Uncapped coin vs capped coin supply

[bitzox]

Checks on topic again

-wall of text-

<3

Haha, I used paragraphs and a TL:DR what more could you want???

In all seriousness though the issues discussed in the topic are complex and, despite all internet logic, cant be adequately discussed without a serious understanding of economics (ie several textbooks worth) I did my best to summarize.

I'll go back into my corner now. Learning to read sarcasm (or lack thereof), progress...slow

[sidhujag]

ok, you're trying to argue some of the finer points of economic theory without a basic understanding of the economic knowledge that underpins said argument. For example your assumption about why we went off the gold standard is 100% wrong, it had 0 to do with a finite supply of gold and everything to do with competitive currency devaluation and the funding of an unpopular war in Vietnam. For reference see this for the short version

https://en.wikipedia.org/wiki/Nixon_Shock

Or this for the more complete coverage

https://en.wikipedia.org/wiki/Bretton_Woods_system

Also if you think that we didn't realize their was a finite supply of gold until the 20th century you are seriously insulting the intelligence of everyone who lived from the Renascence (and probably before that) until 1971 when the gold standard was officially abandoned. In addition you must realize that the supply and demand for a medium of exchange is inherently different from the simple supply and demand curves discussed in most econ classes. Growth in population does not ipso facto mean an increase in demand for currency. Prevailing interest rates have a much bigger effect on the supply of money than population growth. This will be especially true as population growth stalls, which according to the UN will occur sometime in the 22nd century at around 10 billion people. The capacity for population growth is not unlimited, thus invalidating this "obvious fact:"

Obvious Fact: Population growth is not capped

As to the argument that deflation promotes hoarding and stifles economic growth and innovation, you are partially right but your logic in getting the the almost correct conclusion is faulty. My first counter example is any kind of electronic you have ever purchased in your entire life. You knew with 100% certainty that if you waited a year you could get the same performance for cheaper or better performance for the same price. Yet at some point you decided to go ahead and buy said electronic. This is a perfect example of what would happen in a truly deflationary economy, it promotes responsible consumption, rather than rampant conspicuous consumption promoted by our current economic model.

This is 100% a good thing for humanity and society as a whole. Just as the total supply of bitcoins is limited, the total sum of all natural resources is limited. You cannot have economic growth in the 5-6% range every year going forward to infinity. Their are limiting constraints (land area, oil, minerals, water, etc) that will impose upper limits on our consumption. I cannot stress this point enough, a money supply that is allowed to grow infinitely will eventually destroy itself as natural resources are not infinite.

On to the divisibility of bitcoin. Many deflationary economies ran into trouble because the medium of exchange was not fungible enough. As deflation occurs and prices fall, things eventually should be priced below the smallest possible denomination. Bitcoin solves this problem by being essentially infinity divisible (obviously its not truly infinite but for the purposes of this discussion we can assume that it is). This means that no matter how far prices fall bitcoin can adjust so that no product or service becomes to cheap to purchase. For example int he US you cannot buy something that costs .5 cents with cash, you need to buy do or make the transfer electronically, bitcoin avoids this problem entirely.

This completely invalidates your "obvious fact":

Obvious Fact: More people on earth means more demand for natural resources as basic necessities, and as a result more currency in circulation has to supply the demand for these resources.

In fact more currency coming in to circulation simply devalues all currency currently held in circulation, it does nothing to "supply the demand for these resources" a quote I cant make any sense out of. (To avoid future misunderstandings I suggest you replace the blanket terms supply and demand with more specific terminology, especially when taking about multiple supply demand curves). I think here you are trying to say that as demand for natural resources increases (while supply of NR stays constant) the supply of currency needs to increase if we want to keep the price of said natural resources consistent. If the supply of currency is constant while demand increases the price of said currency will rise meaning the price of said natural resources will decrease (currency is more valuable so you can buy more with it).

So instead of increasing the supply of currency in a futile attempt to maintain prices why not let prices fall as the value of money increases? This dovetails nicely into a discusses of innovation. You talk about profits being squeezed out so people would be less likely to pursue innovation. Because bitcoin is infinitely dividable we never have to worry about profits going to 0, as we can just divide the currency into smaller and smaller denominations. At the same time the price of goods is going down. Would you be willing to risk money to make a 1 Satoshi profit per product sold today? of course not. But would someone 100 years from now be willing to do it when a Satoshi is enough o feed a family for a year? Of course.

