Bitcoin Forum
October 20, 2018, 10:39:07 PM *
News: Make sure you are not using versions of Bitcoin Core other than 0.17.0 [Torrent], 0.16.3, 0.15.2, or 0.14.3. More info.
 
   Home   Help Search Donate Login Register  
Pages: [1] 2 3 »  All
  Print  
Author Topic: Fascinating information on saving vs. consumption  (Read 4040 times)
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 19, 2012, 11:06:42 PM
 #1

I see a lot of people saying economic quips in defense of bitcoin such as:

He did contribute to the growth over the last 10 years though, by not pulling goods and services out of the economy. He earns a general interest rate of return. All those shoes he produced are in the economy, creating even more growth. Hence, by not spending his coins he is investing in the general economy.

Aha, but again you are ignoring the time-value of money. The producer produced in the past, and deferred his consumption. It is from his delay of consumption that he "earns" more consumption over time. By not consuming something on each day, he enables that thing to be consumed by another market participant - by opting out of consumption, he enables others to opt-in for that same consumption at that price. If he consumed, then he'd be "taking" resources from others (by bidding up the price of those resources upon his consumption of them).

Also remember that by saving that money, he is not taking one iota of wealth from anybody else. Further, everyone has the exact same opportunity to enjoy the benefits of the appreciating money. Anyone who defers his consumption will be rewarded in the exact same way, in proportion to the consumption deferred. There is no special privilege, other than the skills, work, and talents of the individual producer - and these things are bestowed by nature. If you're upset about the unfairness of nature, then take it up with nature Wink  

So I wanted to see if any Austrians believe this.

I found this article on Wikipedia: https://en.wikipedia.org/wiki/Paradox_of_thrift

It is a Keynesian idea that states: "The paradox states that if everyone tries to save more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population because of the decrease in consumption and economic growth."

Under its criticisms:

"The second criticism is that savings represent loanable funds, particularly at banks, assuming the savings are held at banks, rather than currency itself being held ("stashed under one's mattress"). Thus an accumulation of savings yields an increase in potential lending, which will lower interest rates and stimulate borrowing. So a decline in consumer spending is offset by an increase in lending, and subsequent investment and spending.

Two caveats are added to this criticism. Firstly, if savings are held as cash, rather than being loaned out (directly by savers, or indirectly, as via bank deposits), then loanable funds do not increase, and thus a recession may be caused – but this is due to holding cash, not to saving per se."

So I followed the citation for this criticism, and it is mostly based off of Hayek's discreditation of Keynesian economics. I will quote some things I find interesting.

http://www.auburn.edu/~garriro/cbm.htm

9.3: It is the forgoing of current and near-term consumption, after all, that frees up the resources with which to expand the economy’s productive capacity and make increasing future consumption possible.

[T]he output of consumables begins to rise. And with saving now in excess of capital depreciation, expansion continues in each of the stages of production. The economy experiences a positive secular growth rate[.]

9.4: Is there a market mechanism that brings saving and investment in line with one another without at the same time having perverse effects (e.g. widespread resource idleness) on the macroeconomy?

Some macroeconomists would answer the critical question in the affirmative, taking the market’s allocation of resources to the production of consumption goods and the production of investment goods, the later financed by saving, to be on a par with the market’s allocation of resources to the production of fruits and the production of vegetables.

[T]he Keynesian theory precludes by construction any possibility of there being a trade-off of the sort emphasized by the Austrians.

There is simply no scope in the Keynesian vision for investment to rise at the expense of current consumption. Similarly, market participants willing to forgo current consumption (i.e., to save) in order to be able to enjoy greater future consumption would find their efforts foiled by the market mechanisms that link saving and investment.

The more favorable credit conditions brought about by the increase in saving is the basis for the rest of the story.

Consider, say, a tenth-order good in the form of durable capital equipment. Testing facilities and laboratory fixtures devoted to product development are good examples. More favorable credit conditions could easily tip the scales toward creating or expanding such a facility. In early stages of production, the time-discount effect can more-than offset the derived-demand effect.

Contrary to Keynes’s paradox of thrift, consumption and investment can move in opposite directions.

“Mr. Keynes’s aggregates conceal the most fundamental mechanisms of change.” (Hayek, 1931) It is significant that those fundamental mechanisms are set into motion by the supply and demand for loanable funds—because it was loanable-funds theory, a staple in the pre-Keynesians’ toolkit, that Keynes specifically jettisoned.

9.5: With their incomes they engage in consumption spending, laying claim to most-but-not-all of the output that they have collectively produced. The part of income not so spent, that is, their saving, bears a strong and systematic relationship to the part of the output that is not currently consumed. These unconsumed resources can be made available for increasing the economy’s productive capacity. In a market economy, there are a number of different financial instruments (bank deposits, passbook accounts, bonds, and equity shares) that transfer command over the unconsumed resources to the business community.

