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Author Topic: Isn't deflation theft, too?  (Read 4619 times)
AntiVigilante
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June 15, 2011, 05:09:12 AM
 #41

Deflationary on a per-user basis, because once we reach 21 million (or probably before that), the growth in world population will outpace the growth in bitcoins less the deflation due to forever lost bitcoins.  It's deflationary on a per-user basis right now, because the growth in bitcoin acceptance is outpacing the growth in the currency itself.  It may be inflationary for a brief period of time, say, if the userbase isn't growing as quickly as new bitcoins are being minted, but I see that as an unlikely scenario if bitcoins are eventually adopted worldwide.

Ok, I think I finally see your point of view.  If currency inflates, then currency holders have less value in the marketplace - they may only be able to buy 5 loaves of bread instead of 10.  If currency deflates, then bread holders still have the same amount of value in their bread.  They may only be able to get 5 coins for their loaves of bread after deflation, versus 10 coins before deflation, but those 5 coins would still buy the same number of apples as 10 coins did before the deflation hit.

:facepalm:  Thanks for being patient with me.

So if deflation, on average, gives people more spending power in the marketplace, would that not drive prices up due to more demand?  And if that is the case, would it drive up prices enough to give a large enough margin for businesses to have an equal amount of capital investment as they would have with an inflationary currency?  It's interesting to think about...

The inpatient is now an outpatient. Next. Smiley

Proposal: http://forum.bitcoin.org/index.php?topic=11541.msg162881#msg162881
Inception: https://github.com/bitcoin/bitcoin/issues/296
Goal: http://forum.bitcoin.org/index.php?topic=12536.0
Means: Code, donations, and brutal criticism. I've got a thick skin. 1Gc3xCHAzwvTDnyMW3evBBr5qNRDN3DRpq
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bcearl
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June 21, 2011, 06:03:38 AM
 #42

Deflationary currency is theft from holders of assets.
No it's not. People are not entitled to other people's money.

You may believe that, but don't expect this idea to get broad acceptance.

Money is not a natural thing, but artificial. We create it to serve certain purposes. The wished purpose defines how the money is like, not the other way around.

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caveden
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June 21, 2011, 07:44:03 AM
 #43

Neither deflation nor inflation are theft. The value of your property is not an intrinsic feature of your property. If the acts of some people increase or decrease the value of your property, without affecting the property itself, this is not a crime at all. It's valid for any kind of property.

The true aggression in modern times inflation is the fact that people are forced to accept the money the government monopolizes as means of payment. And then the government can inflate this money at its own profit. The ethical problem isn't on inflation itself, it is in money monopoly.
And besides the aggression of the money monopoly, there's the aggression of intellectual property too. Nobody owns an image. If you want to print a particular image in a particular piece of paper, nobody has the right to kidnap you for that. And that includes printing dollar bills, or any fiat money bills. Of course, that would change if such image represented a contract. You cannot make a contract in the name of somebody else, that's fraud. So, although counterfeiting dollar bills is perfectly legitimate from an ethical point of view, counterfeiting bills redeemable in bitcoin or whatever else is a contract fraud, since you'd be saying somebody else will pay your debt, without the authorization of this person.

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June 21, 2011, 08:09:46 AM
 #44

Caveden is correct.

The effects on prices and value of money, debt and credit, of deflation or inflation triggered by changes in the economy all come out as a wash.  It is only outside manipulation that changes that balance.  When a government prints money, even in a growing economy, they get the benefit of the printed notes rather than those who grew the economy.

Consider what happens though in a world with a static money supply (like Bitcoin).  When the economy grows, we get a bigger economy divided over the same number of currency units.  Each unit must therefore be worth more.  That's the standard line, but think about how it happens.  Someone adds value to an economy.  Let's take the standard example: a baker.  The baker takes component parts of bread, adds value to them by turning them into a loaf and sells them.  The difference in price between the price of the ingredients and the price of the final product is economic growth.  Since it is the baker who makes the bread and sells it, it is he who sees the benefit from deflation, his profit is the deflationary pressure.  He can now buy more than he could when he just had ingredients.  If he finds a way of more efficiently using his ingredients, he can sell more bread (by virtue of being able to lower the price, and so bread buyers all benefit as well).

You've got to think of inflation and deflation as being like making a drink of cordial-based drink.  Fill a glass with water.  Now pour a bit of the orange cordial in it.  It starts out unmixed, you can see the streaks of cordial in the water.  That's inflation/deflation.  When the government prints money, they get the use of the newly printed money, and so don't suffer any ill effects; as the money mixes into the rest of the economy, prices go up to compensate.  Not instantly though, only over time as the effects of the printed money work their way in.

