Market Driven Money Supply..

[nodroids]

Market based currency will tend towards monopoly-oligopoly... So? There won't be enough transparency... So a market based coin will not get you beyond some kind of business cycle.

Great conversation! Very interesting, if it weren't for my two year old outside with the hose I'd read through the whole thing with a fine tooth comb, twice over. Very original problems and solutions! A crypt future is like crack to us economists.

[1714993425]

1714993425

[1714993425]

1714993425

[1714993425]

1714993425

[1714993425]

1714993425

[1714993425]

1714993425

[spartacusrex]

I played with some ideas like this in a post I made back in April:

https://bitcointalk.org/index.php?topic=181728.msg1897412#msg1897412

In general, I think any reactive scheme built into a system must be completely self-contained; it must be able to base its decision-making purely on internal information, not on external information that must be supplied by humans (who may be unreliable.) This rules out decision making based on prices or exchange values, which are external parameters. However, there are patterns of system behavior that are characteristic of certain types of conditions (bubbles, busts, stable conditions) which might well, if expertly characterized, form the basis of an algorithm which could begin to implement a flexible monetary policy.

Good Post. Read it. You make some salient observations about the shortcomings of FGCs (First Generation Crypto-currencies..) and I would recommend anyone interested in creating an SGC (Second Generation Crypto - not 'StarGate Command') read it. 

The proposal I put forward earlier, which I break-down in an earlier post in this thread, is indeed fully self contained ? It uses an ON-CHAIN exchange.. Not an external one.

Also - I think that the basic idea I put forward is VERY SIMPLE.. Both to implement and understand. I'm a big believer in KISS.

[Etlase2]

The proposal I put forward earlier, which I break-down in an earlier post in this thread, is indeed fully self contained ? It uses an ON-CHAIN exchange.. Not an external one.

Also - I think that the basic idea I put forward is VERY SIMPLE.. Both to implement and understand. I'm a big believer in KISS.

How do the chains know what is the market price of "gold"? And if the price of the gold chain changes, doesn't that affect the valuation of the cash chain?

[spartacusrex]

How do the chains know what is the market price of "gold"? And if the price of the gold chain changes, doesn't that affect the valuation of the cash chain?

It is not GOLD as in the Physical Yellow Stuff..

To Recap :

We have a blockchain based crypto coin, just like bitcoin, BUT it has 2 types of coin on it.

Gold is the name I use for the coin with a fixed amount. Let's call it CryptoGold.
Cash is the name for the coin with a variable amount. Let's call it CryptoCash.

There is an exchange between the 2 coins on the chain.

There will only EVER be 1 million CryptoGold.
CryptoCash can grow and Shrink.

The Gold price I refer to is the price of the Fixed Amount Coin (CryptoGold) in the Variable amount coin (CryptoCash).

So to start with you would have miners mining 1 million of each. Let's say you get 50 of each per block, decreasing as usual etc etc.

Then you have users trading the 2 types of coin on chain.

The FAIR price is the total CryptoCash divided by total CryptoGold.

At the very beginning the Fair price will be 1.0, as there will be the same amount of both coin types.

When the Market price of CryptoGold, on chain, is Higher than the Fair price (PEOPLE BUYING A LOT OF CRYPTOGOLD), we contract the amount of CryptoCash, driving the FAIR PRICE DOWN, as there will be less CryptoCash. So Total CryptoCash / Total CryptoGold will go down. (There may actually be less Crypto Cash in the system than CryptoGold, making it more valuable..)

When the Market price of CryptoGold, on chain, is Lower than the Fair price (PEOPLE SELLING A LOT OF CRYPTOGOLD), we expand the amount of CryptoCash, driving the FAIR PRICE UP.

We may find that a stable Market & Fair price is reached at about 1200.. meaning there is 1200 times more Cash than Gold. or 1 million CryptoGold, and 1.2 Billion CryptoCash.

So - Sell your gold and drive the price down, and We'll print CryptoCash,
Buy gold and store it driving the price up, and we'll stop printing it.

Expansion and contraction of CryptoCash, occurs on ALL coins, so proportionally no-one loses out.