What if some income is neither spent on consumption nor offered as funds for lending? That is, what if people—unexpectedly and on an economywide basis—prefer to add to their cash holdings? The increased demand for cash holdings would constitute saving in the sense of income not consumed but would not constitute saving in the sense of an increase in the supply of loanable funds.

An exogenous change in money demand is rarely if ever the source of a macroeconomic disruption. And an occasional dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it.


9.6: Hence, if capital depreciation just happened to be equal to the gross investment, the economy would be experiencing no economic growth. Typically, depreciation will be something less than gross investment, and the economy will enjoy a positive growth rate, the frontier itself expanding outward from period to period. In the unlikely case in which gross investment falls short of depreciation, of course, the economy would be in economic decline, the frontier shifting inward from period to period.

A major focus of Austrian theorizing is on the market mechanisms that allow for such movements—and on policy actions that lead to a disruption of these mechanisms.
... It also entails a growth rate that is consistent with intertemporal preferences.

9.8: Suppose that in circumstances of a no-growth economy and a natural rate of interest of ieq, people become more thrifty. ... With the resulting downward pressure on the interest rate, the loanable-funds market is brought back into equilibrium.

If we understand the saving that gave rise to the capital restructuring not as a permanent reduction in consumption but rather as an increased demand for future consumption, then we see that the reallocations are consistent with the preference change that gave rise to them.

But with reduced consumer spending and no change—and certainly no increase—in investment spending, the economy has fallen inside the production possibilities frontier.
NOTE: This is in reference to Keynes "paradox of thrift" and refers to what Keynes thought would cause a recession (he did not believe investment spending would increase).

9.12:  Deflation, like inflation, is a secondary issue in the Austrian literature. Growth-induced deflation, that is, the decline in some overall price index that accompanies increases in real output, is considered a non-problem.

Deflation caused by a severe monetary contraction is another matter. Strong downward pressures on prices in general put undue burdens on market mechanisms. Unless, implausibly, all prices and wages adjust instantaneously to the lower money supply, output levels will fall.




I think there is some pretty thorough analysis here of the different mechanisms between the Austrian and Keynes schools of thought on economic growth. However, all of the Austrian ideas consider that saving drives investment. This is, at least at this point in time, most certainly not the case with Bitcoin.

How then could the two posts I quoted initially be accurate? How can the market find a real interest rate, or at least an acceptable one, when so much investment opportunity is hoarded rather than lent? According to this analysis, there would be economic recession. Since Bitcoin is currently such a small market, I think that implies a lack of any avenue for real growth.

This analysis claims that this would be the fault of economic policy or a problem with the market--"dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it." Does Bitcoin have an inherent intertemporal coordination failure?

How's about some real discussion.

1540075147
Hero Member
*
Offline Offline

Posts: 1540075147

View Profile Personal Message (Offline)

Ignore
1540075147
Reply with quote  #2

1540075147
Report to moderator
1540075147
Hero Member
*
Offline Offline

Posts: 1540075147

View Profile Personal Message (Offline)

Ignore
1540075147
Reply with quote  #2

1540075147
Report to moderator
1540075147
Hero Member
*
Offline Offline

Posts: 1540075147

View Profile Personal Message (Offline)

Ignore
1540075147
Reply with quote  #2

1540075147
Report to moderator
Advertised sites are not endorsed by the Bitcoin Forum. They may be unsafe, untrustworthy, or illegal in your jurisdiction. Advertise here.
1540075147
Hero Member
*
Offline Offline

Posts: 1540075147

View Profile Personal Message (Offline)

Ignore
1540075147
Reply with quote  #2

1540075147
Report to moderator
Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 04:28:22 PM
 #2

Quote
Two caveats are added to this criticism. Firstly, if savings are held as cash, rather than being loaned out (directly by savers, or indirectly, as via bank deposits), then loanable funds do not increase, and thus a recession may be caused – but this is due to holding cash, not to saving per se."

So I have a real world argument against the criticism. My grandfather ran away from home during the depression, saw a girl he fancied in a town he wound up in. He went from house to house to borrow money to study to become a doctor. (Tapping into unavailable funds) became a doctor married the girl, his potential was enabled not my money in the bank, but by finding a way to access savings.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 08:27:34 PM
 #3

I think there is some pretty thorough analysis here of the different mechanisms between the Austrian and Keynes schools of thought on economic growth. However, all of the Austrian ideas consider that saving drives investment. This is, at least at this point in time, most certainly not the case with Bitcoin.

