Why does Bitcoin subsidize saving?

[Coincomm]

Isn't currency better spent than saved and hoarded?

[1714186278]

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[1714186278]

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[1714186278]

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[JoelKatz]

Isn't currency better spent than saved and hoarded?

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

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

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

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

[unclescrooge]

Isn't currency better spent than saved and hoarded?

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

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

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

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

+1

So often forgotten...

[ElectricMucus]

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

[BadBitcoin (James Sutton)]

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

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

[nedbert9]

Whooa.  Highly controversial question.


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

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


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

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


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

[JoelKatz]

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

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

[justusranvier]

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

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

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

[ElectricMucus]

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

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

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

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

[Coincomm]

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

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

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

Bingo. 

[Grinder]

How do you get the bitcoins you save without producing something?

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

If "producing" gives you trouble, think of it is deferring consumption instead. You could have bought a car and blew it up -- you had every right to destroy a car with those bitcoins. But instead you let someone else use that car. You didn't take what you were entitled to. And that leaves more for everybody else. (Not that it's a zero sum game, of course. If you did produce to get those bitcoins, that's where you added to the sum.)

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

[FreeMoney]

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

[sunnankar]

It's mostly investing that expands the economy, not consumption or saving/hoarding/whatever you call it. When most people just want to save the currency gets very valuable but the economy stops. This is unfortunately what's happening to Bitcoin.

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

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

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

Seriously, you should go listen to PraxGirl on Capital and give her a bitcoin tip.

[bg002h]

Isn't currency better spent than saved and hoarded?

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

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

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

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

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

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

Thank you.

[Timo Y]

Isn't currency better spent than saved and hoarded?

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

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

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

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

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

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

[Realpra]

..how else is a ruling class going to live like royalty without ever producing anything at all?

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

(I know its a joke  )

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

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

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

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


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

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

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

[grau]

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

Well observed Timo.

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

[Melbustus]

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

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

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

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

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

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

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

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

[runeks]

Isn't currency better spent than saved and hoarded?

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

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

[FreeMoney]

Isn't currency better spent than saved and hoarded?

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

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

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

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