This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

Absolutely.  Taxes required in a certain asset is a strong incentive to create a demand for that asset as a monetary item, and hence to "kick in the monetary speculation cycle" for that asset as a monetary item (that is, to turn something into money).

After all, something is money because there is an "infinite Ponzi scheme" behind it:
you accept it in exchange for something of value, because you think that Joe will accept it in exchange for something of value because you think that Joe thinks that Bill wil accept it in exchange for something of value because you think that Joe thinks that Bill thinks that Jack will....

It is the "next fool" hypothesis (a real bubble or a Ponzi is based on a "greater fool" hypothesis).  In contrast to the "greater fool" hypothesis of which you end up running out of, the next fool hypothesis is indefinitely sustainable.  That's money.

Taxes are a strong way to make you believe that Joe, Bill and Jack will accept it, because you know they have an ENFORCED demand for it.

However, I'm not sure that taxes are the sole generator of demand for money.  After all, once the cycle is kicked in, the monetary usage is started, and unless a "better" kind of money comes along, I don't see why people should stop use it as money.

There is namely also the opposite.  The state collects taxes to be able to obtain (unless it is a very dictatorial state and can force you into slavery) stuff from people for the state to enjoy (after all, the state is for a part just the state to be able to profit from people's production).  Now, in as much as people would value their casino chips much more than the state issued fiat, you could imagine that the state cannot obtain much *value* for its collected taxes.  It depends how taxes are collected.
Imagine that the tax rate is 1/3.  That is, you (and everybody else) owe 1/3 of your value production to the state as a form of taxes.  You have to pay them into state money.  All the rest, you prefer to buy with chips - especially foreign stuff where people don't accept state money.
In principle, you could then trade stuff that is paid 1/3 in state money, and 2/3 in casino chips.
Now, if the state wants to BUY stuff at your place, you may require the state to pay you in casino chips for 2/3, otherwise you don't do the deal with the state.  But the state doesn't have any casino chips !
So the state is obliged to exchange state money for casino chips.  It has to exchange 2/3 of the collected taxes into casino chips (so only 1/2 of the original collected taxes go directly into buying stuff for the state to enjoy).  Otherwise it cannot buy your production (you refuse).

So in the end, the circulation of state money will carry 1/3 of the economic value, and the casino chips, the 2/3.

That would be the normal issue if the sole demand for state money is to satisfy the obliged tax paying duty in state money: the state money would then ONLY be used to pay taxes, and can then ONLY carry the value that is taken by taxes.

@OP you only lose when you decide to take that loss and sell at that point.

$200 aren't divisible down to nano pennies. That's the problem with fiat.

I still think that his bottom was ~$340.

Should Bitcoin be changed in some fundamental fashion, to make it more stable?  Could it?   How?

Maybe create a non-profit trust fund bank that will buy and hold capital assets to "back" BC.   Change from mining free BC, to mining a right to purchase BC at half the current exchange rate, with the income going into the bank.   Anyone could exchange their BC for their share of their current value of those capital assets (minus a 5% withdrawal penalty).  Normally the price would float somewhat above the asset value - when it rises enough, allow the bank to directly create BC and use them to purchase more assets - locking in gains and at the same time keeping the exchange rate from rising too fast, reducing the impact of speculation. 

Objections / alternatives?

The main problem that you state is already a moot point imo. How in hell Bitcoin isn't elastic? You could live off a single Bitcoin giving its so damn divisible. I dont see the practical problem in the 21 million cap. It's like complaining about gold being limited in earth. A limitation is needed, otherwise you always end up with the current fiat problem.

Debunk my post ?   The only thing you do is mock me and deny all my posts without any evidence, not a really good argument isn't it?

Do you realize that the central bank can just print money and buy back the bonds ? Right about now I think 80% of the US bond marked is owned by the FED, some say it's even more from offshore sources.
If there is no demand for the bonds in the secondary markets then they have to hold them, and seriously expose themselves to massive leverage.

