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Author Topic: How Does Saving Bitcoin Lead to Capital Formation?  (Read 5978 times)
kiba
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January 05, 2011, 12:36:39 AM
 #1

There are confusion I have in my head.

I do not know how saving bitcoin lead to capital formation. I mean, if I save bitcoin, that signal my time preference. IE, I prefer to wait for something rather than have it now. Or I rather spend on some future good that required X amount of money that I don't have rather than something now.

With resources like timber, I know that if I saved X amount of them, I can build a complete room.(If the room is not completed, it would be expose me to the outside elements)

So, I know that saving bitcoin would be akin to somehow getting enough resources to accumulate so that I can build x and y. But bitcoin can't help you build stuff x and y.

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FreeMoney
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January 05, 2011, 02:37:41 AM
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You don't form capital by holding a coin, you get to hold a coin for forming the capital and not consuming your 'fair share' yet. Deferred consumption is the only way capital can accumulate.

An accumulation of capital is good for doing things that would otherwise by impossible or for getting better efficiency from economies of scale.

In a society with no real savings nothing can really improve. Bitcoin will make savings easier and safer. Right now the default is the savers get screwed for saving. You can pay brokers, tax accountants, etc to lessen the screwing if you have above a certain amount, but a lot of people get locked in the cellar.

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January 05, 2011, 02:46:16 AM
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As deflation takes hold and the value of bitcoin increases, monies held in the bank would see shorter returns but overall increase in wealth, nes pas?

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January 05, 2011, 03:44:33 AM
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But bitcoin can't help you build stuff x and y.

Not right now, but in the future, probably.

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January 05, 2011, 03:50:16 AM
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Capital is made of means of production :  companies, tools, knowledge, machines,...

Bitcoin doesn't make capital, just as it doesn't make orange juice.  It only permits you to buy it.
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January 05, 2011, 03:59:00 AM
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Capital is made of means of production :  companies, tools, knowledge, machines,...

Bitcoin doesn't make capital, just as it doesn't make orange juice.  It only permits you to buy it.


Thank you for assuring my belief that bitcoin is more than a fad. I see endless possibilities and new social arrangements based on bitcoin et. al.
Maybe someday, someone will claim that they were here at the beginning, but we can always confirm that in the blockchain.  LOL!

kiba
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January 05, 2011, 09:03:46 AM
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Capital is made of means of production :  companies, tools, knowledge, machines,...

Bitcoin doesn't make capital, just as it doesn't make orange juice.  It only permits you to buy it.


Yes, I am quite aware of that.

I was merely wondering how could saving/hoarding bitcoin lead to higher capital accumulation of production factors.

I am guessing that it somehow tells the market the time preference of human beings, thus determine how much resource are available in the future for spending.

The explanation posited by the other forum goers seem to fit...but the answer seem to be bit unsatisfactory.

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January 05, 2011, 09:07:13 AM
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Capital is made of means of production :  companies, tools, knowledge, machines,...

Bitcoin doesn't make capital, just as it doesn't make orange juice.  It only permits you to buy it.


Yes, I am quite aware of that.

I was merely wondering how could saving/hoarding bitcoin lead to higher capital accumulation of production factors.

I am guessing that it somehow tells the market the time preference of human beings, thus determine how much resource are available in the future for spending.

The explanation posited by the other forum goers seem to fit...but the answer seem to be bit unsatisfactory.

When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.
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January 05, 2011, 09:18:59 AM
 #9

Leaving my money in a bank account means i lose it over time because the interest rates on savings are zero and fees eat up the rest eventually leaving you with nothing. Leaving my value in bitcoins doesnt do this.  Smiley
caveden
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January 05, 2011, 09:32:07 AM
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FreeMoney gave a good explanation.

Even if you don't lend your savings to investors, the simple fact that you save - that is, you produce more than you consume - allows others to have easier access to the goods that you restrained yourself from consuming. This production share will be there, available for investors to use more easily.

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January 06, 2011, 08:24:54 PM
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When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.

Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em. Hard wrapping your mind around such a radical new paradigm isn't it.

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Vinnie
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January 06, 2011, 08:42:42 PM
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I've developed a formula for converting bitcoins into capital.

Step 1. I have BTC, I want to buy productive capital
Step 2. Hi! I build productive capital for BTC. Wanna buy?
Step 3. OK. I buy! Wait, I don't have enough.
Step 4. That's ok. Do you want to pay in installments?
Step 5. Sounds good!

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caveden
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January 06, 2011, 10:27:20 PM
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Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em.

So?

Interest rates don't depend on monetary inflation.

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MoonShadow
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January 06, 2011, 11:04:04 PM
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When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.

Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em. Hard wrapping your mind around such a radical new paradigm isn't it.

