Why does Bitcoin subsidize saving?

[JoelKatz]

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.

Right, but it's important to remember that saving is a form of investment. When you save money, you have invested whatever productivity you contributed in order to get the money you saved. What that productivity produced earns interest in the economy as it makes possible further production.

For example, say I work at an auto factory. I help make cars. My productivity produces cars. Say I save some of the money that I earned. I have invested in the form of those cars that I made that otherwise wouldn't get made that are now earning interest as people use those cars to do work and produce goods. My income has been invested in the economy as I save that money and it earns interest because it produces goods that increase the demand for the money I saved. Deflation is the interest my productivity earns.

With a sensible monetary system, saving is a form of investing. Deflation is interest on invested productivity.

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.

I agree all around. It's stupid to encourage people to consume when immediate consumption isn't needed. It's flat out idiotic to discourage saving.

[1715572592]

1715572592

[1715572592]

1715572592

[BoardGameCoin]

bitcoin is the only money supply system ever proposed that truly offers perfect information.

+1000

People underestimate the importance of this.

[iCEBREAKER]

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.

With a sensible monetary system, saving is a form of investing. Deflation is interest on invested productivity.

Knowledge and wisdom!  Jr Member is extremely lucky to have such an erudite, learned Economics 101 tutor. 

It's a pleasure watching you gently correct and educate the board's Keynesians and Marxists.  Under your guidance, they'll come around.

[justusranvier]

Under your guidance, they'll come around.

It depends on the individual. If a person's income is derived directly or indirectly from the exploitation of others they tend to remain deliberately obtuse when it comes to certain basic facts of economics.

[commonancestor]

Isn't currency better spent than saved and hoarded?

BTW to discuss deflation there is a dedicated thread https://bitcointalk.org/index.php?topic=11627.0

A rock accomplishes the same thing, it is not buying cars.
A rock can hold bitcoins though if I engrave a private key in it.  (scnr)

It would be a lucky rock clearly. Other people first need to produce something and sell it to earn bitcoins.

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.

If it is meant for bitcoins as a result of deflation, then the velocity of money would not decrease (because there would simply be a high demand for bitcoins), and people will not start settling bills by other means.

What's wrong with deflation and bitcoins being "too valuable" anyway? He who wants to starve and be "rich" will hold bitcoins, and he who wants to eat and be "poor" will buy some bread (from a farmer who is happy to be paid in valuable bitcoins). In another words, the market will find an equilibrium.

[HeavyMetal]

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

During hyperinflation in Zimbabwe people would get paid for their work and then run as fast as they could to the exchange to trade it for food, because if they walked there the prices would be higher. Inflation was literally happening by the minute.

During a 3 year period they dropped 25 zeros from their bill and still ended up issuing 100 trillion dollar bills. As your "t" approaches zero and people seek to dispose of the currency as quickly as possible the currency itself collapses and you end up with piles of it littering the streets.

I would say that the desire of a population to save money is evidence of strength in the currency.

[JoelKatz]

Under your guidance, they'll come around.

It depends on the individual. If a person's income is derived directly or indirectly from the exploitation of others they tend to remain deliberately obtuse when it comes to certain basic facts of economics.

As the saying goes, it's hard for a man to understand an argument when his livelihood depends on not understanding it.

[Etlase2]

What's wrong with deflation and bitcoins being "too valuable" anyway? He who wants to starve and be "rich" will hold bitcoins, and he who wants to eat and be "poor" will buy some bread (from a farmer who is happy to be paid in valuable bitcoins). In another words, the market will find an equilibrium.

Or he who wants to build an empire can loan the money, earn lots of interest, then cause deflationary swings by withholding money from the market (credit crisis) and benefit in the same, sadistic way that banks do now by profiting handsomely off of the bankruptcy of others.

[markm]

What's wrong with deflation and bitcoins being "too valuable" anyway? He who wants to starve and be "rich" will hold bitcoins, and he who wants to eat and be "poor" will buy some bread (from a farmer who is happy to be paid in valuable bitcoins). In another words, the market will find an equilibrium.

Or he who wants to build an empire can loan the money, earn lots of interest, then cause deflationary swings by withholding money from the market (credit crisis) and benefit in the same, sadistic way that banks do now by profiting handsomely off of the bankruptcy of others.

This is why entities looking for financing shop around, and why General Finance Corp (GFC) was formed to help them shop around. Already many operations that were initially started up using 1%/day loans from General Mining Corp (GMC) and General Retirement Funds (GRF) have been refinanced at half that rate, in DeVCoins, thanks to General Financial Corp, and also several obtained refinancing from the Brits, denominated in UKB (United Kingdom Britcoin), the Canucks (denominated in Canadian Digital Notes) or the (Galactic) United Nations (denominated in United Nations Scrip).

The more altchains the better, to provide all the more options for those seeking financing outside the sandboxes of Old Money factions/groups...

