The romans used price fixing (though the effectiveness is in question), the brits, AFAIK, did no such thing. It was just a matter of paying taxes. Although I did not completely provide my reasoning, I was trying to point out that gold has never by itself led to any kind of economic prosperity. That only happened after FRB and deposit notes, when the "supply" of gold expanded immensely. Currencies do not need to be backed by precious metals to be useful for economic growth. There is no reason that modern economies use a credit/debt based medium of exchange other than governments gave up their power to print money to private banks, so that is irrelevant.


Tally sticks were never debased, they were replaced by the Bank of England. Do you know your currency history, MoonShadow? Or do you think you can just sound like you do to make you sound right?

And as for the Romans, from wikipedia:

"The exact reason that Roman coinage sustained constant debasement is not known, but the most common theories involve inflation, trade with India, which drained silver from the Mediterranean world, and inadequacies in state finances.
...
Another reason for debasement was lack of raw metal with which to produce coins."

The economy worked perfectly fine with a currency whose value was determined to be much more than the content of its weight in gold, silver, or copper. It started failing because of trade deficits and lack of metal. This could have been solved by not constantly going to war.

The parallel that one can draw from that is in a free market, non-commodity based currency, governments would not have the power to do these things to debase the currency. But maybe you missed that point when your poorly founded accusations blinded you from being able to finish reading the post.


Weren't we talking about free market currency? I dunno, I got distracted there for a second by your red herring.


You say provably false yet you're agreeing with me that gold was the currency of free market trade after FRB and deposit notes. Ok.

Consumption growth is the eventual result of non-consumption (investment) growth. It's all about time-preference (according to Austrians). And realize "consumption" doesn't necessarily mean destroying something or using something up, so I'd like to keep any negative connotation with it out of the discussion--which I don't think you've done, but other people have and I just want to clarify that.

What money, lending, and interest should provide is a balance between consumption and investment, depending on what the free market desires. If, for example, in a perfect market, too many people are looking for non-consumption growth (their time preference is to the future), but the free market is not currently providing enough avenue for this growth (for whatever perfect market reason--likely because too many people have a low time preference), interest rates and prices will fall naturally. This is "good" deflation. This spurs people to consume, and in return restores a natural balance based on what the market needs.

By removing your currency from circulation, you are moving the force of money out of balance with lending and interest. With less money available to lend, the only thing interest rates can do is rise while almost paradoxically prices must still fall. While in the first scenario, lower interest rates means profit margins on lower prices are relatively unaffected. In the second scenario, borrowing money becomes much more difficult as banks get scared and a credit crisis will probably emerge. This is "bad" deflation. "Money" becomes more valuable than "capital". This can lead to the so-called deflationary spiral. While this is unlikely to ever happen in Bitcoin, the only reason is because it is a free market currency and the free market will switch to something else (inflation!!!), so the effect can't really spiral out of control.

So the question isn't about what provides more or less value to the economy. One scenario promotes a well-functioning free market while the other causes an imbalance in the economy. Money is the lubricant that allows economies to function. Remove some of that lubricant and things start to break down. This will be extremely exacerbated by the fact that bitcoin is attempting to bring existing value in from an exogenous economy.


But you are thinking in nominal terms which is not at all the whole story. Real returns are what matter. A real return is interest + deflation. If you can cause extra deflation by not loaning money so that it creates a better real return than the real return you would have gotten by loaning, you have created a very dangerous imbalance in the economy. You are not letting the free market do its job.

This is compounded in bitcoin by the fact that 1) a perfect market doesn't really exist, mistakes are always made because all information can not be known; 2) bitcoin has an absolutely fixed supply unlike gold, where at least the rising value of gold would cause more effort in producing more gold--in bitcoin more effort goes into producing the same amount of bitcoins; 3) bitcoin has to expand into a huge world economy and the distribution of currency will provide countless opportunities to make hoarding provide a much better real return than lending. This would be the case even with the gaussian distribution that Adrian-x thinks will be better.


