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 Author Topic: The relative theory of value  (Read 2047 times)
johnyj
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Beyond Imagination

 February 05, 2014, 05:12:06 AM

Einstein 's theory of relativity: Through Maxwell equations, define speed of the light as a never changing constant. This caused length and time become variables.  High-speed movement will shorten the length and slow down the time. It is a huge change in the way of thinking

Similarly, in value related topics , we are also facing such a major break through in thinking

When people discuss an economic phenomena, they usually have an unconscious habit: When they want to describe the value of something, they will say how much dollar this thing is worth. This is a view of the world caused by long-term use of USD, so that USD becomes a measurement unit of value

In fact, values are all relative. If measured by bitcoin, the value of USD are depreciating rapidly. However, we can not tell if it is bitcoin appreciation or USD depreciation, because all changes are relative

People will say that the USD prices of goods and services is relatively stable, changes slowly during a year, so the value of USD should also be stable

This also comes from an unconscious way of thinking, that the value of goods and services are relatively stable. In fact, the value of goods and services are all depreciating quickly, because the supply are increasing quickly. This is easy to understand: If the demand does not change but the supply increased by 10 times, then the value of goods will drop to 1/10 of its original value

So, although people are seeing that the USD price of goods/services are relatively stable , but that is only because the value of those goods and USD are dropping together at a similar rate

In a word, because the value is determined by supply and demand , if both the supply and demand are changing, finding a stable and constant point of reference is very difficult

And now with bitcoins , supply is fixed and limited, the reference point of value can be given by bitcoin, similar to the speed of light. Thus, when Bitcoin exchange rate rises, people will know that more fiat money are being produced. If one bitcoin can buy more goods, then people will know that the production of goods are increasing. In such a way, people can avoid using continuously depreciating currency to value continuously depreciating goods

There is one problem, although the total amount of bitcoin is limited, there are not so many in circulation. But because Bitcoin appreciate very fast, it will be less likely to be used in large-scale circulation, but highly likely to be used for large-scale savings, so the value of bitcoin can be derived from the demand of saving

Every day there are 370,000 new baby born. Suppose that the demand for these people's savings during their lifetime can be fulfilled by bitcoins, and the daily supply of Bitcoin on market is about 5000 coins, each person will get 0.0135 bitcoin for savings during their life time. That is about 1,350,000 satoshi. This could be the final stable value of Bitcoin. In current dollar prices, if someone saved \$1,350,000, it is a good retirement plan. That will put one satoshi's value close to \$1.

In future, the fiat money and goods will be produced more and more thus become less and less valuable. But as long as fertility does not change a lot, everyone's savings for retirement is probably always 1,350,000 satoshi. This is because long-term wise, daily bitcoin supply on market will always be around 5000 coins ( Suppose that majority of the people spend 10% of their saving each year after retirement )

So the average retirement saving for each person = 0.0135 bitcoin, this is a consistent way to use a fixed supply currency to value a very typical demand from any person

When you start to use bitcoin as a standard measurement of value, you will see how fast fiat money and goods are depreciating

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mahorelee
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 February 05, 2014, 06:11:51 AM

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 February 05, 2014, 08:44:40 AM

Einstein 's theory of relativity: Through Maxwell equations, define speed of the light as a never changing constant. This caused length and time become variables.  High-speed movement will shorten the length and slow down the time. It is a huge change in the way of thinking

Similarly, in value related topics , we are also facing such a major break through in thinking

When people discuss an economic phenomena, they usually have an unconscious habit: When they want to describe the value of something, they will say how much dollar this thing is worth. This is a view of the world caused by long-term use of USD, so that USD becomes a measurement unit of value

In fact, values are all relative. If measured by bitcoin, the value of USD are depreciating rapidly. However, we can not tell if it is bitcoin appreciation or USD depreciation, because all changes are relative

People will say that the USD prices of goods and services is relatively stable, changes slowly during a year, so the value of USD should also be stable

This also comes from an unconscious way of thinking, that the value of goods and services are relatively stable. In fact, the value of goods and services are all depreciating quickly, because the supply are increasing quickly. This is easy to understand: If the demand does not change but the supply increased by 10 times, then the value of goods will drop to 1/10 of its original value

So, although people are seeing that the USD price of goods/services are relatively stable , but that is only because the value of those goods and USD are dropping together at a similar rate

In a word, because the value is determined by supply and demand , if both the supply and demand are changing, finding a stable and constant point of reference is very difficult

And now with bitcoins , supply is fixed and limited, the reference point of value can be given by bitcoin, similar to the speed of light. Thus, when Bitcoin exchange rate rises, people will know that more fiat money are being produced. If one bitcoin can buy more goods, then people will know that the production of goods are increasing. In such a way, people can avoid using continuously depreciating currency to value continuously depreciating goods

There is one problem, although the total amount of bitcoin is limited, there are not so many in circulation. But because Bitcoin appreciate very fast, it will be less likely to be used in large-scale circulation, but highly likely to be used for large-scale savings, so the value of bitcoin can be derived from the demand of saving

Every day there are 370,000 new baby born. Suppose that the demand for these people's savings during their lifetime can be fulfilled by bitcoins, and the daily supply of Bitcoin on market is about 5000 coins, each person will get 0.0135 bitcoin for savings during their life time. That is about 1,350,000 satoshi. This could be the final stable value of Bitcoin. In current dollar prices, if someone saved \$1,350,000, it is a good retirement plan. That will put one satoshi's value close to \$1.

In future, the fiat money and goods will be produced more and more thus become less and less valuable. But as long as fertility does not change a lot, everyone's savings for retirement is probably always 1,350,000 satoshi. This is because long-term wise, daily bitcoin supply on market will always be around 5000 coins ( Suppose that majority of the people spend 10% of their saving each year after retirement )

So the average retirement saving for each person = 0.0135 bitcoin, this is a consistent way to use a fixed supply currency to value a very typical demand from any person

When you start to use bitcoin as a standard measurement of value, you will see how fast fiat money and goods are depreciating

well done

this theory is so good

+1

IOTA
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 February 05, 2014, 10:38:08 AM

True, the speed of light is "absolute" and is called C, and also true is that the total amount of Bitcoins will be 21 million. Now, the sad thing is that the value/price of goods remains relative all the same, simply because these 21 million coins represent the total value of the Bitcoin-economy. This Bitcoin-economy can expand and shrink, and even certain sectors within it can expand or shrink.
Example. Climatical disasters cause a shortage of food, which make a bread more expensive; meaning one can buy less breads from one's income. Even in a Bitcoin stable mono-currency economy the price of one bread would increase. Hope this sort of helps in the way "we" need to think about money.
teukon
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 February 05, 2014, 12:59:04 PM

I'd be willing to bet that most people are better aware of the relativity of value than the relativity of velocity.  Ask someone what it means to be still in space.

Some people coming to understand a thing already known by many others is not a "major breakthrough in thinking".
johnyj
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 February 06, 2014, 01:31:24 AM

I'd be willing to bet that most people are better aware of the relativity of value than the relativity of velocity.  Ask someone what it means to be still in space.

Some people coming to understand a thing already known by many others is not a "major breakthrough in thinking".

I had this impression after I watched a group of famous economists debating on a TV show, they all unconsciously saying this thing worth xxx dollar, so it seems majority of people have this illusion coined in their mind since their childhood

And it is even more difficult to discover that the goods and services are all depreciating quickly. Even the manufacturer who are making production in mass volume don't feel this, they think that they just made a lot of profit due to more sales, they never realized that they are reducing the value of each of their products, since the money supply will always increase to cover this truth

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