The deflationary baker on the other hand is exactly as it should be: the person who added value to the economy gets the most benefit, and that benefit finds its way to others by their own adding of value to the economy -- that's how they get the baker's money.

When the money supply is fixed; inflation and deflation are caused by profit.  Deflation being the profit of the whole economy in aggregate.  Everyone gets the advantage because products become cheaper.

This is why I make such a fuss about distinguishing between money supply inflation and deflation and price inflation and deflation.  Inflating the money supply is theft, it definitely is.  Price deflation from a growing economy with a fixed supply is not -- it is each person receiving the benefit of the effort they put in.

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June 21, 2011, 09:49:01 AM
 #45

How is it stealing? His one bitcoin is now worth 1.1 pizzas. His net worth is 1 BTC + 2*.99 (pizzas' value) = 2.98. That's more than he had before.

What you are illustrating is that he devalued pizzas by increasing their supply. But you example is too simplistic because you assume the total currency in circulation determines the price of pizza. Not all the BTC in existence are seeking pizzas. Probably only 9-10 BTC at any given time are in the market for pizza. Even if you swapped pizza for land, the richest people might not want any land at all, or might not want land once they have 1 acre to live on, etc. Price is determined by supply and demand.

bcearl
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June 21, 2011, 09:56:40 AM
 #46

But you example is too simplistic because you assume the total currency in circulation determines the price of pizza. Not all the BTC in existence are seeking pizzas. Probably only 9-10 BTC at any given time are in the market for pizza. Even if you swapped pizza for land, the richest people might not want any land at all, or might not want land once they have 1 acre to live on, etc. Price is determined by supply and demand.



It is simple, but it's not "too simplistic", because it does not matter whether I call the goods pizzas, cars or houses. It works as a model.

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Hunterbunter
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June 21, 2011, 12:38:44 PM
 #47

Just think of this simple example:

Maybe you start with 100 units of currency (e.g. bitcoins) and 100 units of goods (e.g. pizzas). Then you get one pizza for one bitcoin.

Now, these 100 bitcoins are owned by 10 users with the following distribution:

user 1: 20
user 2: 20
user 3: 20
user 4: 20
user 5: 5
user 6: 5
user 7: 5
user 8: 2
user 9: 2
user 10: 1

Now user number 10 makes a pizza. this means we have 100 bitcoins and 101 pizzas. This means, for one bitcoin you now get 1.01 pizzas.

What does this mean? This means, that every user gets extra pizza. And the users with more coins get more extra pizza, although it was only user 10 who made the pizza.

And even when he wants to sell the pizza: He will not get 1 bitcoin for it. He will get about 0.99, because that's the pizza price when there are 100 bitcoins and 101 pizzas on the market.

tldr; your example is a bit like bubble and squeak; mixture of ideas that look ugly, taste yummy, have a grain of truth and a whole lot of tomato sauce.

the long version:
There is a flaw in your initial premise: you can't start an economy by jumping straight into the price: 100 pizzas, 100 bitcoins, therefore 1 pizza = 1 btc is an unreliable assumption.

That means that if all pizzas are sold in one day (they can be stored and eaten later, or are the only thing that you can buy with BTC), the pizza maker has 100 btc, and everyone else has zero BTC and a varying number of pizzas. How do the others then trade their own goods when they produce them? the only person that can buy is the pizza maker, and so the economy has already died. What also of the flour? wheat? cheese? who made all these things? What did they get for their work?

What actually happens is that someone farms or mines some raw materials, and the economic chain begins, finishing either as sewerage or at the tip. A better description of a simple economy might be: user 1 farms lots of wheat, and user 2 reckons there's value to making flour, since user 3 is complaining that he can't find any flour and needs it to make pizza. User 4 is busy milking and maintaining cows to make cheese, next to 5 who is growing vegies, while 6 is making tools that you could, if you want to, make a pizza with. 7 is making ovens to cook things in, waving to 8 walking by to chop wood to build houses and shops, and 9 is mining coal to burn, and 10...is a lazy bum doing nothing. That's a very simple economy. As long as someone is producing something that cannot be immediately repaid (ie an oven is worth 10 days work, a pizza is worth 1 day's work, so the oven maker accepts a pizza plus 9 days worth of future pizzas for his oven, in the form of pizza tokens or BTCs).