Their are numerous examples in history of deflationary economies succeeding, they are just ignored by Keynesian economic thinkers, which is why you probably have never heard of them. Scottish Free banking in the 18th and 19th centuries come first and foremost to my mind. The Mystery of Banking by Murry Rothbard has some great examples of how deflationary economies can work and how inflationary ones are doomed to failure by definition(as well as a host of other interesting topics). He does a much better job of explaining why in great detail so if you don't believe my brief and incomplete treatise on the subject I would suggest you read it.

I know I probably didn't address all of your points or concerns but I think this is a good starting point.

TL:DR Population growth is capped by natural resources, an infinity divisible deflationary currency allows for innovation through lower prices. People will accept lower wages because prices are lower. Supply and demand for a medium of exchange cannot be equated to supply and demand for a good or service. Read stuff by Murry Rothbard

Wow great stuff, this is the kind of reponse I was hoping for.

I will reply when I have time to read through the entire post, but kind of wrote ad hoc and not politically correct on purpose because 1) I'm a programmer and inherently lazy and 2) I didn't think anyone would care and would "just get it".

ie: Obvious Fact: Population growth is not capped

For our purposes its not capped, we aren't at a point where the Earth cannot handle any more people, at that point we won't know what we will do, build into the sky? who knows, either way as of now and foreeable future growth is not capped.

and you pointed out that interest rates > population growth for currency supply. Yes but what is the underlying driver for interest rates? It is based on inflationary/deflationary pressures and as more there are more people, more people working earning money, it becomes deflationary if currency is capped. If you divide that currency, the value at each you work for also decreases unless the value of 1 btc increases the same amount that you divide the currency ie 1 decimal place and you have 10x increase in value.

You misunderstood also when I said that I liked a currency that can grow infinitely, yes but at what rate did I say? Alt's with no cap aren't growing or can't grow by design like the USD is growing. The rate at which it grows is the key in understanding why a no cap system in this case works while a cap system may or may not. In the end its all about incentive, and you have to drive the economy with the right incentives, although deflation sends the right messages, in practice a pure deflationary economy offers minimal incentive for the service or production side of a market because there is simply not enough of it over just working+holding money.

Basically if you dumb the problem down to 10 people, the money supply will be based on an interest rate which is a result of a) what those 10 people are buying/selling at going rates, which is affected by rules/incentives/external resources used and a maximal cap to that resource, how precious is it? as well as the number of people in the system which may act in the system.

[Dekshuduph]

Checks on topic again

-wall of text-

<3

Haha, I used paragraphs and a TL:DR what more could you want???

In all seriousness though the issues discussed in the topic are complex and, despite all internet logic, cant be adequately discussed without a serious understanding of economics (ie several textbooks worth) I did my best to summarize.

I'll go back into my corner now.

I don't want anything more, I read through the entirety of your post and loved it. The heart was not sarcastic at all. I agree with all your points and wish I had a means of making a statement as well as you do. However, I don't have many good examples, I just have much logic, reasoning and wisdom.

Uh, have fun over there in your corner, hehe.

[jipper3691]

FUCKING WITH THE 21 MILLION CAP IS BITCOINS ANIMAL FARM MOMENT...you must understand this is what gives btc life over and above fiat as dilution/debasement has destroyed every fiat currency ever...

[Abandon]

The 21 million cap is a major selling point, but not one I particularly agree with. There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year. Hopefully it doesn't get that volatile, and there is something to stabilize it by then. Then again, if the hoarding/saving rate stays roughly the same, there's not much to worry about.

[sidhujag]

Checks on topic again

-wall of text-

<3

Haha, I used paragraphs and a TL:DR what more could you want???

In all seriousness though the issues discussed in the topic are complex and, despite all internet logic, cant be adequately discussed without a serious understanding of economics (ie several textbooks worth) I did my best to summarize.

I'll go back into my corner now.