Again in an almost paradoxic way, lending may actually cost you value (at least in opportunity cost) because you are lubricating the economy and keeping deflation low. If everyone truly cared about their fellow man this system might work. But we know that isn't the case, and we know financial minds will find any avenue to abuse a monetary system to their advantage. And causing extra deflation only to return it via future inflation does nothing but upset the economy. It would likely come and go in cycles, just like the business cycles observed in fiat. You can't really be sure that your money will retain its value let alone increase in value over any period of time.


But you can't really predict what people are going to do. Mises is quite famous for basing his economic theory around that. Bitcoin is a free market currency as well as an alternative. The economics will be far different than fiat on that case alone. No one has to consume with bitcoins at all. And there is no real advantage to do so. Want to send money over the internet? Buy some bitcoins with fiat and let the other person cash out. This isn't economic growth. Nor is speculation.


It's about the real interest you earn, not the nominal interest.

The Roman and British empires both used a form of fiat, yet they were the biggest empires history has known. Gold did not explode as a currency of international trade until fractional reserve and fiduciary media (deposit notes) existed. You claim that the "free markets" have chosen gold, yet there are only a few examples of free market currency in recorded history, and when there has, it has typically not been gold. Gold only became the de facto currency of trade when people could borrow it with fiduciary media.

So no, precious metals have not in particular been selected after many years of trial and error.


You're obviously a fan of bitcoin, so you understand that a currency does not need to be backed by something. Therefore, there is no particular reason why free market currencies would choose to be backed by gold. If that were the case, the creators of these free market currencies would once again be bound to the gold and not to the economy, regardless of the deleterious effects. The only possible difference one currency could have over another is the amount of gold behind it, which means it just boils down to another case of fractional reserve banking. Which means all the problems of fractional reserve banking combined with gold will rear their ugly heads again, and a central bank will be suggested as the solution. We've done this before.


No, it doesn't mean that. Did you read my quote?

"I think it is entirely possible for private enterprise to issue a token money which the public will learn to expect to preserve its value, provided both the issuer and the public understand that the demand for this money will depend on the issuer being forced to keep its value constant; because if he did not do so, the people would at once cease to use his money and shift to some other kind."

Do you understand that "keeping its value constant" does not mean "deflationary"?


But by agreeing with the link you quoted on deflationary myths, you are agreeing mostly with the philosophy of Mises. You are also agreeing with a guy who made this statement: "If they anticipate a future decline of their selling proceeds, they will bid down present prices of factors of production, thus assuring profitable production and paid employment for everyone willing to work. This is exactly what happened in the few periods of modern history in which deflation was not prevented through inflationist counter-measures." Beyond this gross misrepresentation of history, I watched his video where he claims that producers can anticipate deflation and account for it. Yet the foundation of Mises' economic theory, praxeology, is that you cannot predict the greater human action by empirical study, so how will producers correctly anticipate deflation?

Hayek disliked deflation and did not believe it is the answer. Hayek probably changed his opinion on the matter over time, post-Mises influence, as he came to the understanding that deflation is no more ideal than inflation. The article I linked was written by Hayek in 1977, so it was very late in his career as an economist. If you believe I am misinterpreting Hayek's stance on the matter, I will be happy to find quotations for you to back this up.


You are making the assumption that a currency can only be deflationary or inflationary. This is a false dichotomy that denies the obvious middle ground of a currency with a stable value.

I am aware of what banks should do in an honest economy, pretendo, and I am also aware that we are not a part of one.

Somebody drew a line on a graph? One that is not linear and apparently not even logarithmic no less?

The POINT Roger, as I have been arguing, is that it does not make a difference. Society is not gaining anything from you hoarding than they would not have otherwise gained from you saving. On the contrary, hoarding will lead to a mix of non-consumption and consumption growth, whereas saving will primarily go to non-consumption growth. Non-consumption growth is about time preference--your deferred consumption acts to create the possibility of more, future consumption growth. Consuming may expand the economy here and now (debatable, in reality it likely just delays non-consumption growth which is what leads to a permanently bigger economy), whereas non-consumption expands it amortized over time in the future.