From your example, I'm not quite sure you understand how currencies work; btc's, like every other currency, are a placeholder for work already done, that isn't paid for immediately. Not paid for? Whaaaaat? I gave him BTC! I paid for it! Kinda did, but its only half the transaction.

If you make a pizza for someone, you can either trade it directly for, say, a bunch of apples and vegies, or for currency while you wait for someone to come along with something you actually want. You give them your "you did some work for the group" note, the btc. In the modern world, we're used to thinking of money as the payment itself, but it's not. Your boss gave you that money, because he had nothing else of value you wanted for the work you did for him. You know you can use that money elsewhere, but this is what's happening:

1. You are given money for doing work, because whoever commissioned that work didn't produce something that you actually wanted for the time you put in. 10 hours of painting = painted house...you don't want that, so are given money the boss had in his pocket.
2. You take your money out and about with you, and find a pizza, and you're hungry, and it's win in every sense of the word.
3. You give your money to the pizza maker, because you have nothing else of value that the pizza maker wanted "paintbrush? no? sigh k...btc?", and he knows he can trade it later.
4. From your perspective, the reward for your work for painting the house was the pizza. NOT THE MONEY. The money just allowed the painting commissioner to buy you a pizza for the work you did. He also earned that money for doing work for someone that couldn't pay him directly, so gave him money instead. You could save a portion of this money for retirement, to pay for things when you can no longer work for them but aren't dead yet.

5. The pizza maker wants a painted house, so gives money to the guy who gave you money for painting it. Everyone did work for someone else, and everyone got what they wanted (except the paint commissioner, he still only has money Sad)

In your example, the people with BTC have done work for the other people and haven't received their rewards yet. User 10 should definitely be making pizza, or better yet, something else that even the pizza maker would want....cos then he could guarantee pizzas for life! Spending his last BTC on the ingredients to make maybe 5-10 pizzas would be a waste of time unless he wanted to drive the existing pizza maker out of business by making a better quality product in less time. In which case, him and the pizza maker would swap roles, and the pizza maker would then go on to invent the calzone and change everything.

There is also a lag between addition of money to the pool, and change in prices. So making that extra pizza (or forging 100 extra BTC) is stealing from the existing pizza maker (10 people paying old pizza maker down to 9 people paying old pizza maker and 1 new pizza maker, also known as competition), but that has nothing to do with deflation, and the price would only go down if the new pizza maker wanted to attract business away from old pizza maker, or if money was destroyed and there just wasn't enough to go around so prices were forced down.

Generally:
Inflation benefits those who create it and spend first, hence why debt is normal with current world currencies.
Deflation benefits those who destroy it and spend last, hoarders can slowly grind an inflexible currency to an economic standstill.
Both of these apply to $, BTCs, pizzas, shovels, masks and umbrellas.

In terms of stealing:

Inflation: if you inflate the supply of money out of the group's control - you have to use the currency that I print at whim - you are stealing purchasing power from others.

Deflation: If you try to deflate the currency, all you can destroy is your own - that is, everyone owes you stuff which you've worked for, but haven't been paid in goods/services for, only in money - so if you destroy your own currency, everyone else with BTC is "stealing" from you by taking the work you did for them for free, and you could never buy stuff to replace the work you did. This would only be a problem if say a government said "k everyone destroy half their money. Go on, I said so!" while they don't destroy theirs...essentially this is a reverse inflation, and weird...taking control of supplied inflation is an easier pill to swallow.

BTCs are a fixed currency. There is around 0.1-0.2% inflation built in per day reducing over time to 21M shares then ending, and slow accidental deflation after that. People losing "track" of the work they did for others and haven't claimed yet, and can now never claim, isn't exactly stealing is it?
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June 21, 2011, 06:58:52 PM
 #48

But you example is too simplistic because you assume the total currency in circulation determines the price of pizza. Not all the BTC in existence are seeking pizzas. Probably only 9-10 BTC at any given time are in the market for pizza. Even if you swapped pizza for land, the richest people might not want any land at all, or might not want land once they have 1 acre to live on, etc. Price is determined by supply and demand.



It is simple, but it's not "too simplistic", because it does not matter whether I call the goods pizzas, cars or houses. It works as a model.

Yes, it is too simplistic because of your assumptions about how the value/price of a pizza is determined. See my notes about supply and demand. Or take a basic econ class. The only reason I mentioned property instead is that it's a good that isn't consumable, so that was to make the example even more simple.
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