-MarkM-

[benjamindees]

Bitcoin doesn't subsidize saving.  In the long run, Bitcoin is neutral with respect to saving.  And, in the short term, Bitcoin subsidizes consumption (mining).

[The_Duke]

Right, but it's important to remember that saving is a form of investment. When you save money, you have invested whatever productivity you contributed in order to get the money you saved.

Your arguments are all based around the fact that people save *more* coins/money. You assume that if I have 20 BTC today, I will put in effort (and thus produce something) to acquire 21 BTC tomorrow.
However, that is not what is happening with bitcoin. The problem with a deflationary currency is that I don't actually need to have MORE of it to be more wealthy. Just having the SAME amount is enough for that.
Since the currency deflates, my 20 coins will be worth more tomorrow *anyway*, so I'd better not spend it and I don't need to bother getting more either. Just sit on my coins and watch my wealth grow.

By not spending them, I am not encouraging others to actually produce anything to gain more coins. Someone willing to produce something for BTC quickly discovers that all his potential customers are postponing their purchase, because for the same amount of BTC they can by X-times more of the product in a week from now.
The only thing worth producing in bitcoin is: more bitcoins. Which is not really production, but merely burning energy. Someone élses energy if you get lucky...

[bb113]

Right, but it's important to remember that saving is a form of investment. When you save money, you have invested whatever productivity you contributed in order to get the money you saved.

Your arguments are all based around the fact that people save *more* coins/money. You assume that if I have 20 BTC today, I will put in effort (and thus produce something) to acquire 21 BTC tomorrow.
However, that is not what is happening with bitcoin. The problem with a deflationary currency is that I don't actually need to have MORE of it to be more wealthy. Just having the SAME amount is enough for that.
Since the currency deflates, my 20 coins will be worth more tomorrow *anyway*, so I'd better not spend it and I don't need to bother getting more either. Just sit on my coins and watch my wealth grow.

By not spending them, I am not encouraging others to actually produce anything to gain more coins. Someone willing to produce something for BTC quickly discovers that all his potential customers are postponing their purchase, because for the same amount of BTC they can by X-times more of the product in a week from now.
The only thing worth producing in bitcoin is: more bitcoins. Which is not really production, but merely burning energy. Someone élses energy if you get lucky...

You would spend them if there was something you wanted or needed enough. Most of what we all spend our money on is dumb honestly. Why would an economy need to incentivize people to spend? Is it possible to set one up that does not do this? Because it would lead to better outcomes if people saved more and wasted less in my judgement.

[FreeMoney]

Right, but it's important to remember that saving is a form of investment. When you save money, you have invested whatever productivity you contributed in order to get the money you saved.

Your arguments are all based around the fact that people save *more* coins/money. You assume that if I have 20 BTC today, I will put in effort (and thus produce something) to acquire 21 BTC tomorrow.
However, that is not what is happening with bitcoin. The problem with a deflationary currency is that I don't actually need to have MORE of it to be more wealthy. Just having the SAME amount is enough for that.
Since the currency deflates, my 20 coins will be worth more tomorrow *anyway*, so I'd better not spend it and I don't need to bother getting more either. Just sit on my coins and watch my wealth grow.

By not spending them, I am not encouraging others to actually produce anything to gain more coins. Someone willing to produce something for BTC quickly discovers that all his potential customers are postponing their purchase, because for the same amount of BTC they can by X-times more of the product in a week from now.
The only thing worth producing in bitcoin is: more bitcoins. Which is not really production, but merely burning energy. Someone élses energy if you get lucky...

There isn't just "not spending" and "spending" everyone has different willingnesses and the tighter you are the better shit people are going to have to offer you. It incentivizes them more the tighter you are because you aren't some magic ascetic who doesn't want a spaceship, better health, amazing palaces, etc. And if you are I still don't care, I'll build palaces for other people.

[Etlase2]

You would spend them if there was something you wanted or needed enough. Most of what we all spend our money on is dumb honestly. Why would an economy need to incentivize people to spend? Is it possible to set one up that does not do this? Because it would lead to better outcomes if people saved more and wasted less in my judgement.

This is just time preference semantics though. Spend now or spend later, what difference does it really make? jtimon et al make some pretty decent arguments for their demurrage currency where holding currency is actually actively discouraged by the demurrage fee, and thus potentially reducing wasteful activities by investors trying to turn a quick profit now rather than thinking about the long-term. https://bitcointalk.org/index.php?topic=89843.0

Unfortunately, there is little incentive for anyone to actually use a currency with demurrage when there are other, non-demurraging currencies available. And in fact I don't think a demurrage currency can ever be successful unless it exists in a vacuum, e.g. by government mandate. Anyone looking for the quick profit now will just take bitcoins or something else and refuse freicoins.

[bb113]

There is no incentive for people to start using such a currency. The only way to make people get it is by forcing them to. Tricking p

You would spend them if there was something you wanted or needed enough. Most of what we all spend our money on is dumb honestly. Why would an economy need to incentivize people to spend? Is it possible to set one up that does not do this? Because it would lead to better outcomes if people saved more and wasted less in my judgement.