This I proved to be incorrect using a simple example with the equation of exchange. "Saving" in a bank causes neither deflation nor inflation because the money is still in circulation. "Hoarding" in a digital wallet causes deflation and then inflation. If the ratio your amount of money to the total supply of money does not change, there is no possible way that it can not have this effect. And you, the hoarder, benefit far more handsomely off of hoarding than you would off of saving even though the net gain over saving to the economy is zero. The net gain to your wealth is substantially greater than zero. The only possibility to explain this is that it comes at a cost from everyone else. There is no miraculous new value created via hoarding that will be created above and beyond saving. Instead, it is just a transfer of wealth created via economic upset.

I wholeheartedly agree with you. Without the banks stealing our wealth and productivity (or, if you listen to me, the bitcoin rich as well), there are a few scenarios I can come up with to how society might change:

1. Less hours per workweek - this has the added side benefit of making the unemployment problem much easier to handle
2. Earlier retirements as savings are easier to accumulate and do not devalue over time
3. People who are politically or altruistically motivated can work more and longer if they so choose for a seriously enhanced ability to donate to political causes and humanistic pursuits (I like the idea of an open-source pharmaceutical company as being something that could be possible)
4. As a caveat to 3), with the power of the ultra wealthy reduced, governments will be less persuaded by corporate interest lobbying groups. The people will have much more of a voice in government.
5. Uncontested megacorps will be much harder to form without the financial system being able to back these moves.


There is always a balance that can be found when the free market is allowed to function freely. When the general population is allowed to focus beyond making ends meet every month, who knows what the limitations of society could be.

But slightly deflationary would be up to and controlled by the issuer. That deprives them of the opportunity to create new currency. You have to, I suppose, think about the currency market as a form of business. Contrarily, a free market currency has to avoid inflation so as not to lose its customers to a competitor.


I'm not sure I follow this. Too much long-term investment would presumably (according to Hayek) lower the interest rate and promote non-consumption growth. But non-consumption growth inevitably leads to consumption growth. And lower interest rates mean that fewer people will look to long term investment over short term consumption. So it works itself out. Everyone seems to keep forgetting that a stable price currency may just be possible in a competitive market.


I think the easiest way to do that is to maintain a stable price level and let the free market interest rate sort out consumption and savings/investment. Hayek talks about stability in free market currencies in the mises.org link in my post above yours. And *I* think it can be done in a cryptocurrency too.

I'm not really sure how you've illustrated that FRB doesn't work. You've agreed at some point that it was probably key to spurring the industrial revolution. FRB did not begin by decree, you should know that, it began because of greedy goldsmiths giving out more slips of paper than gold in their vaults. But once people got wise, the goldsmith paid them interest, and modern FRB was born without any coercion from the state.

This time I will quote the post you did not reply to:


FRB will allow for significantly lower interest rates. More money available to loan = lower interest. But it may not even matter if hoarding is the norm because commerce will just be asinine.
 

I don't know how you can possibly believe banks have no place in a capitalistic society.


I don't want to repeat myself, so I'll just post a link: https://bitcointalk.org/index.php?topic=112269.msg1224110#msg1224110


I'm just giving an "if it could happen" scenario that I don't believe is possible.


https://bitcointalk.org/index.php?topic=112269.msg1224110#msg1224110

JP Morgan didn't enslave his enemies and rape their women; Mayer Rothschild didn't enslave his enemies and rape their women. They were men that became powerful from big business and turned to finance. Satoshi likely has 1-2 million bitcoins. knightmb has 300-400k. Pirate may have 500k. MtGox must have at least 200 or 300k. Deepbit operator has at least 50-100k. Even if the distribution was gaussian, it just means that early big businesses become the JP Morgans and the Mayer Rothschilds, if they so choose. If they don't, eventually someone will come along that sees the market manipulation opportunity. Where there's an opportunity, greed will find a way.