So my 3rd grade English aside.

I totally agree with your conclusion.

 Regarding criticism of Austrian and Keynes schools of thought on economic growth - Ideas should be evaluate on their own merit. The debate in economic theory that has turned it into a social science is in my view counterproductive and not worth arguing.

There is logic in mathematics principles and this logic can be followed and demonstrated scientifically.

 As Mises correctly pointed out, you can never predict the rational chooses of consumers. How individuals determine value is irrational, (this is as true of 2 year olds as it is of stamp collectors and gold bugs), it is largely circumstantial time and need dependant)  given this as a fact any economic calculation that involved a fixed value (defined by consumer demand) should be considered a stoical science.  

Mathematic principles derived from the laws of nature can be defined and are therefore considered science.  Take meteorology for eg.  The principle of air moving from a high pressure to a low pressure is science. There are so many factors like the surface area on all the leaves on the trees the wind moves past, that affects the speed at which the air will travel. (Given just this one unknown an accurate predictions will always be wrong; and dependent on the time, place and circumstances the measurements are taken one may even get the direction wrong - but the scientific facts the direction of air flow will move from a high to low pressure will always be correct.)

One will have to go out on a limb here as you will have to build apron underlying bases that living people will always need food to be considered a fact. (At what stage they choose to start cooking acorns or eating dead people is stoical science) the sciences of economics that should be debate is based on that fact that people eat everything that follows is causality.

Price deflation can only occur if the economy is growing, the cost of goods and services decrease because of over supply. Investment is not needed to stimulate more growth.

Conversely price inflation occurs when there is more demand than supply. In this case the economy needs to grow to satisfy demand. Saving is not rewarded and investment is rewarded - growth is encouraged.

(No central planing - only market driven auto-correction)  

It looks like there is a contemporary schools of thought evolving from Keynesian dogma and then the critics, (loosely labelled Austrians) it appears to me they vary on one point, regression of causality.  

While I believe one can prove scientifically there is no "paradox of thrift" and still account for Sticky prices problem in economics.
You have illustrated there is indeed a "paradox of thrift" in Bitcoin, so it should correct with inflation ( a huge crash)  

When you allow deflation to occur, the "price" of money (i.e., the amount of goods and services that must be exchanged to "buy" a particular amount of currency) increases.  That price change conveys information about, e.g., the growth rate of the overall economy.  In contrast, when you allow a central bank or other authority to set "stable prices" as a goal by printing money to counteract the natural process of deflation, you've effectively introduced price controls on money. Those price controls (like all price controls) interfere with the signalling and rationing functions that prices are supposed to perform.  Because printing money keeps the "price" of money artificially low, the effect is to encourage money's overconsumption and thus overconsumption in general.  
Beautifully said.  +1
I agree with the sentiments expressed this is why I love the idea of a Bitcoin economy.

Quote
When you allow deflation to occur, the "price" of money (i.e., the amount of goods and services that must be exchanged to "buy" a particular amount of currency) increases.  
The goods and services that must be exchanged to "buy" a particular amount of "Bitcoin" has increased about 100% in 3 months (by definition, deflation has occurred)  

Quote
That price change conveys information about, e.g., the growth rate of the overall economy.
The price change would signal that the Bitcoin economy has grown over 100% in 3 months.
The Bitcoin economy by the definition of economy has not grown that much, the cost of money by definition has increases.  

The price of Bitcoin's is not being driven by the output of the economy. But more accurately it is the demand for Bitcoin (or more appropriately the push from fiat by the actions of central banks all over the world) that is driving up the cost of Bitcoin.

The result is that the price change is not conveying correct information about the growth rate of the overall Bitcoin economy.

Bitcoin has created an Austrian example of the "paradox of thrift"

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 09:29:33 PM
 #4

Regarding criticism of Austrian and Keynes schools of thought on economic growth - Ideas should be evaluate on their own merit. The debate in economic theory that has turned it into a social science is in my view counterproductive and not worth arguing.

It makes you have to wonder how Keynes became the economic heavyweight while more logical people such as Hayek fell to the wayside. Could this possibly be another case of the "powers that be" interfering with public opinion on this subject? Or not even that, just old-fashioned government expansion? Canada's competitive, regional banking system fared quite well vs. the US during many times of US economic depression. Yet Canada still fell for it eventually. It's still really odd though that instead of printing money on its own, governments choose to give this power to a private corporation.