I am using this principle :

"The price of gold is the link between real growth and monetary growth: When real growth under-performs monetary growth, the price of gold rises. When real growth out-performs monetary growth, the price of gold falls. And when real growth matches monetary growth, the price of gold is flat."

I would limit the expansion and contraction to maybe +/- 5 or 10% per annum (or however many blocks 1 year is).. so as to prevent monetary shock.

There is a final piece that I am working on.. That being that CryptoCash can be transferred, but that CryptoGold can ONLY be Bought and Sold on chain.. Still thinking about this though..

[Impaler]

Sorry rex I don't think that 2-coins on the same chain really gets you any useful information because your exchange (as far as I can see) is all PRESENT valuation.  The value of the two coins will simple move in synch with each other compared to real assets their is never any reason for people to flee from one half of the system into the other because both halves are basically identical especially when your giving holders of the 'cash' a PPC like interest rate to cause money expansion, their is no way you can ever be diluted so holding cash is as good as holding 'gold' your just choosing which of two numbers goes up your quantity of coin or it's value in Dollars, your getting rich just as fast either way.

The bigger flaw in your approach is that you seem to be trying to create nominal price stability while KEEPING deflationary economics, aka just holding money is yielding an increase in purchasing power.  I'm not sure if deflationary economics is something you genuinely support, or just think is a prerequisite to adoption or if you just view proportional nominal increase for all coins as the simplest technical solution.  But I can assure you that any solution that involves money expansion ONLY through the inflation of all wallet balances will be economically identical to BTC.

What I am looking for is a system in which a coin networks increasing 'market cap' is in the hands of NEW people, not just the early adopters.  An individual holder of coins shouldn't be enriched or impoverished by changes in market-cap and ideally price information is preserved too.  How money new money is distributed is a separate issue from determining how MUCH to change money supply which is what we need to figure out first.

I'm a believer in Demurrage, which I feel has desirable effects on interest rates (lowers them) and velocity (raise it), while it might seem to contradict the non-impoverishment of holders I just mentioned a holder of money enjoys liquidity and demurrage is the payment for liquidity, so long as the rate is correct (another idea I've wrestled with) the money holder is neither robed nor subsidized.  Demurrage might also be a means of driving a prediction market.

The system might be something like this, everyone needs to pay demurrage but you can receive a kind of secondary 'pre-paid' demurrage coin (a bit like your gold/cash distinction) lets call them 'stamps', this sits in your wallet and can not be sent like normal coins but it is used first to pay all demurrage and it is denominated just like normal coins.   Once it runs out demurrage starts being drawn from your normal coin balance so the prepaid stamp is in a sense equal in value to normal coins in the present.

Now we take two people who have differing views on future coin valuation.  The one who expects an increase in coin value would like to have stamps in the future but would give them away now, the one who expects a decline in value would want stamps now but would be willing to give them later.  They could create an exchange that has them each paying the others demurrge costs in addition to their own during a different period of time.  First the person expecting an increase in value pays for them both in what he feels will be cheap coins and then the second person pays for both of them in the future with what he feels will be cheap coins.  Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.  We can mandate that all the contracts be for equal pairings of time 1 week / 1 week, 6 months / 6 months, but the quantity of demurrage paid can float.  This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.

[d'aniel]

The short answer is "no".

The long answer is "How do you measure 3 of {M,V,P,Q} quickly and accurately enough to set the fourth?"

And in a way that can't be gamed, and requires no trusted third party.

[spartacusrex]

Sorry rex I don't think that 2-coins on the same chain really gets you any useful information because your exchange (as far as I can see) is all PRESENT valuation based.  The value of the two coins will simple move in synch with each other compared to real assets their is never any reason for people to flee from one half of the system into the other because both halves are basically identical especially when your giving holders of the 'cash' a PPC like interest rate to cause money expansion, their is no way you can ever be diluted so holding cash is as good as holding 'gold' your just choosing which of two numbers goes up your quantity of coin or it's value in Dollars, your getting rich just as fast either way.

Thx. Finally a third-party diagnosis of my idea..

Yes - I have been thinking something like this, in fact that is why I say in my last post :

There is a final piece that I am working on.. That being that CryptoCash can be transferred, but that CryptoGold can ONLY be Bought and Sold on chain.. Still thinking about this though..