I don't want anything more, I read through the entirety of your post and loved it. The heart was not sarcastic at all. I agree with all your points and wish I had a means of making a statement as well as you do. However, I don't have many good examples, I just have much logic, reasoning and wisdom.

Uh, have fun over there in your corner, hehe.

It's good to have smart people coming in and shining light, people that may be in economics.

[sidhujag]

The 21 million cap is a major selling point, but not one I particularly agree with. There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year. Hopefully it doesn't get that bad.

Kind of what I was saying, we def need more deflation with our society now but we don't want to hyper deflate either, its a fine balance and thats why I think a controlled supply is atleast inflationary in a minor sense as it is still not enough to satisfy those big corporations who ruin it all for the rest of us.

[sidhujag]

FUCKING WITH THE 21 MILLION CAP IS BITCOINS ANIMAL FARM MOMENT...you must understand this is what gives btc life over and above fiat as dilution/debasement has destroyed every fiat currency ever...

But what about a cap system that doesn't allow infinite spending but a slow tap that outputs a distinct amount to accompany growth in the economy, 210 billion vs 21 million in 100 years is not that bad considering where we are right now.

[Voogru]

Obvious Fact: Population growth is not capped

Population cannot grow faster than the ability to feed. Population self-regulates. Noticed how there has only been an explosion of human population after the industrial revolution. If the planet can't support x billion people, people start dying off (sad but true).

Obvious Fact: More people on earth means more demand for natural resources as basic necessities, and as a result more currency in circulation has to supply the demand for these resources.

The amount of currency in circulation is irrelevant. What matters is the amount of products and services available to purchase.

If the price level is 100, and $100 buys you a weeks worth of provisions, it is no different than a price level of 1000, and $1000 buying you a weeks worth of provisions.

Kind of what I was saying, we def need more deflation with our society now but we don't want to hyper deflate either.

It's only going to be 'hyper-deflation if the world adopts bitcoins as a monetary standard. If that happens, once it has been adopted the price levels will only drop at whichever rate the economy expands. Economies don't hyper-expand, so there can't be hyper-deflation.

And if there is 'hyper-deflation', suddenly being able to buy a new Mercedes Benz for $1 doesn't strike me as a bad thing. (And yes, I know incomes would fall in a hyper-deflation scenario, but the purchasing power would be the same as before)

There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year.

The reality is when currencies have been allowed to deflate, it's happened at a very slow rate. It depends on how much the economy expands. The only 'hyper-deflation' we're going to see, is if bitcoin goes world-wide with massive adoption, after that it will stabilize and prices in bitcoins will fall slowly over time depending on how economies expand (or contract which would cause prices to rise).

Absent aliens dropping machines that last forever that automagically make everything we could ever want, you're not going to see hyper-deflation where purchasing power rises 500% a year.

[sidhujag]

Obvious Fact: Population growth is not capped

Population cannot grow faster than the ability to feed. Population self-regulates. Noticed how there has only been an explosion of human population after the industrial revolution. If the planet can't support x billion people, people start dying off (sad but true).

Obvious Fact: More people on earth means more demand for natural resources as basic necessities, and as a result more currency in circulation has to supply the demand for these resources.

The amount of currency in circulation is irrelevant. What matters is the amount of products and services available to purchase.

If the price level is 100, and $100 buys you a weeks worth of provisions, it is no different than a price level of 1000, and $1000 buying you a weeks worth of provisions.

Kind of what I was saying, we def need more deflation with our society now but we don't want to hyper deflate either.

It's only going to be 'hyper-deflation if the world adopts bitcoins as a monetary standard. If that happens, once it has been adopted the price levels will only drop at whichever rate the economy expands. Economies don't hyper-expand, so there can't be hyper-deflation.

And if there is 'hyper-deflation', suddenly being able to buy a new Mercedes Benz for $1 doesn't strike me as a bad thing. (And yes, I know incomes would fall in a hyper-deflation scenario, but the purchasing power would be the same as before)

There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year.

The reality is when currencies have been allowed to deflate, it's happened at a very slow rate. It depends on how much the economy expands. The only 'hyper-deflation' we're going to see, is if bitcoin goes world-wide with massive adoption, after that it will stabilize and prices in bitcoins will fall slowly over time depending on how economies expand (or contract which would cause prices to rise).