It would appear so, since a limited quantity isn't an impediment to a natural interest rate.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
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January 06, 2011, 11:44:55 PM
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When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.

Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em. Hard wrapping your mind around such a radical new paradigm isn't it.

It would appear so, since a limited quantity isn't an impediment to a natural interest rate.

Ok, explain please. I have all 21 million bitcoins in the world and lend them to you at... I dunno, 50% interest, coz I'm a nice guy. Where do the other 10.5 million bitcoins come from? Or do we just agree that when you pay them all back the same 21 million btc will now be worth 50% more? But bitcoin is backed by nothing, or rather there's no government to say that one bitcoin is worth one ounce of unobtainium or whatever, so how would it work?

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Vinnie
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January 06, 2011, 11:55:42 PM
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Ok, explain please. I have all 21 million bitcoins in the world and lend them to you at... I dunno, 50% interest, coz I'm a nice guy. Where do the other 10.5 million bitcoins come from? Or do we just agree that when you pay them all back the same 21 million btc will now be worth 50% more? But bitcoin is backed by nothing, or rather there's no government to say that one bitcoin is worth one ounce of unobtainium or whatever, so how would it work?

I see what you're getting at, but you are forgetting that money has a velocity. Yours is an extreme example, but the idea is that the borrowed money will be spent into the economy to purchase productive capital and pay wages to produce a good or service that will then be bought with some of those very same bitcoins that you just borrowed and spent. 1BTC can change hands many times. If the terms of the loan allow for monthly installments, then meeting the terms of the loan is possible in your scenario, so long as the lender is also spending bitcoins. It becomes even more possible when you're only talking about lending out a fraction of the BTC in circulation.

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MoonShadow
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January 07, 2011, 12:43:51 AM
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When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.

Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em. Hard wrapping your mind around such a radical new paradigm isn't it.

It would appear so, since a limited quantity isn't an impediment to a natural interest rate.

Ok, explain please. I have all 21 million bitcoins in the world and lend them to you at... I dunno, 50% interest, coz I'm a nice guy. Where do the other 10.5 million bitcoins come from? Or do we just agree that when you pay them all back the same 21 million btc will now be worth 50% more? But bitcoin is backed by nothing, or rather there's no government to say that one bitcoin is worth one ounce of unobtainium or whatever, so how would it work?

If you can aquire all 21 million bitcoins or find any takers at 50% interest then you might have a point.  Such as it is, you don't, and I think that you already know that.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank...sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

- Carroll Quigley, CFR member, mentor to Bill Clinton, from 'Tragedy And Hope'
hugolp
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January 07, 2011, 05:19:43 AM
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When bitcoin starts developing and being more accepted there will appear bitcoin funds, where you put your bitcoins for a while and they lend them out or invest them. That way bitcoin savings will be also investment and you will get bitcoin interest rates.

Interest rates? Don't see how that'll work, theree'll never be more than 21 million of em. Hard wrapping your mind around such a radical new paradigm isn't it.

It would appear so, since a limited quantity isn't an impediment to a natural interest rate.

Ok, explain please. I have all 21 million bitcoins in the world and lend them to you at... I dunno, 50% interest, coz I'm a nice guy. Where do the other 10.5 million bitcoins come from? Or do we just agree that when you pay them all back the same 21 million btc will now be worth 50% more? But bitcoin is backed by nothing, or rather there's no government to say that one bitcoin is worth one ounce of unobtainium or whatever, so how would it work?

There is a myth going around on the internet promoted by some wackos that says: The only way to pay debt and the interests is to print more money. Its false. You could pay a 100.000 dollar debt with a money supply of only 50.000 dollars (for example).

You can have interest rates with a fixed money supply.
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January 07, 2011, 08:13:18 AM
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Ok, explain please. I have all 21 million bitcoins in the world

Your hypothesis is just impossible.

And no, you don't need to have all money in existence being borrowed to have a credit market. Just a fraction is enough. Naturally, the higher this fraction is, the lower the interest rates will tend to be.

Interest rates are a fundamental price. They reflect people temporal preferences versus the amount of savings in the economy. These things exist despite monetary inflation.

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January 07, 2011, 09:25:39 AM
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If you can aquire all 21 million bitcoins or find any takers at 50% interest then you might have a point.  Such as it is, you don't, and I think that you already know that.

I tend to think that interest rates with a fixed will eventually lead to all the money being held by the bank, assuming it's profitable.

Ok look at it this way :
 - 21 billion BTC circulating,
 - Bank makes a 100k BTC loan,
 - Bank eventually gets 105k BTC back,
 - Bank pays its expenses, it's left with 102k BTC ,
[...]
 - Repeat ten times, bank took 20k BTC out of circulation.

Lending with interest works, it doesn't really seem that sustainable to me on the long term, I guess it'll probably all boil down to "hey, let's try and see what happens!"

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