But the measure of the currency does change as more people or more value is added to the economy (or money is taken out of circulation). This is a silly argument when tied to a fixed supply of currency.

Historically, you're wrong. Or at least conveniently forgetting about half the story. Wampum, salt, grain, cattle, etc. have all been used as currency in a free market. Some are less fungible than others, but there is no "history chooses gold!"

Is there some reason you ignored my next sentence asking if he was referring to gold? The author only ever mentions gold under point #3, I'm not sure why. But as I said, a free market currency implies a competition between currencies; again, gold can't compete with itself. Presumably banks would issue regional or national currencies and they would have to compete with other banks to maintain their value in a free market system.


Yeah, I'll stick to reading Hayek's work, you know, that guy who won a nobel prize and who wasn't stuck in 19th century economics like Mises or the boy wonder who wrote that article riddled with begging the question fallacies.

http://mises.org/daily/3204

"I think it is entirely possible for private enterprise to issue a token money which the public will learn to expect to preserve its value, provided both the issuer and the public understand that the demand for this money will depend on the issuer being forced to keep its value constant; because if he did not do so, the people would at once cease to use his money and shift to some other kind."


http://www.cato.org/pubs/journal/cj19n2/cj19n2-4.pdf
http://marketmonetarist.com/2012/03/02/mises-was-clueless-about-the-effects-of-devaluation/

If you want me to find more criticisms of Mises I can do that for you. But Mises economics is not Austrian economics as a whole, so please do not assume it as such. Otherwise I might have to insult your apparent lack of knowledge on the subject.

Because saving money in a bank moves the currency through the economy via loans. Almost universally non-consumption growth.

Hoarding money leads to the same effective value being used throughout the economy, for consumption or non-consumption, depending on who is using it, but by acting via deflation instead of a lowering in the interest rate due to there being more money available.

Where is there any net gain here? How does more value magically appear in the economy just because you hoard?

I clearly illustrated in this response to you in the tomato soup thread about how by hoarding, one can earn a much better return than by saving in a fixed supply currency, but at a cost to everyone else. Any time someone defers consumption by hoarding, they are incurring a future inflation (or less deflation than there otherwise would have been). Both when you hoard and when you spend causes economic upset at the benefit to the hoarder and the detriment to the rest of the economy. Saving would incur no penalties in either situation. But it also won't make nearly as much value ("out of thin air").

It's one thing to write a proposal and it's another thing to do it. Trust me, I know.


Well I don't know what your goals are, and your money supply thread didn't really elucidate that either.


Time-based reputation is only a monetary incentive (and disincentive for doing bad things) as well as applying to a few other minor things. The majority of the security rests on buying shares. Want to approve a double or a bad spend? Well ok it will cost you $3,000 and however many months or years of reputation incentive that you've earned. And the odds if being able to pull this off and actually work are as difficult if not much more difficult than a finney attack as nothing can be done in secret.


I'm not. I've spent hundreds of hours coming up with these ideas, coming up with potential attacks, rearranging the ideas to avoid those attacks, and so on. There are, in my mind, only a few questions that need to be answered via testing, and these are of a low-impact variety (like how will latency affect certain processes).


See above. A lot of my time has been devoted to figuring out how it can't be gamed; up to and including making ASICs essentially useless.

As always, feel free to ask questions in the thread and I will give you a very detailed response.

I don't remember discussing it with you. A quick check of posting history suggests all you've done is dismiss it because it's "too complicated". If you want to have relative stability even in the face of market expansion, which imo is a very necessary thing if you want businesses and people to use your money, you are going to have to really gut the ideas of bitcoin and start over. So, again imo, it is worth it to gut the rest of the crap that is inefficient while you're at it. Nobody presumed bitcoin was possible until Satoshi did it; it's really not that far-fetched to rework the same idea from the ground up. And it's a lot easier if there are multiple people involved.

