.  Assets which have no intrinsic (that is, usage) value can be money, such as fiat, or bitcoin.  The monetary aspect of an asset has nothing to do with its intrinsic value.  If you would have read my posts here, you would know that I say that too.

But I've given sufficient examples that indicate that the monetary aspect of an asset is separate from its eventual debt aspect, and the case of doing the dishes and the girlfriend was a perfect illustration of that.



Here, you are arguing that money mustn't be assets that have any intrinsic value.  But I agree with that.  In fact, it even goes AGAINST "money is debt", because debt has an intrinsic value, namely the goods and services due, which are clearly defined.

Which is obviously historically wrong, as several kinds of money have existed (cows, shells, gold....) which were not debt, and as base money is not debt in several cases.


Which is quite obvious, and has nothing to do with money or economics.


As long as your arguments do not make logical sense, and your definitions are not clearly stated, and your starting hypotheses are not clearly stated using the first two elements, your arguments are not going to make much impression on me.
As I think I have a quite clear view on what is money, a view which doesn't seem to pose any particular problem, the only way to influence my view is to confront me with an argument that makes logical sense.  Until now it doesn't seem to be.

You state that the implication "money is debt implies that all money is debt" is nonsense, why it is a tautology.  You give yourself examples of (base) money that is not debt while maintaining that all money is debt.  And you seem not to want to define clearly what you understand under the word "debt" as different from the concept of "property". 
You seem to use as argument against "not all money is debt" a statement that proves that not all debt is money, which has no logical relationship to the former statement.

So I'm at loss trying to find any argumentation in your posts that stands any test of logic.

Again: debt can be money in some circumstances.  I do not deny this.  But I maintain that money is is an asset (which can be a debt certificate).  And what makes that asset "money" has nothing particularly to do with the concept of debt, for two reasons:

- not all debt is money
- not all money is debt.

Nor did I.  But you seemed to argue against it with your phrase:
"E.g. you write "the claim "money is debt" implies that every kind of money must be debt" -> pure nonsense. Only debt that is accepted as money is money."


The second phrase "Only debt that is accepted as money is money." only makes sense as a counter argument if the statement "all debt is money" would have been made, which I never made (nor did you I think).

The first phrase "money is debt" LOGICALLY means "all money is debt" which is obviously wrong.

Now if not all money is debt (and not all money is), then debt and money are separate notions.

I fully agree that debt proofs are assets which in some cases can become money.  
But there are also assets which are, or have been, money, and which are not debt.

And we have gone in a circle.

It is a strange statement to refuse quite a clear concept and definition of something, with the desire to mystify it somehow.
I have no problems with the concept of money, it has nothing mysterious about it, and the austrian inspired view on it is quite crystal clear and simple.  It can explain all aspects of money without difficulty.  That is not an huge claim: money is actually a rather simple concept.
When you try to interpret it in the wrong way, such as "money is debt" many things become obscure and you have to redefine concepts in order even to make the strange claims one comes then about even to make sense.  
You could just as well mystify something else, by saying something like "wood is food", and then go off on a tangent to try to keep that strange statement somehow meaningful.

No: if you take it that money is a speculative asset that is highly universally tradable, then you have your concept of money.  It can explain all economic properties of it without problems (the demand and offer, with its price setting, the fact that prices change and all that).  It doesn't mean that you can make good predictions, because of human action, which influences demand and offer in potentially untracable ways - like all demand and offer.  But there's no mystery left.

Proofs of debt are also assets, and in some cases, they can also become money.  The whole fiat system is based upon that kind of assets to make up money.  But gold for instance, isn't such an asset.  The claim "money is debt" (which is the kind of asset making up money in the fiat system) would be equivalently silly in the following: "money is metal".

If on top of that one confuses inclusion and equivalence, one would then argue that money is not metal because iron is not money :-)

This has nothing to do with money, economics, or Austrians.

This has to do with logic. 

If you write: humans are mammals, that statement means: all humans are mammals.  It would be sufficient to find one human being that is actually a bird, to prove the statement "humans are mammals" wrong.  This is not pure nonsense but pure logic.

Also you make another error.   When it is said that "money is debt"  it never implies that all debt is money.  Indeed "humans are mammals" doesn't  imply that all mammals are humans.

Logically, there is an equivalent between the following sets:

A)
humans, mammals, males
the statement "humans are males" (no, there are females too)
the statement "males are humans" (no, there are male monkeys which are not humans)
the statement "humans are mammals" (yes)

B)
money, assets, debt
the statement "money is debt" (no, there is money which is not debt)
the statement "debt is money" (no, there is debt which is not accepted as money)
the statement "money are assets" (yes)

If logic is failing at such elementary level discussion is going to be difficult.

I'm indeed mostly a follower of the Austrian School.  But I follow a school because a reasoning is sound, not as a religion.

The point is that you are exactly giving the argument that I use to show that money is not debt (but that debt is a form of money).
You seem to agree that what you call "base money" is NOT debt but a commodity.  That is sufficient to prove that money is not debt, given that there exists money that is not debt.
(the claim "money is debt" implies that every kind of money must be debt.  It is sufficient to find one counter example to that, to prove the claimn wrong, and you give it yourself).

However, and I underlined this: proofs of debt are also assets that can act as money.  It is true that the fiat system is largely, or almost solely, based upon such kinds of assets as monetary assets.  But their "money" function doesn't come from their "debt" type of asset.

I explained all this in this thread if you'd mind to read.

The point is that it is not the debt aspect that makes something money.  That's all.