This is just time preference semantics though. Spend now or spend later, what difference does it really make? jtimon et al make some pretty decent arguments for their demurrage currency where holding currency is actually actively discouraged by the demurrage fee, and thus potentially reducing wasteful activities by investors trying to turn a quick profit now rather than thinking about the long-term. https://bitcointalk.org/index.php?topic=89843.0

Unfortunately, there is little incentive for anyone to actually use a currency with demurrage when there are other, non-demurraging currencies available. And in fact I don't think a demurrage currency can ever be successful unless it exists in a vacuum, e.g. by government mandate. Anyone looking for the quick profit now will just take bitcoins or something else and refuse freicoins.

The purpose of this seems to be to spread wealth to the "laborers" by incentivizing those with money available to save into consuming more than they otherwise would. The laborers need to have access to fulfilling, goal-oriented jobs. That is the solution to that problem, not a currency noone has any incentive use that encourages people to consume and pollute.

Spend now or spend later, what difference does it really make?
People make better decisions after considering things from a number of different perspectives.

[herzmeister]

Another aspect of demurrage currencies is that they encourage loans of little to no interest rates. So borrowers may prefer such a currency, hence, Freicoin *might* find its niche.

[Etlase2]

The purpose of this seems to be to spread wealth to the "laborers" by incentivizing those with money available to save into consuming more than they otherwise would. The laborers need to have access to fulfilling, goal-oriented jobs. That is the solution to that problem, not a currency noone has any incentive use that encourages people to consume and pollute.

You have to look at and understand all aspects of a currency before deciding on what you think will happen. Investment has always been the tool that takes underutilized wealth and puts it to use. Whether or not it is put to good use may strongly depend on how the currency functions. Investors in a demurrage currency will look for long-term, renewable investing rather than short-term, resource dwindling gains. When gains are likely to be realized, investors will have to be very conscious about what to do with those gains and must realize that overproduction is only going to lead to a larger loss due to demurrage if more investment cannot be quickly found. So rather than promoting overproduction (and therefore overconsumption), investors are forced to stop and think about the diminishing returns that comes with a currency that has demurrage, or they will quickly find themselves penniless.

But yes, no one is going to use a currency with demurrage when there are alternatives, imo.

People make better decisions after considering things from a number of different perspectives.

Even if this were true (it is a hasty generalization), the expected outcome on encouraging a high time preference is that either: 1) investment dwindles and there are very few "goal-oriented jobs" and people without money suffer (though this may be somewhat specific to bitcoin and the lack for need of a banking system); or 2) consumption rates will eventually equalize and it will just be older people that consume more now that money will have no meaning sooner rather than later.

If the value of money stayed relatively stable with some inherent risk of loss due to investment (a problem "avoided" by things like the FDIC), investing/saving/consuming could potentially equalize much quicker to something of a steady state. Overproduction/over-investment would be much riskier without governments/banks being able to print money.

Many of the problems attributed to fiat currencies that bitcoin supposedly solves are really just problems of government mismanagement, and not something that bitcoin inherently solves. Over-investment leads to over-production/consumption, but this is encouraged by inflating currency and government controls. Do you really think that a deflating currency is going to support a steady state, or will it support under-investment and under-production? Why utilize money to produce when the act of doing so will likely devalue it (more in circulation) and there is risk, when merely holding the currency provides a near-guaranteed return? Investors are going to have quite the pickle.

[ElectricMucus]

Here is the fundamental flaw of bitcoins economic model in one sentence:

Spending because of a need is fundamentally less than because of a want.
(I would be surprised if this gets any insightful answers)

[kjj]

Here is the fundamental flaw of bitcoins economic model in one sentence:

Spending because of a need is fundamentally less than because of a want.
(I would be surprised if this gets any insightful answers)

I struck out your baseless assertion.  Your one sentence is trivially true, but being merely a roundabout definition of "want" and "need", it is devoid of other content.  It certainly does not follow from that sentence that more spending is better, nor that the lack of spending is evidence of a flaw in anything.  Nor does it say anything about what the real level of spending is or should be.

[ElectricMucus]

Bitcoin has no mechanism to implement demising returns on saving.

Every economy has that:
Gold: Physical wear, increased storage space higher cost of guarding.
Fiat money: Inflation
Barter economy: Depreciation of goods
IOU trust network alas ripple: Increased counterparty risk.

With bitcoin the fundamentally best strategy to reach highest economical authority is to never spend them ever, which is obviously not feasible.
I don't speak out against the fixed supply, but it needs some mechanism to encourage spending for luxury like demurrage for example.
A concrete scenario for many bitcoiners is to save them for cases where they are either overvalued (from their personal perspective) or to save them as an insurance against economic turmoil while at the same time doing nothing to prevent that scenario from occurring.

The main reason I am opposed here is the self interest of bitcoin hoarders to justify their own behavior and keep up the public perception of bitcoin.