No, it's not, according to the Austrian school of economics. Because money saved in banks returning interest is providing non-consumption growth for the sake of future consumption. The money is still moving around the economy, thus not affecting its velocity. Hoarding, when you remove the money from the supply, does affect velocity and does increase the rate of deflation in a very artificial way.


You think it's egregious that banks get the benefit before you get the benefit. Where's the difference, man? Oh wait, because YOU will be the bank in this situation it's all good. I totally get your philosophy bro. You're jealous of the early adopting banks and want a piece of the pie for yourself rather than fixing the problem with money.

It's certainly possible, of course. You're asking if there's a way to prevent the problem of a limited supply commodity. How the economy will react is certainly up for debate, but it definitely makes things bad for business.

The solution is to have a non-limited supply, but you won't see much love for that around here.

Under point #1:

"If they anticipate a future decline of their selling proceeds, they will bid down present prices of factors of production, thus assuring profitable production and paid employment for everyone willing to work. This is exactly what happened in the few periods of modern history in which deflation was not prevented through inflationist counter-measures."



"A fiat money regime considerably facilitates the re-distribution of resources within society. It allows the owners of the printing press and their political and economic allies to enrich themselves far quicker and at much lower cost than any other producer in any other field. This explains why governments have for centuries sought to establish a paper currency. And it explains why, after they had achieved this goal in the 20th century, governments and their business allies set off on an exponential growth path. The welfare state has exploded in the 20th century, and Wall Street and the banking sector grew quicker than almost any other sector of the economy.

This would not have been possible on a free currency market, because nobody would accept banknotes the purchasing power of which depends on the whim of its producer. And indeed paper money has never existed in a truly free currency market.

...

Deflation brings in the fresh winds of the free market."

How does free market currency = deflation? Especially as he defined, multiple times throughout the article, as a decrease in the money supply? (I assume per person though he never actually says that and leads me to believe he thinks that money will disappear.) Unless free market currency = gold, then it's not particularly free market, it's gold. Gold can't compete with itself.

Anyways, I don't have time to critique some tard who writes an article on the internet.


If you want stability, the template is in my signature bro.

What is with the disconnect? How do you see "1. Zero fee to transfer money" and read "bitcoin enables zero fee transactions"? And the underlying system of bitcoin most certainly does not rely on zero fee transactions. Remember when "paypal will always be free"? Cognitive dissonance much?

But I've shown with the simplest of math that this is wrong. You are begging the question, I am using an equation, one devised in part by Mises no less. Why should anyone trust what you believe will happen when the equation simply says you're wrong?


Except that I only do this to make the scenario clear. You can use any amount of money and the same effect happens to a lesser degree. Present hoarding causes future inflation. It is unquestionable. It's all a matter of who benefits. And many times this may occur naturally and exogenously, such as in the case of the majority of banking panics in the US before the federal reserve. Predictable and unpredictable circumstances can both cause serious price shocks. In the end equilibrium may be returned (a lot quicker if you have such a helpful chap named JP Morgan to buy back your economy for you), but in the meantime there is misery.


I'd say it's an extremely implausible scenario that the gambling derivatives market would be 400x the GDP of the United States, but it is true. What isn't true is that because A is bad and B is not A, B must be good. Red herring, denying the conjunct, ignoratio elenchi, what have you. It's distracting and irrelevant to whether or not bitcoin is sound money.


Strawman with a bit of "hey it's ok, the value you lost is for your own benefit" thrown it. "The pyramid will continue and you will eventually be rich too!"


Are you going to foam at the mouth on me now too like Realpra after pointing out how argumentative and logical fallacies make for a piss-poor argument?

As I mentioned in the tomato soup thread, the problem with this is the market doesn't know it's getting this "loan". In the mean time, debtors go bankrupt, creditors go bankrupt because debtors go bankrupt, people lose their jobs because no one can afford the products/services of their company any more, THEN the market adjusts to lower prices. This "deferred consumption" doesn't happen in a vacuum and it is only beneficial to the one(s) causing the problem. Everyone else suffers (except other hoarders). And then they suffer again when the hoarder calls in to collect and causes inflation and reduces the value of everyone else's savings.