Absent aliens dropping machines that last forever that automagically make everything we could ever want, you're not going to see hyper-deflation where purchasing power rises 500% a year.

Interesting will have to think this one over a bit too.

[Elwar]

If 210,000,000,000,000 Satoshis is not enough for the world economy to handle, they will start using mSatoshis.

As for deflation.

Ever bought a computer?

Why did you not wait so that your dollar would increase in comparison with the computer technology?

[sidhujag]

If 210,000,000,000,000 Satoshis is not enough for the world economy to handle, they will start using mSatoshis.

As for deflation.

Ever bought a computer?

Why did you not wait so that your dollar would increase in comparison with the computer technology?

Fair question and if the system had faith in a deflationariy economy it would be fine. It works for consumer electronics but would it work for our entire society?

Let's take a look at when we had deflationary periods.

We had a nice deflationary period during 1932 about -10% for about 10 years, coinciding with the great depression (coincidence?). The reason was because the velocity of money grinded to a halt (see my first post) and liquidity was drained.

How could that happen in a deflationary environment?

As prices dropped demand didn't rise enough because people didn't have jobs any more. Service side of things went downhill faster than the benefit of getting something cheaper.

Then banks did not have incentive to lend out money as it began clear that 1) people were going bankrupt and 2) risk reward wasn't there to lend freely, it wasn't safe for the bank. This caused demand to tank, but supply wasn't affected, thus creating hyper deflationary cycle. There are things to take into consideration about deflation as we learned from the great depression.

As demand decreases, price will decrease. Service/manufacturer's earn less, and no incentive to spend. As consumer market fell so did real estate. Obviously banks wont give out a penny in this circumstance as it is not appealing to lend to someone who will probably lose his shirt and default, causing losses on the banks balance sheet.

Another thing to note is that todays economy in a deflationary environment is ever so scary, 10x more than 1932 because here is bigger segregation between the classes, just say rich and poor to be simple. The number of poor is gigantic and in a deflationary environment ofcoures it will hit these indebted people the most because the amount they owe will remain static however the amount they earn will be less and less, making them more likely to default and create this spiral.

Like I said I was overly simplistic in my explanation earlier because I thought many of you would just "get" those simple parts, and I got a few good responses but providing an example of an industry that is deflationary doesn't mean you can say that our entire society can live in that model.

This is why I said that we need a hybrid where we focus on being more of hte deflationary side but have some inflation to combat some issues I pointed out.

Dividing your currency in smaller parts to me is just another way of saying, do nothing it will fix itself. Nothing fixes itself.

[Voogru]

We had a nice deflationary period during 1932 about -10% for about 10 years, coinciding with the great depression (coincidence?). The reason was because the velocity of money grinded to a halt (see my first post) and liquidity was drained.

During the great depression, the government tried to prevent prices from falling (fearing deflation!), they accomplished this by doing the following:

1. Buying food off the market with taxpayer dollars, then storing it in huge silos and eventually allowing it to spoil.
2. Paying farmers not to farm.
3. Ordering farmers to destroy their crops (essentially criminalizing production).

The government did everything they could to prevent prices from falling, and the price of labor was definitely not allowed to fall. As a result, massive unemployment. Supply and demand was not allowed to function properly because of government policy.

I can't tell you how many stories I have with police officers going around town, looking for people making pants illegally (see national recovery act), what a great use of police resources.

Had the government done nothing, prices would have fallen, along with incomes, but the purchasing power would have been roughly the same. If you had a job during the great depression, you were doing awesome.

The price of labor would have fallen, allowing people to be hired again.

Think about it, imagine today if we had a -50% deflation instantly, so that a min. wage job became worth twice as much in real terms. What would happen?

Massive unemployment.

[Adrian-x]

The principle in these types of discursions if it is not:
1) Austrians economic principals - a fixed supply of money eg. a gold standard leaving a free market to monitor and respond to supply and demand (no central management necessary).
or
A Keynesian economic principals - a regulate the money supply to manipulate the free market to respond to an artificially created supply and demand (an all knowing, benevolent central planner is necessary).
Then it's
2) About how do you distribute the new money efficiently, delaying uptake, verses rewarding early adopters, or taxing early adopter, or stabilising the exchange value, or infinite inflation.