By which I mean that if you want to SPEND the coins it has to be done using CASH, you can't spend/send GOLD. This is the reason for switching from one to the other. You want to save you buy gold, you want to spend you sell gold.

Therefore CryptoCash is the Medium of Exchange, and CryptoGold is the Store of wealth. Like 2 sides of the same coin. You can't use CryptoGold as the medium of exchange, since you literally can't sent it to an account. You can only BUY or SELL it on the Chain.

..But I can assure you that any solution that involves money expansion ONLY through the inflation of all wallet balances will be economically identical to BTC.

How about if the inflation wasn't done on all the wallets ? you could simply give the new coins to the miners ? I'm not sure how the demurrage would work though in this case.. Maybe only expand.. Seems a technical cheat though.

I'm not sure if deflationary economics is something you genuinely support

I am doing all this because I don't like the idea of a deflationary currency..

What I want, is a currency that grows/shrinks in line with economic growth. And i'm trying to find a financial relationship that tells us how much to expand or contract the money supply..  and it must be fully crypto based.

I do think demurrage is a good monetary construct, but my only issue with it is whether the General Public can deal with it Psychologically ? Not even a financial issue.

Now we take two people who have differing views on future coin valuation.  The one who expects an increase in coin value would like to have stamps in the future but would give them away now, the one who expects a decline in value would want stamps now but would be willing to give them later.  They could create an exchange that has them each paying the others demurrge costs in addition to their own during a different period of time.  First the person expecting an increase in value pays for them both in what he feels will be cheap coins and then the second person pays for both of them in the future with what he feels will be cheap coins.  Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.  We can mandate that all the contracts be for equal pairings of time 1 week / 1 week, 6 months / 6 months, but the quantity of demurrage paid can float.  This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.

This is the crux really. As you say 'Each party can gain ONLY by being correct in it's prediction AND in finding a willing counter-party to take the opposite side of the deal.'

This could be done with an on chain exchange, sure. What the 2 sides of the trade are, seems the problem..

I did have another idea. The K Percent Rule. Keep it super simple.

Pick a percent increase, say 5%, and simply use that, forever. Then the CryptoGold would be the 'pressure valve' that you could jump in and out of. When economic growth out performs monetary growth, the price of CryptoGold would go down, and when economic growth under performs monetary growth, the price of CryptoGold would go up. Quite like this one actually.. just means the money doubles every 14 years.. exponential increases are always tricky though..

[Impaler]

I think were making some good progress, a lot of your ideas are avenues I've gone down before as well.  The idea of having one type of special coin that can not be sent by normal means but can only be exchanged through the internal block-chain market is a very interesting tool.  I'd considered this at one point as a tool in determining the appropriate level of demurrage which requires us to know the liquidity premium and an illiquid asset would be useful for illuminating that.

But one thing I realized is that a market being continually available for exchange MAKES an asset at least slightly liquid.  In your crypto-gold scenario the ability to convert to the crypto-cash means that a user can very easily convert and thus very easily spend both halves, and thus they lose any distinction.

To create real illiquid assets you will need to freeze coins, much the way newly mined coins can not be spent for certain periods of time.  This is a fairly simple technical solution and it could be done for different lengths of time, a bit like the different length of time that bonds take to mature.  At the very least you would need to do this to your gold equivalent to get the other 'cash' part to be the only medium of exchange.  While I think their may be some usefulness in this type of frozen coin, I think it's in the liquidity discovery area rather then in the inflation/deflation discovery area.

When you have a fixed quantity coin pool as with your 'gold' it's own lack of liquidity would concentrate it in a small number of hands which will make it's price unstable and thus send false signals.  Also if you were to actually have the development of a ratio in valuation that keeps the 'cash' at parity valuation and the 'gold' going ever up then half your total money is going to be of a deflationary type so the solution will be a half failure by your own admission.  I don't think any fixed quantity is useful in stabilizing valuation, but I'd encourage you to keep trying to prove me wrong.