Why would businesses use bitcoin if they can't run a business with it? What incentive to businessmen have at all to use a volatile, unforgiving currency?


Whatever you say, Karl.


But yet you argue that deferring consumption merely lends resources to the rest of the economy. That is a net zero, broseph. Your argument has been busted by your own admission. Hayek, on the other hand, says that saving in banks promotes non-consumption growth, exactly what you hope will happen by playing with deflation. If everyone's purchasing power is temporarily increased, you may get some non-consumption growth, but you will also get plenty of consumption. And it's also just a temporary illusion that ignores what happens when there is unexpected deflation. (bankruptcies, job loss, etc. ad nauseum)


Deflation is communicating the reality you think you've argued and you think is best but is really just the latest in a string of bitcoinomics rationalizations. Stable prices allow for an economy to actually figure that out for itself. If you ask my opinion, I think the reality of a stable price currency like Decrits would actually make the price of luxury consumption items be much higher. Without the wealth and productivity of the people being dragged up the economy as in fiat or bitcoin, wealth will be more evenly spread throughout the economy, and thus luxury goods must cost more in relation to things like food (supply and demand, of course). But this cost comes at reducing inconsequential things like poverty and hunger. I think I can live with that.

And oh I think people invested in bitcoin will hold on to it for as long as possible. But when something better comes along that actually supports a working economy, the viability of bitcoin will be greatly diminished. If new people aren't rushing to speculate on bitcoin (and it's bad for business), bitcoin's price will not increase. When bitcoin starts stalling, some people are going to rush to cash out. Then all that value goes up in a puff of smoke and the pyramid collapses.


God forbid bitcoin sees a little actual competition other than "i changed 4 lines of code join mah pyramid!!!11" It is folly to assume that the free market will universally choose bitcoin when even you think it sucks for business. Unless you want to fall back to the AbelsFire feudalism argument where "herp a derp nobody needs loans in an economy!!!11"

It's amusing how you didn't respond to my comment about how side currencies popped up all over the place during the great depression. The great thing about a free market is it gets to decide what's best, not what you think is best.


I'm glad you're impressed. But that does not counter the fact that it is flourishing because of the nature of a cryptocurrency and nothing specific to bitcoin. It's actually sad how even in that economy the volatility of bitcoin means that people have to waste money hedging bitcoin against USD. I don't know what Silk Road charges for the service, but it isn't free and it is another transaction cost that bitcoin imposes due to its poor design.

Let's ignore for the sake of argument that finding a nominal positive interest rate in a deflationary economy will be very difficult. "Saving" in the austrian sense means putting your money to work, almost absolutely to non-consumption growth. Capital reinvestment. Things decay, it's a fact of life. Equilibrium will still be achieved because the free market interest rate will vary depending on the amount of money available to lend and the amount of people that need to borrow. But in this case the supply of money won't be upset. If we assume a totally stable economy, Mr. Businessman will only earn a few percent per year. To the contrary, in a stable economy, Mr. Businessman can withhold all of his money and double its value as soon as the market readjusts to the new money supply.

Which one do you think he will choose (where's the opportunity cost)? Which one will cause immense suffering for everyone but the businessman? What exactly are we trying to solve with fiat?


Don't you consider Wall Street to be pretty big? Are we all supposed to naively assume that greedy people won't do their very damndest to manipulate this economy? How many times does the value of a bitcoin have to double to reach even 1% of the world's GDP? How many easy opportunities will this provide for the bitcoin wealthy to manipulate the market?

While equilibrium may be reached every now and then, there will be people always accumulating wealth and always looking to game the system in their favor. Withhold money, cause extra deflation (again not a perfect market, they don't know what's happening, people lose jobs prices stay high and so on before the market has a chance to adjust), then when everything has settled down, flood the market to grab all kinds of real value, cause everyone to lose value in savings, so on and so forth. The. Business. Cycle. In a new and stupid form.