Why do you think the FED has a 77:1 leverage if not because of this? They just seriously overextended themselves.

They hide the M3 Supply numbers, etc etc.If people would actually know what the real numbers are, then the debt bubble would have bursted a long time ago...

I do have MS degree, believe it or not, i`m not here to prove myself to you, I`m just trying to educate people and
 "de-brainwash" them, weather you like it or not.

I am really concerned with the future of crypto now. Even more than when I wrote cryptofiat (which itself becomes more plausible) or my analysis of Gartner on crypto).
The future of any crypto (except maybe Monero because of its target audience and NXT because of its considerable advance in building an ecosystem and even that, not sure).

Reason: http://www.coindesk.com/ibm-reveals-proof-concept-blockchain-powered-internet-things/

Overstock does not use XCP but clone it. IBM doesn't use XBT or ETH but clone them. That's the power of open-source.

Winners: implementors. Loser: crypto owners
This has nothing to do with bear market or bull market.

Solution: focus on your expertise on cryptos and sell it to employers and customers. Do consulting. Don't rely on your stash. It is probably doomed, whichever coin you have. Remember the dotcom bubble. Use your expertise to work on crypto once the present bubble has stopped deflating.

Financial investment may be doomed, but the expertise investment is only beginning.

Opinions?

That is rude and inappropriate, so you can't debate me objectively, you start to insult me. What a typical loser.  

He didnt explained anything, nor resolved anything, his theories only aggravated the already weakened economies by WW2.

Of course there was no CB in Roman Times, do you think I`m an idiot? They had quaestors who supervised the financial affairs of the government. The point I was making is that they used impure silver coins, they mixed it with more and more iron,nickel and copper up to the point when shortly before the West Rome collapse they had 10% purity coins, sold at 99.999% purity prices. Or in other words theft, like any inflation,which was used to pay off the military expansion of them, just like now. History repeats itself.

Yes there were plenty of crisises, all done by fraudulent cartels who blackmailed the politicians to give them more power or else they bring down the whole systems. You should check your facts mate, starting from your nice civil war of 1861.

You dont seriously think that the civil war was because they cared so much of the southern slaves?  
Only an idiot with 20 IQ would accept that story.

Actually the civil war was fought because the union desperately wanted to give more power to the banking cartels, where they desperately wanted to control the money supply via a central bank of some sort, which the confederation rejected. There were atleast 3 major attepts to make a central bank way before 1907 crisis.

You should seriously check your facts, I`m not american but I know your history better than you do.


Ok at this point you demonstrated that you live in a fantasy world completely cutoff from reality.

How do you think your 1 trillion dollar Iraq war was financed, from charities?  Of course the CB gave loans to them.

BTW did you knew that there are some serious funds missing from the FED, you bet that had something to do with the crisis.

Money doesnt just pop out of nowhere and then dissapears? Oh wait, it actually does...

Are you serious?


That is because before Keynes there was no problems of this sort. All socialist implementations were done after or at the time keynes was alive.

CB doesnt have to step in, if the government destroys the economy by destroying the middle class, then you add more government in the form of CB to cure their own problem? I dont think so.

There is a supply /demand equilibrium, which part of it do you not understand. It is the intervention that destroys it.

In the 1800's before CB's you had no problem with wages, they were all market determined. If they were too low, tough luck , you can't just magically pretend to have economic growth by manipulating the economy.

I just read a book recentrly about the industrial era before CB, and I see that all depressions were caused by CB. Either by them or by private banks lobbying at the governments and threatening them to form one, or else they deliberately destroy the economy.

Yes if was always the CB fault, from Roman times, when they (the government) devalued the silver coins , to the post and industrial age where private banks blackmailed the government to inflate more. It is all documented in history books.

Liquidity trap is innefective because the private banks themselves are not an efficient way to loan money. So either you remove the central bank, and let the liquidity be distributed bottom-up, or remove the private banks and distribute the loans Peer-to-peer.