As for how to increase money supply, so long as current coin stake is NOT the basis for the receipt of the newly created supply it would be fine as that linkage between present stake and future coins will invariably leak into the market.  Mining can work but at Freicoin we believe it's possible to give most new coins to charity.  Ultimately we hope to have users even choose which charities by a stake voting process.  Both demurrage and new coins created to counter-act deflation can distributed in this way.  The main obstacle is avoiding fraudulent capture by large stake holders.

[spartacusrex]

In your crypto-gold scenario the ability to convert to the crypto-cash means that a user can very easily convert and thus very easily spend both halves, and thus they lose any distinction.

Yes but you can only exchange at the Market price. Not the Fair price.

The spread between the 2 prices is what I think of as 'The Demand for Money'

If demand is high, market price of cryptogold will be lower than Fair price, so expand. And Vice versa.

And, if the market price IS the fair price, then there is the right amount of money in the system.. No change.

Otherwise, what does the Market price of cryptogold in the system show?..

[Impaler]

Market prices are by definition the 'fair' price or at least the only way to arrive at a consensus that we can call fair.

I think the spread will always mirror the ratio of the number of coins in each half of the system and won't provide any additional signal.  Say you start with 1:1 ratio between the two, the spread will be 1:1 and no signal to grow or shrink supply will exist.  Then lets say the value of this new crypto-currency rises, I think both halves will rise in tandem and the ratio between the cash/gold will remain 1:1 again no meaningful signal is sent even though their is deflation.

I as a holder of either the fixed supply or floating supply coins can always expect to long-term be able to exchange between the two halves of the system at what ever the ratio of existing coins is.  Only a change in the ratio would change my expectations, but their is nothing to actually initiate a change in the ratio and if their was the system is designed to counter act that movement by changing cash supply.  So a rational trader should conclude that the ratio is never going to move much if at all.

In fact I really see no reason to participate in the internal market except under some rare circumstances, such as if I'm holding the gold half and am ready to spend, then I'd convert just what ever I need for a purchase and I would treat the calculate the value by combining the gold-cash exchange rate and the cash-USD rate.  It would be a bit like using LiteCoin, it actually has a fairly stable exchange rate with BTC but it's still massively deflationary, the two coins just deflate together.

[spartacusrex]

Market prices are by definition the 'fair' price or at least the only way to arrive at a consensus that we can call fair.

Just to be clear, in my system the 'Fair' price is simply Total cash / Total Gold.

.. Hmm.. I do see what you're saying though. The incentives to switch from one coin to the other are not so clear.

I really just wanted one to act like the USD, cash, and the other to act like Gold. Then people would use them as such. And I could use that system to judge required monetary supply changes.

[Impaler]

Yes I understand your objective I just don't think the structure gets you their because the time factor is not present.  The two parties in an exchange need to be trading places 'in time' so to speak for the market price to reflect a market valuation over time.

The real exchange of Gold vs USD isn't a good target to emulate because it's simply a commodity exchange and both parties are exchange their commodities in the present, no one is taking a different position in time from the other party.  The better market to try to emulate would be a commodity futures market or a bond market.  In both cases the parties are trading across time, the commodity futures market tries to pull future commodity prices into the present and the bond market tries to pull future money demand into the present.  The bond market uses only a single commodity (money) where as futures markets use two so I favor bond-like markets as I think these will be simpler.

Also we have a well documented history of gold fluctuating in its inflation-adjusted exchange with the Dollar, not to mention that as a mined and consumed commodity a fixed quantity coin is not an accurate reflection of it despite what BTC propaganda says.

I'm interested in continuing discussion but via a more direct channel, do you use Skype?  Etlase2 your welcome to join us if you wish, I'll PM you both my Skype account.  Anyone else interested PM me.

[spartacusrex]

Hi, sorry for delay, New Year Trip. Back now.

Skype not my thing.. Email or this, thx.

So - If the previous system with 'variable money supply growth rate' doesn't seem quite right, what if we made it even simpler, or attack the problem from a different angle..

Have the 2 coin chain with p2p exchange setup. CryptoCash and CryptoGold... stick with this for now, as something may pop out the other end of a brainstorm..

CryptoCash grows by a fixed percent, say 5%. (Could be -5% as in freicoin - just trying to remove the coins ability to be used as a long term store of wealth)

And CryptoGold is fixed to some limit amount.