Quote
You have illustrated there is indeed a "paradox of thrift" in Bitcoin, so it should correct with inflation ( a huge crash)

And many bitcoin proponents will argue that this is just another opportunity. However, this is the same mentality that got us to an inflationary crash in the first place. To compound the effect, bitcoin is a voluntary currency and no one will likely ever need it to buy food for a very long time. Therefore I think the only "opportunity" you gain is one where you think you're smarter or quicker than everyone else to predict when the next crash will happen. Will businesses and markets think that this is a better system than the gradual inflationary one (excluding the real possibility of hyperinflation)? In the long run, both would seem to cause business cycles, except that bitcoin's would seem to gradually recess and then have economic boom ("easy" money). But if nobody is doing business with bitcoin during the inflation boom because of the prior gradual recession...

Quote
I agree with the sentiments expressed this is why I love the idea of a Bitcoin economy.

Bitcoin has created an Austrian example of the "paradox of thrift"

These seem to be conflicting viewpoints. Is it just the idea of a free market currency that you love?

Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 09:36:52 PM
 #5

@ Etlase2
Thanks for the simulating perspective, although I haven't had time to debate some of the points you raise on other posts, I have come to a conclusion I didn't consider before.  

My former understandings lead me to discount your idea of a new Bitcoin reward scheme. But I now consider it a possibility.

How then could the two posts I quoted initially be accurate? How can the market find a real interest rate, or at least an acceptable one, when so much investment opportunity is hoarded rather than lent? According to this analysis, there would be economic recession. Since Bitcoin is currently such a small market, I think that implies a lack of any avenue for real growth.

This analysis claims that this would be the fault of economic policy or a problem with the market--"dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it." Does Bitcoin have an inherent intertemporal coordination failure?

I have arrived at the conclusion that the current Bitcoin reward scheme is flawed.  For the reasons you have outlined and the paradox it has created that is hindering economic growth, that will perpetuate boom bust cycles until Bitcoin is the dominant medium of exchange (if it can become that). I have seen no evidence to convince me a perpetual inflating model is viable either.

If the rate of coin production were to be changed it should look something like this:


I think the paradox of thrift would be counteracted to a large degree and be more equitable to all economic participants but still grant rewords to early adopters and benefits to productivity and encourage free market principles and the adoption of the new currency.

This currency generation curve would be more analogues of Silver to Gold in relation to Bitcoin this model would also benefit Bitcoin users because it wouldn't penalise early adopters or disproportionately reword the innovators. (It would also accommodate defector from Bitcoin - with every crash should that prediction be accurate) other than (debated) technical improvements I find the Bitcoin idea still revolutionary.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 09:53:48 PM
 #6

I think the paradox of thrift would be counteracted to a large degree and be more equitable to all economic participants but still grant rewords to early adopters and benefits to productivity and encourage free market principles and the adoption of the new currency.

I think the paradox of thrift would be counteracted to a small degree if the distribution were changed to the ease-in, ease-out model. You still have the situation where people with the money control the economy. If lenders don't lend after previously lending, recessions will be easy to induce and allow the wealthy to become even wealthier (in real and durable goods).

Quote
This currency generation curve would be more analogues of Silver to Gold in relation to Bitcoin this model would also benefit Bitcoin users because it wouldn't penalise early adopters or disproportionately reword the innovators. (It would also accommodate defector from Bitcoin - with every crash should that prediction be accurate) other than (debated) technical improvements I find the Bitcoin idea still revolutionary.

Analogs of gold and silver shouldn't be what we're looking for though. You never responded to my long-winded post on this.

hashman
Legendary
*
Offline Offline

Activity: 1031
Merit: 1000


View Profile
September 20, 2012, 10:03:12 PM
 #7

@ Etlase2
Thanks for the simulating perspective, although I haven't had time to debate some of the points you raise on other posts, I have come to a conclusion I didn't consider before. 

My former understandings lead me to discount your idea of a new Bitcoin reward scheme. But I now consider it a possibility.

How then could the two posts I quoted initially be accurate? How can the market find a real interest rate, or at least an acceptable one, when so much investment opportunity is hoarded rather than lent? According to this analysis, there would be economic recession. Since Bitcoin is currently such a small market, I think that implies a lack of any avenue for real growth.

This analysis claims that this would be the fault of economic policy or a problem with the market--"dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it." Does Bitcoin have an inherent intertemporal coordination failure?

I have arrived at the conclusion that the current Bitcoin reward scheme is flawed.  For the reasons you have outlined and the paradox it has created that is hindering economic growth, that will perpetuate boom bust cycles until Bitcoin is the dominant medium of exchange (if it can become that). I have seen no evidence to convince me a perpetual inflating model is viable either.

If the rate of coin production were to be changed it should look something like this:


I think the paradox of thrift would be counteracted to a large degree and be more equitable to all economic participants but still grant rewords to early adopters and benefits to productivity and encourage free market principles and the adoption of the new currency.