Who said that CB is effective? Why do interest rates have to be set by anyone other than the market itself?

Keynesians think that higher prices and higher interest rate result in lower investment spending which is BS.
You will always have more investors when the interest rates rise, it doesnt matter where, the stock market may suffer but bonds, spread based intruments and other interest rate based instruments will flourish.

When you have more investments then you can give out more loans, because you will have more funds  to use as collateral, thus this pressure in the loan giveaways will decrease the interest rates naturally. Who needs a CB here to do it?

Sticky wages is only due to poor labour laws, and socialist minimum wages. Entepreneours can never pay their workers their direct labour production, because the law says that they should pay them atleast X. The minimum wage barrier will equalize the inefficient workers production, thus all products made by that firm (scale it up to the entire country) will become rigid because the price of the product can't drop as the wage cannot drop, so the consumer always has to pay the inneficient prices which resulted from inneficient wages.

Why don't you see for example the bread price never drop? Yet it's very very cheap, compared to other product.
Because the bakery has atleast 5 workers , the workers are inneficient, as we see now robots can make food aswell.
Yet, the owner has only 2 options, pay them inneficient wages, or make a huge investment (which he cannot afford nor take a huge risk of getting a loan) to buy robots to make bread. The other is to fire them but then you bankrupt your self.

The inneficient wage is reflected in the price of the bread (+ the taxes), while also in the price of the resources like corn and wheat (the agriculture is the same deal: automated robot harvesters vs people in combine harvesters  who must be paid minimum wage yet his work is inneficient).

If you remove minimal wages and liberalize the labour laws, then the wages and every single cost of the product will be market determined, and then you can see a bread which gets cheaper and cheaper.

The animal spirits part actually I agree with, but this has been already observed by other economists, so it's not really his invention, besides any 5 year old can come up with behavioral effects on the economy, speculation etc. The fear & greed response is the markets is totally sound.

I myself been trading for a few years now and I can see practical effects of the economy, not just theoretical BS.

Most academics dont even leave their classroom or their office to see the economy how it really looks like.

My professor has admitted that he never even set foot in a stock exchange. 

Well how the heck can you call yourself an economist when you dont even traded atleast once in your life in a financial market?

I myself have traded mostly futures and forex, and now crypto currencies.

I just made 0.2 BTC Yesterday with a TILECOIN arbitrage 

I experience economics directly in real-time 

A liquidity trap is a situation, described in Keynesian economics, in which injections of cash into the private banking system by a central bank fail to decrease interest rates and hence make monetary policy ineffective. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Common characteristics of a liquidity trap are interest rates that are close to zero and fluctuations in the money supply that fail to translate into fluctuations in price levels.[1]

Money gets its monetary value by the demand for it for monetary usage.  It can already have other value for consumption usage or for capital usage, but if it is also used as a monetary asset, there's an extra demand for it, and hence extra price.

It's the finance end of things that seems messed up to me, there seems to be an exponential in it. In that example, if the bank is also in the position to invest in your company and uses your loan as an asset to do so then the company is worth twice as much but that worth is made up from two sides that should cancel each other out, they do in terms of borrower and lender but they double up in terms of market capitalisation.

EDIT: Does that assume there's a limit to the need for productivity and its survival of the fittest once that limit is reached or that productivity can grow endlessly? If limited and companies are expected to go bust how does that effect the money supply?

Find a means to penalise growth on an exponential scale and the problem is fixed.

Citi then covers that by investing it? ie, they invest both loans and deposits?

Now then my question to you: why would the state make its own life difficult, and issue a fiat money with a hard-to-obtain metal of which its own supply was limited ?  Why not just issue copper coins ?  Or paper banknotes ?  (like now ?)
Because if gold didn't have any mercantile value except for a few jewel makers and if gold wasn't seen as something with a monetary function at all, why go through the hassle to make golden coins and limit yourself in your abilities to issue them ?
If the value of the fiat money came from the tax collection, then ANY fiat would have been good enough.  Papyrus "banknotes" would do.  Why would they use gold and silver and make their own way of doing difficult ?  And why was gold and silver used by so many states ?
After all, if it was just a matter of issuing a state-specific token which gets value from tax collection, how could it turn out that:
- most if not all states chose gold and silver ?
- most if not all coined pieces of money had an AMOUNT OF GOLD OR SILVER that corresponded to their value ?
- the exchange rates of coins between different coins is determined by their alloy composition ? (in other words, the value carriers are the metals themselves, and not the stamps).