The truth be told, it's a messy process and while there is room for improvements, you can't compromise the most attractive feature it enables, that is one to imagine an economy with a fixed supply of money.

[Elwar]

Fair question and if the system had faith in a deflationariy economy it would be fine.

You make the mistake in assuming we want the current system to continue.

[sidhujag]

Fair question and if the system had faith in a deflationariy economy it would be fine.

You make the mistake in assuming we want the current system to continue.

Putting all aside we are human and we natively do not
think exponentially so im glad we are where we are now.. it could be alot worsed. We have alot of good things in our soceity even though financially we are being fooled.

I dont say i want the current system to continue ir not continue.. Show me the options so i can choose and then i can choose a side. The fact is no matter how smart you are you cant do what i asked because you cant see the number of steps ahead to give strong confidence that life will be better.

Just be happy with what you have but use logic to try to understand where we are and what path we can possibly take for a better life in the future. This is why i try to invoke discussion so it may bring points i havent thought about to change or strengrhen oppinion as i cant see so many steps ahead or focus on so many points which correlate in the web of things that must come together if we are to succeed to have a system that wont fail at onset.

[jipper3691]

The 21 million cap is a major selling point, but not one I particularly agree with. There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year. Hopefully it doesn't get that volatile, and there is something to stabilize it by then. Then again, if the hoarding/saving rate stays roughly the same, there's not much to worry about.

this is pure and utter nonsense promoted by msm fairytale balloon money advocates. history has no examples of hyperdeflationary collapses but plenty of inflationary ones. You need to understand that deflation is a normal part of a healthy economic cycle that self corrects regularly its own excesses. Read Minsky prolonged stability is the worst thing possible for an economy and just stores up for massive hyper destructive deflation event It creates a delusion of stability that allows bad debt on top of bad debt and bad investment on top of bad investment to the point we are now floating in a sea of fairytale trillions in debt that must be unwound. This property of gold is what satoshi knew he had to copy to ensure longevity as store of value. If you still dont understand this ... what happens in the next few years will leave it imprinted on your mind as this current system collapses...

[sidhujag]

The 21 million cap is a major selling point, but not one I particularly agree with. There's such a thing as too much deflation, which can cause hyper mania and crashes several times a year. Hopefully it doesn't get that volatile, and there is something to stabilize it by then. Then again, if the hoarding/saving rate stays roughly the same, there's not much to worry about.

this is pure and utter nonsense promoted by msm fairytale balloon money advocates. history has no examples of hyperdeflationary collapses but plenty of inflationary ones. You need to understand that deflation is a normal part of a healthy economic cycle that self corrects regularly its own excesses. Read Minsky prolonged stability is the worst thing possible for an economy and just stores up for massive hyper destructive deflation event It creates a delusion of stability that allows bad debt on top of bad debt and bad investment on top of bad investment to the point we are now floating in a sea of fairytale trillions in debt that must be unwound. This property of gold is what satoshi knew he had to copy to ensure longevity as store of value. If you still dont understand this ... what happens in the next few years will leave it imprinted on your mind as this current system collapses...

I dont doubt the future will be more deflationary the question here is capped or uncapped coin either way its alot more deflationary than usd. Even with uncapped the supply is slow steady and it is known to the public so there is no surprises.. you can plan for it while currently qe is done as a shock to a dead system.

[wingding]

I have tried to argue for a non-capped bitcoin, and also proposed a branch with linear growth.
https://bitcointalk.org/index.php?topic=179961.0
https://bitcointalk.org/index.php?topic=181488.0

[sidhujag]

I have tried to argue for a non-capped bitcoin, and also proposed a branch with linear growth.
https://bitcointalk.org/index.php?topic=179961.0
https://bitcointalk.org/index.php?topic=181488.0

but there are already coins that have
uncapped limits with coordinated growth. Like devcoin which is picking up steam and you can pick a million up for one btc thats rock bottom pricing.