This currency generation curve would be more analogues of Silver to Gold in relation to Bitcoin this model would also benefit Bitcoin users because it wouldn't penalise early adopters or disproportionately reword the innovators. (It would also accommodate defector from Bitcoin - with every crash should that prediction be accurate) other than (debated) technical improvements I find the Bitcoin idea still revolutionary.


I await turning my miners loose on your Gausscoin. 


            ▄▄████▄▄
        ▄▄██████████████▄▄
      ███████████████████████▄▄
      ▀▀█████████████████████████
██▄▄       ▀▀█████████████████████
██████▄▄        ▀█████████████████
███████████▄▄       ▀▀████████████
███████████████▄▄        ▀████████
████████████████████▄▄       ▀▀███
 ▀▀██████████████████████▄▄
     ▀▀██████████████████████▄▄
▄▄        ▀██████████████████████▄
████▄▄        ▀▀██████████████████
█████████▄▄        ▀▀█████████████
█████████████▄▄        ▀▀█████████
██████████████████▄▄        ▀▀████
▀██████████████████████▄▄
  ▀▀████████████████████████
      ▀▀█████████████████▀▀
           ▀▀███████▀▀



.SEMUX
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
  Semux uses .100% original codebase.
  Superfast with .30 seconds instant finality.
  Tested .5000 tx per block. on open network
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
█ █
Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 10:09:09 PM
 #8

Is it just the idea of a free market currency that you love?

By free market currency you are referring to a peer-to-peer (P2P) cybercrypto currency, it is the future, I am all in.

With commodity money like corn you make more of it by control the land (feudalism)
With a commodity money substitute like Gold you control it by force (empire)
With a money substitute like Fractional reserve banking, you gain control by deceit "inflation"( free market democracy)
With fiat money you control it with a central bank. (Managed socialism)
with P2P money you get ....

"Give me the right to issue and control a nation’s money and I care not who governs the country.” –Mayer Amschel Rothschild.edit
“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson edit
“Money plays the largest part in determining the course of history.” Karl Marx writing in the Communist Manifesto.
Whoever controls teh money benefits, so P2P is the only solution.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
ffe
Sr. Member
****
Offline Offline

Activity: 305
Merit: 250



View Profile
September 20, 2012, 10:12:19 PM
 #9

I see a lot of people saying economic quips in defense of bitcoin such as:

He did contribute to the growth over the last 10 years though, by not pulling goods and services out of the economy. He earns a general interest rate of return. All those shoes he produced are in the economy, creating even more growth. Hence, by not spending his coins he is investing in the general economy.

Aha, but again you are ignoring the time-value of money. The producer produced in the past, and deferred his consumption. It is from his delay of consumption that he "earns" more consumption over time. By not consuming something on each day, he enables that thing to be consumed by another market participant - by opting out of consumption, he enables others to opt-in for that same consumption at that price. If he consumed, then he'd be "taking" resources from others (by bidding up the price of those resources upon his consumption of them).

Also remember that by saving that money, he is not taking one iota of wealth from anybody else. Further, everyone has the exact same opportunity to enjoy the benefits of the appreciating money. Anyone who defers his consumption will be rewarded in the exact same way, in proportion to the consumption deferred. There is no special privilege, other than the skills, work, and talents of the individual producer - and these things are bestowed by nature. If you're upset about the unfairness of nature, then take it up with nature Wink  
<snip>
What if some income is neither spent on consumption nor offered as funds for lending? That is, what if people—unexpectedly and on an economywide basis—prefer to add to their cash holdings? The increased demand for cash holdings would constitute saving in the sense of income not consumed but would not constitute saving in the sense of an increase in the supply of loanable funds.

An exogenous change in money demand is rarely if ever the source of a macroeconomic disruption. And an occasional dramatic change in liquidity preference is more likely to be a consequence of an economywide intertemporal coordination failure than a cause of it.

<snip>
How's about some real discussion.

Economic growth is intimately tied to the movement of money. (More specifically; the payment of money for assets to allow the use of those assets productively and the payment of money for labor which is necessary to add value to products.)

It should be obvious that the absurd case of a single saver holding all the cash money in the world in his mattress and not consuming a thing is not doing the world a favor since, even though prices are “falling”, there would be no economic activity.

Normal saving where funds are offered for lending gets around this by continuing to move the money through loans. This saving is a virtue.

Increases in demand for cash, when savers put more cash in their mattresses, can be met by printing more cash or letting prices drop so that the remaining “moving” money is sufficient to sustain economic activity. Either way there is a case to be made that the hoarder is benefiting growth by deferring his consumption. (This assumes that if he consumed it’s a pure loss and not a growth producing consumption such as paying to build a factory. I don’t think it’s clear that deferring building a factory is a net plus or minus for the economy.)