No, the theory that fiat money was issued first, got its value from tax collection, and that kings happened to have gold lying around, and decided to make their fiat money out of gold, and that it was THIS that started giving value to gold seems to me untenable.

https://en.wikipedia.org/wiki/History_of_money

Anatolian obsidian as a raw material for stone-age tools was distributed as early as 12,000 B.C., with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1998)[10] In Sardinia, one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade in this was replaced in the 3rd millennium by trade in copper and silver.[11][12][13][14]

As early as 9000 BC both grain and cattle were used as money or as barter (Davies) (the first grain remains found, considered to be evidence of pre-agricultural practice date to 17,000 BC).[15][16][17] The importance of grain with respect to the value of money is inherent in language where the term for a small quantity of gold was "grain of gold".[18][19]

No, I mean how money is created. That money doesn't exist before the loan, it's created at that point and the bank buys assets to its value, the stocks (not sure on that, I think its 100% but could be fractional) and the loan could also be used to buy the same stocks. For the bank example, what if both Chase and the borrower bought JPM stocks and on account of the rising price of the stocks both Chase and the borrower used their increased worth to justify further borrowing to buy JPM stocks?
Off topic so don't want to discuss it too much but it confuses the heck out of me.

The "stability of a currency" is in fact very problematic.  Of course, a currency that is used a lot gains stability, because of the "stickyness of prices".  People get used to prices, and if prices are suddenly very different, they tend to adapt their buying habits as a function of this differential, rather than doing an updated full market study each time.
That is, if you think a bread should cost about $1.-, and you suddenly see a bread at $5.-, you will probably not buy it (and you will think of the bakery as a thief).  If you think that a modest car should cost about $ 15 000.-, then if one presents you a modest car for $ 50 000.- you will not buy it.  On the other hand, if you see an "opportunity" to buy a modest car for $ 6000.-, you may "jump on the occasion" even though you were not considering buying a new car any soon.

The more people have prices in mind, the less daily volatility is possible, because people would buy more at lower prices, and buy less at higher prices.  Wages are also such a thing.  They are contractually established.  Your boss cannot just walk in and tell you that this month, he will only pay half of your usual salary.  He won't walk in, and you will not get nervous, because next month, he's not paying the double.

So usage, and psychological stickyness of prices, stabilise money on the short term.

On the longer term, central banks try to stabilise (well, to inflate slightly) the *consumer price index*.  However, in doing so, these central banks forget that prices are market signals.  There can very well be market forces that would change the consumer price index basket value with respect to other assets.  By trying to stabilise/inflate the consumer price index, central banks are sometimes obliged to inflate LARGELY other assets, like stock, housing prices, and other things.

Moreover, as increased economic productivity should normally DEFLATE the consumer price index, the slight inflation that central banks want to establish can be hugely inflationary without people noticing.  

It is interesting to see that http://en.wikipedia.org/wiki/Inflation#mediaviewer/File:US_Historical_Inflation_Ancient.svg average inflation was compensated with deflation historically, as long as there was a sound money principle (essentially a precious metal standard).  When central banks really kicked in, we only got inflation.

As central banks, just like any other human endeavour, is ill informed, based upon human action, and must guess what will happen, in fact, central banks are usually *just as wrong* as any other economic agent in knowing where the economy is heading.  By giving them more power, they are then just as well causing cycles.  They are causing OTHER cycles than the "free running dynamics", but they cause cycles by their misconceptions just as well as the "natural" business cycles.