In this scenario, the Cryptogold with 'on chain exchange' can act as a 'pressure valve' to the ratio of economic and monetary growth ?

So that, in the +5% inflation model, when economic growth is less than 5% the price of CryptoGold will go up. But when Economic growth is more than 5% the price of Cryptogold will go down. And when economic growth is 5%, the price of Cryptogold should be stable.

I again refer to this : http://www.macro-investing-strategy.com/gold-and-money-supply/

The Cryptocash would lose it's long term ability as a store of wealth, but in the short term it would act as a great medium of exchange, 5% per annum is tiny on a day to day basis. The CryptoGold would be the Store of wealth, but you would never need to leave the chain to have BOTH (like having to switch from BTC to USD and back). 
 
Also, as an addendum, cryptocash CAN be destroyed. If not touched for 20 years, or whatever, it is simply removed from the system. CryptoGold always gets put back in the system. 

This system is similar, to the original proposal, but different in a subtle way.. ?

..ps Happy New Year!

[spartacusrex]

To clarify the previous post :

When trying to come up with a system to grow and shrink the money supply in line with economic growth, using whatever devious mathematics one can come up with, it occurred to me that maybe you could do this instead.

Grow the money supply at a constant rate, and then give the user the ability to mitigate any difference between the ACTUAL rate of economic growth and the 5% we are inflating the money supply by.

That way even if the rate of inflation of the CrytoCoin is not the same as the economic growth, it won't matter.. as :

So that, in the +5% inflation model, when economic growth is less than 5% the price of CryptoGold will go up. But when Economic growth is more than 5% the price of Cryptogold will go down. And when economic growth is 5%, the price of Cryptogold should be stable.

I again refer to this : http://www.macro-investing-strategy.com/gold-and-money-supply/

So, you can make up for the difference, in actual economic growth and 5%, by buying or selling cryptogold.
   

[Impaler]

I'd say your getting colder not warmer.

I don't think fixed monetary expansion rates are viable in any Crypto-coin, the 'economy' for a crypto-coin is not the world, it's the transactions being done with that coin and it can grow explosively or shrink rapidly because it is by necessity a tiny thing in a much bigger economy and activity can flow into it or flow out of it from that bigger economy very easily.  In Freicoin we adopted fix demurrage rates and fixed supply purely out of conservativeness and technical limitations, I don't stand behind ANY fixed value going forward.

Keep focusing on the thing that we know will work a market that makes HONEST predictions of future valuation.  Try to pull apart what I've presented, I'm giving what I think is good criticism of your proposal and want to hear more of yours thoughts on mine.

I'm still completely skeptical of any kind of fixed-supply coin being predictive of anything.  The fundamental nature of any fixed supply is to be deflationary NOT stable in prices, they are NOT a store-of-value either.  The BTC and gold-bug communities consistently confuses store-of-value with SPECULATION.  A store-of-value has some quality that makes it's price stable, a speculative commodity is the opposite, unstable so you can reap a speculative gain from holding it or shorting it.  I urge you to not fall into that same rhetorical trap as it will lead to dead-ends.

As for the link you provide to gold I read it the first time you linked it and have simple been trying to not mention it under the old 'if you can't say anything nice' rule.  It is GARBAGE, as is everything put out by anyone who things gold has ANY meaning in our or any economy.  While the author earns some points for pointing out the fallacy that money-supply alone dictates the price of gold, just because someone points out a piece of main-stream Bullshit dose not make their alternative right.  My personal rule of thumb is that so called alternatives are 90% bull-shit too.

Were working with a problem that to my knowledge has NEVER been dealt with before, even my own economic school of Gesell is completely silent on how to do what we want to do.  I'm flying purely on my own understanding but that understanding tells me you can't beat deflation with a deflationary commodity be it a metal or a cryptographic one.

[spartacusrex]

Were working with a problem that to my knowledge has NEVER been dealt with before, even my own economic school of Gesell is completely silent on how to do what we want to do.  I'm flying purely on my own understanding but that understanding tells me you can't beat deflation with a deflationary commodity be it a metal or a cryptographic one.

I can see you're not going for my cash/gold idea. I still don't think it is such a loser though.
 