However, in the real world, prices are sticky. Hence the remaining “moving” money will not be enough to sustain economic growth when there is an increase in the demand for cash. Furthermore, there seems to be positive feedback where demand for cash lowers economic activity which increases the demand for cash (race to liquidity when times are uncertain.)

There is an argument that sticky prices (and wages) is a learned behavior and that if we would just bite the bullet and live in a world with a fixed supply of cash money, then everyone would learn to live with a variable stock of “moving” money and realize they lose nothing by lowering prices (and wages).

I happen to think that the transition to there from here is cruel and unnecessary. Alternatively, the function of money in trade (“moving” money) can be separated from the function of money as a store of value.

In the fiat currency world we can live with a little bit of inflation. You want to save? Invest your cash in assets or in inflation indexed loans. Don’t moan that you want to stay in cash but you want society to guarantee you its purchasing power. Society needs cash to circulate to produce growth.

In the bitcoin world it is obvious bitcoin is a store of value. Use it for that. If you want to take over the function of money for the world, however, it makes sense to design a sister currency that is not a good store of value but is designed to keep the flow of money, “moving” money, on an even keel. Sure, build in the desirable features; No central control, No manipulation, No excess inflation, No deflation either. Have the supply grow with the needs of the economy. All governed by a set of rational rules enforced by a large number of p-p nodes.
Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 10:46:14 PM
 #10

You still have the situation where people with the money control the economy.
People with money don't control the economy; people who control money control the economy.

There is a difference.
Any wealth created through productivity is a benefit to the whole economy.  
Those who control Money, have a mechanism to transfer the wealth without being productive. You haven't fully understood that the Cantillon effect doesn't apply to the rich or the capitalist, It applies to those who can create new money or money substitutes.
 
10,000,000 years of freedom, fell to the barons age, barons age fell to feudalism, feudalism fell to more efficient and innovative kings to become empires, empires fell to financiers (bankers) of the industrial revolution, the bankers are still in charge, nation states are an illusion, we are all human and we all inhabit the biosphere.
Progress is made through healthy competition (being rich should be indicative of the contribution you have made to society) but it is a symbol of how close you are to the money makers.  

Quote
You never responded to my long-winded post on this.
I have will just little time.  

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 10:54:17 PM
 #11

With a commodity money substitute like Gold you control it by force (empire)

What about the force of finance? (As misquoted by Rothschild below)

Quote
"Give me the right to issue and control a nation’s money and I care not who governs the country.” –Mayer Amschel Rothschild.
Not a real quote.

Quote
“I believe that banking institutions are more dangerous to our liberties than standing armies.” – Thomas Jefferson
Not a real quote.

Not that I disagree with the sentiments, but they don't add any weight.


Increases in demand for cash, when savers put more cash in their mattresses, can be met by printing more cash or letting prices drop so that the remaining “moving” money is sufficient to sustain economic activity. Either way there is a case to be made that the hoarder is benefiting growth by deferring his consumption. (This assumes that if he consumed it’s a pure loss and not a growth producing consumption such as paying to build a factory. I don’t think it’s clear that deferring building a factory is a net plus or minus for the economy.)

I'm curious as to the case that can be made. It would seem that both Austrians and Keynesians disagree with you here. Trinkets and toys and other things that are consumable and very useless would be encouraged in fiat, heavily discouraged in bitcoin, and in both cases it is hard to discover whether or not there is a real market need for these items. If by mildly discouraging these things or being indifferent, perhaps the free market would eventually be allowed to figure out exactly what is the best use of money, and hoarding would never be it.

Quote
There is an argument that sticky prices (and wages) is a learned behavior and that if we would just bite the bullet and live in a world with a fixed supply of cash money, then everyone would learn to live with a variable stock of “moving” money and realize they lose nothing by lowering prices (and wages).

This does not address the business cycle. The banking system->capital accumulation->derivatives->over-leveraging, etc. A competition between free market currencies would be one, partial solution, but that means that there is still something wrong with each currency.

Quote
In the bitcoin world it is obvious bitcoin is a store of value. Use it for that. If you want to take over the function of money for the world, however, it makes sense to design a sister currency that is not a good store of value but is designed to keep the flow of money, “moving” money, on an even keel. Sure, build in the desirable features; No central control, No manipulation, No excess inflation, No deflation either. Have the supply grow with the needs of the economy. All governed by a set of rational rules enforced by a large number of p-p nodes.