Money is also a commodity, but one with specific properties.
The main two properties that turn a commodity into money are:
- "store of value": that is, the main (or sole) reason to acquire it, is the speculative expectation to sell it later against valuable goods and services.  In other words, you acquire the commodity essentially only for speculative purposes, and not to use it as a consumption good, or as a capital (production) good.
- "high tradability": it should be a commodity that is in universal demand, and that is easily traded against most anything.

Clearly, bitcoin is realizing (up to a point) the first aspect.  The second aspect will come if there is generalized merchant adoption.

Of course.  But at a certain point, the number of new holders must come into equilibrium with the number of holders not holding anymore.

Let us not forget that there is an inflation of 10% going on.  That means that the bitcoin holdings must grow at a 10% rate at the current price.

The market cap is a wrong indication of "how much value" there is stored in bitcoin.  In reality, the amount of value people have put into bitcoin is much less.  Many coins have been sold and are still held since they were a few dollars or a few tens of dollars.  So in order to sustain an inflation at 10% at the current price, means actually that the real value flowing into bitcoin is very big as compared to the past. 
As a simplistic example, suppose that most coins have been bought at an average price of $100.-
That means that the actual "value flown into bitcoin" would be rather $1.5 billion.  At the current price, say, $350 per coin, and an inflation rate of 10%, this comes actually down to a growth of the value flowing into bitcoin of 35% per year.
In other words, even to sustain the current price, per year, one third of the total value that has flown into bitcoin since 5 years, must flow again in bitcoin even to sustain the current price.
A growth of 35% a year is HUGE, and is needed to sustain the current price, simply due to inflation.

But I agree with that !  I'm just analyzing the consequences of certain hypotheses put forward.

My personal opinion with what I learn here is that bitcoin may succeed, or not, that this is really a totally open question.  And that if it is to succeed, that the evolution will be very slow and may take decades (which by itself is also problematic for another reason).  I used to think that a next rally was due, from extrapolation of the past.  But I'm realizing how different the situation is now as compared to the past.

But I hear that most proponents of bitcoin seem to think something of the kind of "fast adoption in the coming decade".  I don't think it is going to be possible, unless one means by fast adoption: fast adoption in a niche market, to stay there.  That phase may then already be over: bitcoin may then already be mature and have acquired most of its niche.

I have no strong opinion one way or another.  I'm trying to find out, by discussing, analyzing, understanding, confronting my logical deductions with critique, in order to make the best possible decisions.  

The concrete result for the moment is that I'm cooling down on buying coins (for the moment I only put some money in it that I can afford so much to loose, that I even consider it to be lost even though it isn't - yet :-) ).  I don't think that there is any hurry in fact, contrary to a few months ago when I got into it.  If bitcoin by any accident succeeds, then I'll be happy to have those coins when I retire, a few decades from now.  And if not, hey, I don't care much.  But I don't think it would be wise to put money I could use for things now in it.

 

The point is not that if you need the power of a nuclear power plant, that you build one.  The point is that if you can afford the power of a nuclear power plant, that you will BUY it.  If you have sufficient financial incentive to buy all the electricity in the world, you will do so.  Which means that power will become very expensive for OTHER uses, such as cooking your dinner.

If there were a huge financial incentive (say, 1.5 trillion dollars worth) to use up 3/4 of all the drinking water in the world, one would also do that, and drinking would become a difficult and expensive affair.

It is not part of the problem.  It is a fundamental of bitcoin as a currency.   The velocity of bitcoin lowers the price which is way too high today as compared to its currency fundamental. 
There are 3 components to the bitcoin price:
- the currency fundamental (the demand for coins to hold between acquiring them and spending them, to buy stuff with).  I think that fundamental is quite low today, and comes mainly from the black market usage of bitcoin as a currency.
- the "store of value" fundamental (the market share of the gold market and a few similar markets).  I think that's also pretty low today.
- the speculation for higher fundamentals in the future (near or far).  I think that's the main component of the bitcoin price.

You mean that there is an economic potential of 1.5 trillion dollars that will not be taken because of some logisitic difficulties ? :-)

(1.5 trillion is what you get if you mine $ 5 billion worth of coins every day for a year, right).

You mean that people are going to sit on their asses and look passively at how a relatively small community of miners are gobbing in 1.5 trillion dollars worth, without moving in ?

I'm not necessarily saying that only 500 big entrepreneurs will take on 500 nuclear power plants.  I'm saying that maybe 5 million entrepreneurs are going to invest and consume the equivalent.  You're not going to be able to stop them.  They will plug in their hash machines, and consume the power.  They will pay the premium prices to get the power.  At the expense of others.

I would think that whatever were Satoshi's intentions, they don't matter.  Bitcoin is now of the people using it, and if they have other purposes and intentions, that's what counts.
This is also the answer to "was bitcoin a pump and dump" ?  Maybe it was intended that way, or maybe not.  And maybe it will be used that way, or maybe not.  But what was the initial intention, and what will be the actual usage, has nothing to do with each other.  Once the genie is out of the bottle it doesn't belong to the bottle anymore.

Well.  Isn't that what most people argue :-) ?
Isn't there a huge lobbying effort to get tax cuts for "your" club, while having others pay them ?

I think that the main incentive for people not only to be willing to pay taxes, but to demand from the gouvernment to raise taxes, is the pleasure and joy modest people have from the knowledge that rich people have to give up part of their wealth.  The power of jealousy and the joy it brings to see richer people having to give up on their wealth (partly) is easily paid for by one's own taxes.

I think a lot of people are willing to give up 10% more of their income, if they know that rich people will suffer from that.