When they have too much cash, what will they do ? When they don't have enough what will they do ? Seems pretty clear they buy and sell the gold. But maybe i'm looking at this to clinically/physics engine-y.

I'll have a regroup on that one. Come back when i'm ready.

Going back to your previous idea though with the demurrage Stamps. I think I see how the system works. You have an account and you can buy and sell additional demurrage points. You can't spend these. JUST buy and sell them. And if you have any, they are used to pay your demurrage, otherwise your normal account is used. Then if you think money is cheap now, you buy the Stamps, or vice versa.

'..This will give us a predicted value of demurrage in the future and hence the predicted value of coins in the future and we adjust money supply accordingly.'

How would you affect the Money Supply given the market for Stamps ? Print more when the value goes up and print less/none when the value goes down ?

Would that not destroy the market for them in the first place since we would be weakening the stronger side ? As it were removing the thing that was making it swing one way or the other.

[kkaspar]

Very interesting topic and discussion.
I also think that the right money supply system is one of the most important keys in creating a successful currency. I think that deflation with money is silly, because money should be the intermediate tool in trading value and shouldn't be considered as an separate value to be hoarded.
I'm ok with bitcoin money inflow system being based on deflation, because the speculative nature made it very attractive among masses. And by it's attractiveness, it propagated this new idea of an privatized and decentralized monetary systems.
I'm anxiously waiting for new cryptos that have more complex supply systems and that would have a real future as usable money. It sure is hard to imagine the complexity of that system that could run and autonomous and dynamic money supply without direct human intervention. But topics like this surely contribute in finding answers to those questions.

[Impaler]

When they have too much cash, what will they do ? When they don't have enough what will they do ? Seems pretty clear they buy and sell the gold. But maybe i'm looking at this to clinically/physics engine-y.

Sure some kind of exchange ratio develops I'm not disputing that but we can't just assume that ratio is telling us what we want to know.  I've heard LOTS and LOTS of proposal from people who think just setting up any kind of market or any kind of voting system involving opposing viewpoints will produce the desired stability.  

For example I frequently hear a proposal build around miners 'voting' for the rate of inflation.   This tends to be one of the first things that occurs to people because it is the technically simplest thing to do and miners and things which empower miners are generally considered doable in BTC (because miners have de-facto veto on protocol changes).  Under this kind of system their would be some miners who vote for high inflation and other that vote for low and the system would reach some compromise when it sums all the votes, but no ones motivation for for their vote is linked to the actual growth in the economy or what would produce stable valuation of the currency, rather it will reflect their individual balance between past holdings and future mining potential.  Their are an endless number of ways to extract a 'signal' from coin users but it is making sure that signal is reflective of the economic variable desired.

In your cash/gold scenario I think the signal your going to be getting is going to mostly reflect the ratio between the two assets and to a lesser degree liquidity, as you say people will want the cash when they want to make purchases so their will be an premium on it which reflects it's ability to be spent (this assumes gold has some time-delay to convert as described earlier, else it is just as liquid).  I've thought about ways to detect the value of liquidity so that demurrage currency could be adjusted to the idea rate.  Freicoin is likely suffering because as a fledgling currency it's liquidity is very low and the 5% rate is likely excessive at this early stage.  Liquidity is a very tricky thing because it gets into all kinds of financial decisions without us being very aware of it, many rates that we see in markets reflect a combination of factors, for example interest rates per the Fisher equation reflect Liquidity + Inflation expectation.  So to get accurate inflation numbers it may be necessary to subtract out the effects of liquidity but knowing liquidity value might take a whole additional market!

[Phrenico]

This proposal would not change relative price levels and would thus have no effect on purchasing power, and no effect whatsoever, good or bad.

? Err.. I have to disagree. Agreed that 'relative' prices stay the same, but what about Price Stability ?

1)Price stability makes it easier for people to recognise changes in relative prices since such changes are not obscured by fluctuations in the overall price level. This enables firms and consumers to make better-informed decisions on consumption and investment. This in turn allows the market to allocate resources more efficiently. By helping the market to guide resources to where they can be used most productively, price stability raises the productive potential of the economy.