If bitcoin is only good as a store of value, it's a digital pet rock/digital gold/what have you. With the coin distribution system especially, I don't see how a continuous supply of people wanting bitcoins will keep the price propped up if there is no economic reason to back it. Gold (sort of) works because gold is real and tangible. Bitcoins are not only not tangible, but easily manipulated with the concentration of supply. I don't think an unfixed supply means that something is not a good store of value if designed correctly. I don't want to derail this about my ideas, but I did send you a PM the other day so review that thread and respond if you are so inclined.

ffe
Sr. Member
****
Offline Offline

Activity: 305
Merit: 250



View Profile
September 20, 2012, 11:01:41 PM
 #12


Increases in demand for cash, when savers put more cash in their mattresses, can be met by printing more cash or letting prices drop so that the remaining “moving” money is sufficient to sustain economic activity. Either way there is a case to be made that the hoarder is benefiting growth by deferring his consumption. (This assumes that if he consumed it’s a pure loss and not a growth producing consumption such as paying to build a factory. I don’t think it’s clear that deferring building a factory is a net plus or minus for the economy.)

I'm curious as to the case that can be made. It would seem that both Austrians and Keynesians disagree with you here. Trinkets and toys and other things that are consumable and very useless would be encouraged in fiat, heavily discouraged in bitcoin, and in both cases it is hard to discover whether or not there is a real market need for these items. If by mildly discouraging these things or being indifferent, perhaps the free market would eventually be allowed to figure out exactly what is the best use of money, and hoarding would never be it.

I assume the argument goes: if a person defers consumption and the velocity of money is not reduced by his hoarding (more money printed or no sticky prices and wages), then supply side is slightly boosted making is easier for others to collect resources for productive uses.
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 11:01:50 PM
 #13

Those who control Money, have a mechanism to transfer the wealth without being productive. You haven't fully understood that the Cantillon effect doesn't apply to the rich or the capitalist, It applies to those who can create new money or money substitutes.
 
...
Progress is made through healthy competition (being rich should be indicative of the contribution you have made to society) but it isn't it is a symbol of how close you are to the money makers. 

It's not that I don't understand the Cantillon effect, or that of those who control the money, it's that I find the distinction irrelevant. I have used the phrase "control the money" just as often as "have the money control the economy". If you enable this possibility, it will happen due to greed for wealth and power. Bill Gates may be benevolent in this sense, but JP Morgan and John D. Rockefeller most certainly were not. And they were more than enough.

Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 11:02:54 PM
 #14

It should be obvious that the absurd case of a single saver holding all the cash money in the world in his mattress and not consuming a thing is not doing the world a favor since, even though prices are “falling”, there would be no economic activity.
an "absurd case" I agree but I think this is actually the problem.

It should be obvious that the absurd case of a single saver people who get Bitcoin (me included) are holding all the cash money Bitcoin in the world in his mattress and not consuming a thing is not doing the world a favor since, even though prices are “falling”,(in Bitcoin we have 100% deflation in 3 months) there would be no economic activity.
I don’t think it’s clear that deferring building a factory is a net plus or minus for the economy.)

+1 agree.

Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 11:05:51 PM
 #15

I assume the argument goes: if a person defers consumption and the velocity of money is not reduced by his hoarding (more money printed or no sticky prices and wages), then supply side is slightly boosted making is easier for others to collect resources for productive uses.

That doesn't seem like the supply side is boosted to me, it just seems that one person defers consumption so that others may consume. In the end a net zero. Perhaps in the end, slight overconsumption when the person who deferred calls in to collect.

ffe
Sr. Member
****
Offline Offline

Activity: 305
Merit: 250



View Profile
September 20, 2012, 11:11:22 PM
 #16

I assume the argument goes: if a person defers consumption and the velocity of money is not reduced by his hoarding (more money printed or no sticky prices and wages), then supply side is slightly boosted making is easier for others to collect resources for productive uses.

That doesn't seem like the supply side is boosted to me, it just seems that one person defers consumption so that others may consume. In the end a net zero. Perhaps in the end, slight overconsumption when the person who deferred calls in to collect.

I can't defend the argument. It's hard to know if a particular person's consumption is useful or not. Hence my caveat that what he is deferring is not "the building of a factory". The resulting opportunity to to others is presumably split between useless consumption and growth producing consumption. Why the deferred consumption is not similarly split, I don't know.

What I can say is that if the savings are loanable, then it is in the interest of the loaner to make sure the opportunity is not useless. Another reason not to hoard. Smiley
ffe
Sr. Member
****
Offline Offline

Activity: 305
Merit: 250



View Profile
September 20, 2012, 11:17:50 PM
 #17


Quote
In the bitcoin world it is obvious bitcoin is a store of value. Use it for that. If you want to take over the function of money for the world, however, it makes sense to design a sister currency that is not a good store of value but is designed to keep the flow of money, “moving” money, on an even keel. Sure, build in the desirable features; No central control, No manipulation, No excess inflation, No deflation either. Have the supply grow with the needs of the economy. All governed by a set of rational rules enforced by a large number of p-p nodes.

If bitcoin is only good as a store of value, it's a digital pet rock/digital gold/what have you. With the coin distribution system especially, I don't see how a continuous supply of people wanting bitcoins will keep the price propped up if there is no economic reason to back it. Gold (sort of) works because gold is real and tangible. Bitcoins are not only not tangible, but easily manipulated with the concentration of supply. I don't think an unfixed supply means that something is not a good store of value if designed correctly. I don't want to derail this about my ideas, but I did send you a PM the other day so review that thread and respond if you are so inclined.

You're ignoring the other attributes that make bitcoin desirable. Easy to store. Easy to transfer. Not easy to confiscate. etc.

I think you'll be waiting a long time for bitcoin to fail if you think the failure will be due to lack of people wanting bitcoin.
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 11:24:43 PM
 #18

I can't defend the argument. It's hard to know if a particular person's consumption is useful or not. Hence my caveat that what he is deferring is not "the building of a factory". The resulting opportunity to to others is presumably split between useless consumption and growth producing consumption. Why the deferred consumption is not similarly split, I don't know.

Well the primary argument of Hayek is that if you defer consumption by saving (in banks), you are increasing non-consumption growth. If you hoard, that growth may indeed be split depending on how the money supply reacts to these changes to effect the same velocity.

You're ignoring the other attributes that make bitcoin desirable. Easy to store. Easy to transfer. Not easy to confiscate. etc.

I think you'll be waiting a long time for bitcoin to fail if you think the failure will be due to lack of people wanting bitcoin.

I am not ignoring that a free market competitor offers all of these exact same advantages. Grin

Adrian-x
Legendary
*
Offline Offline

Activity: 1372
Merit: 1000



View Profile
September 20, 2012, 11:34:37 PM
 #19

Those who control Money, have a mechanism to transfer the wealth without being productive. You haven't fully understood that the Cantillon effect doesn't apply to the rich or the capitalist, It applies to those who can create new money or money substitutes.
 
...
Progress is made through healthy competition (being rich should be indicative of the contribution you have made to society) but it isn't it is a symbol of how close you are to the money makers.  

It's not that I don't understand the Cantillon effect, or that of those who control the money, it's that I find the distinction irrelevant. I have used the phrase "control the money" just as often as "have the money control the economy". If you enable this possibility, it will happen due to greed for wealth and power. Bill Gates may be benevolent in this sense, but JP Morgan and John D. Rockefeller most certainly were not. And they were more than enough.
None on your list are benevolent, 2 of them are controllers of new money - (thieves), and the other is an investor.

I think you are arguing that having capital makes you more productive, and those with no capital are unable to compete (And this causes a disparity between rich and pour?).

This situation arises naturally in a free market and still provides a net benefit to both parties (There is a a natural transfer of wealth to the pour?).  The benefit first outlined by Adam Smith is a fundamental economic prinsaple behind Marxian economics.


Thank me in Bits 12MwnzxtprG2mHm3rKdgi7NmJKCypsMMQw
Etlase2
Hero Member
*****
Offline Offline

Activity: 798
Merit: 1000


View Profile
September 20, 2012, 11:51:13 PM
 #20

I said "benevolent in this sense", as in, not using his wealth to manipulate the government and the economy. I'm not sure how two can be controllers of new money when both Morgan and Rockefeller were alive during the gold standard era.

I am not arguing that having capital makes you more productive, I have been making the same argument over and over and over: control over a significant portion of the money supply by a few, wealthy or well-connected people means that they will manipulate that supply to their own ends. This results in stealing productivity and wealth from poor and middle classes and drags it up the chain. A situation that is not that unlike feudalism, though its theft was much more prominent.

Even if the supply of money does not start out skewed as it did in bitcoin, the property of the currency still allows for the situation to develop because of lending, or big industry as in the case with Rockefeller. Just as the situation did not start out so skewed with gold, but we ended up with a few financiers controlling the world.

This, however, is not particularly the subject of this thread. I only brought it up because you realized the problem of bitcoin distribution then attempted to solve it without really considering that nothing has changed in your solution, except perhaps who might be in control.

Pages: [1] 2 3 »  All
  Print  
 
Jump to:  

Sponsored by , a Bitcoin-accepting VPN.
Powered by MySQL Powered by PHP Powered by SMF 1.1.19 | SMF © 2006-2009, Simple Machines Valid XHTML 1.0! Valid CSS!