2)If investors can be sure that prices will remain stable in the future, they will not demand an "inflation risk premium" to compensate them for the risks associated with holding nominal assets over the longer term. By reducing such risk premia in the real interest rate, monetary policy can contribute to the allocative efficiency of the capital market and thus increases the incentives to invest. This in turn fosters economic welfare.

3)The credible maintenance of price stability also makes it less likely that individuals and firms will divert resources from productive uses to hedge against inflation. For example, in a high inflation environment there is an incentive to stockpile real goods since they retain their value better than money or some financial assets in such circumstances. However, stockpiling goods is not an efficient investment decision, and therefore hinders economic growth.

4)Tax and welfare systems can create perverse incentives that distort economic behaviour. In most cases, these distortions are exacerbated by inflation or deflation. Price stability eliminates the real economic costs entailed when inflation exacerbates the distortionary impact of tax and social security systems.

5)An environment of stable prices helps to maintain social cohesion and stability, since price stability prevents the considerable and arbitrary redistribution of wealth and income that arises in both inflationary and deflationary environments. Several scenarios in the twentieth century have shown that high rates of inflation or deflation tend to create social and political instability.

6)Price stability also contributes to financial stability, because it eliminates market distortions and uncertainties arising from unstable prices. For example, price stability reduces risk premia vis-à-vis interest rates because there is less uncertainty about future inflation.

Or so they say..  

Problem is of course that if someone has the power to PRINT money, they'll PRINT IT! (Regardless of WHY they should be printing it..)

What we need is an equation.. A maths way of calculating how to affect the Money Supply.

And it seems some kind of Free Market, might be a way of ensuring 'Honest' discovery.

I don't disagree with any of the quoted text above.

Thankfully, none of those problems will materialize based on the hypothetical I described. I don't have any other way of explaining it to you, so I'll leave it at that.

[thaaanos]

Thank Impaler for inviting me to this thread,
my 2 cents here https://bitcointalk.org/index.php?topic=398389.msg4348065#msg4348065, also quoted bellow for ease
I will now go back and read the thread from the start

There seem to people that believe that an appreciating currency is a good Idea
I would like to invite those people to come live and work in Greece, Over the past 4 years Euro is appreciating:
Wages down by 40% Consumer Prices up by 20%, Land value down by 60%. A Paradise.

Now that we have established what the problem, lets propose a solution that will solve many problems at the same time
while the parameters can be tweaked the basic idea is:

A. Block reward is maintained at a constant bonus
B. A rolling invalidation of blocks starting from the genesis block occures

So there is a Block Window of valid transactions. The size of the window determines the total number of Bitcoins in existence.

Pros
1. Early adopters get a fair share of value without becoming parasites
2. Late adopters have a chance in the economy
2. Wealth accumulation is discouraged (Hodling)
3. Blockchain database is bounded
4. Lost/forgoten/orphaned coins are eventualy reclaimed
5. Will be easier to get accepted by goverments

Cons
1. Early adopters will hate it and will be resistant to the change

Now for the window part

C. The rate of invalitations and block creation is unrelated
C. A link between the economy growth/recesion and the block window size is somehow* created

Pros
1. A chance at market stability

*As I am opposed to create rules that act as forces of nature and rather trust individual and collective human judgement,
I would like to have that parameter not hardcoded but open to negotiation and discussion.

So why not making another coin you may ask?
Because if Bitcoin fails the whole experiment of p2p cryptocurencies will fail and all we will have left with will be Bankster issued virtual currencies

EDIT:
Maybe Invalidation threshold/rate can be decided by a de'facto concessus between the independent private Invalidation threshold/rate that miners choose.

I think I have reduced the problem to 2 diffrent dynamics, blockchain expansion & blockchain invalidation
so any static rate of inflation is possible, but I believe the crux of the thread is to make them dynamic exploiting info both from the blockchain as well as from miners intentions. Maybe even using all that cpu power that goes in hashing to some monte-carlo solution seeking race

A rule I want to investigate is:
If SomeFunction(transaction fees,transaction count) < K1 invalidate a block from the begining
If SomeFunction(transaction fees,transaction count) > K2 award a bonus for this block

effectively using transactions as a pivot to determine if economy is inflating or deflating