"A currency that increases in value is a terrible thing"

[davidgdg]

You're stuck in the mode of

Don't make assumptions. Instead try reading the WORDS in your screen. I specifically discuss bitcoin as a currency here. So I ask you, specifically: Why would you be upset that your purchasing power keeps increasing (assume for the sake of discussion that it does)?

 But right now, bitcoin seems like a quality currency only to those, who have learned about finance from youtube videos.

As opposed to those such as you who have learned about economics from Keynes, Samuelson and Krugman?

Given the choice, I'll take YouTube any day. 

[HeliKopterBen]

We are now seeing the benefits of a fixed-supply currency.  Bad actors are being eliminated.  If bitcoin were a centrally managed currency, then MT gox and possibly other failed exchanges would have been bailed out at the expense of all other users of the system and Mark Karpeles would have been given 10s of thousands of counterfiet BTC for his "handling" of the crisis.  Thankfully, bitcoin doesn't support "To Big To Fail."  The legacy financial system is basically full of propped-up failures.  Most major failed banks in the US would not exist today if the US $ had worked as efficiently as bitcoin does. 

Further, this has initiated another round of innovation.  Cryptographic proof of reserves (https://iwilcox.me.uk/2014/proving-bitcoin-reserves) and voting pools (http://bitcoinism.blogspot.com/2013/12/voting-pools-how-to-stop-plague-of.html) are designed to further reduce trust in people.  This innovation would never happen with a centrally managed currency. 

Cryptocurrency has the potential to almost entirely eliminate trust.  Of course this won't happen overnight and there will undoubtedly be more trials and tribulations along the way.  So far, bitcoin is working as planned.

[Zapffe]

Perhaps there are two disagreements here:

1.  Is a mildly-inflating currency better or worse than a fixed-supply currency?

2.  It is possible to inflate a currency without having to trust a central planner?

The answer to #2 is "YES".  If you modify bitcoin to have a constant % block reward then what you get is a forever-inflating currency.  But if this were the case, we would also know for a fact that the freshly-printed money would go entirely to garbage output (miners will simply consume electricity [natural resources] faster than is required to secure the network).  

So, to have any hope of not wasting the extra money inflation, you must argue that the central planner is not only wiser than the free-market, but vastly wiser to turn a net waste into a net gain.  This is a tenable position in my opinion, and I think the answer to #1 is "WORSE."


Hmm, maybe we can put this into a theorem.  Still half-baked, but here's a start:

Peter R's Theorem on Monetary Inflation for Fully-Adopted Currencies

Money created by a trustless currency by way of inflation goes entirely to exploiting natural resources.  

Corollary #1

An inflating currency that is not provably inferior to its fixed-supply equivalent requires trust in a central planner.

Corollary #2

An inflating currency is superior to its fixed-supply equivalent if and only if the unproveable efficiencies made possible by the wisdom of the central planners outweighs the loss of monetary freedom that placing trust in central planners entails.

1. Inflation could also run with a fixed supply. Fixed supply means that there is no consideration about the present economic situation when regarding money circulation. That there is one unchangeable static rule in which new money is added to the circulation.
It doesn't work in creating a stable currency, because economic growth is not fixed. The availability of important strategic resources like fossil fuels is always changing together with production capacity. The modern finance is built in a way that money changes by following the economy, so the money in circulation is in balance with the economic development. If you keep the money supply static, while the economic growth is dynamic as usual, then the outcome is an unstable currency with constantly changing prices. You could say that people could manage this when there is a new quick IT based system to keep the prices dynamic, but it creates load of unpleasant problems and difficulties, especially with financial planning. Value of currency has to be stable, so it would be predictable and plans could be made based on these predictions.

2. I think that it is certainly possible to create an inflationary currency without a central planner. Like you said before, it could be easily done by just couple of changes from todays cryptos code to create inflation. But what remains, is the fixed supply, that is The difficult problem. I would even give it a try to a stable 1% year deflation, but fixed supply is what would create financial havoc.
I think that the answer for stable inflation vs stable deflation problem isn't very clear because it hasn't been tested in the modern world. But the answer from fixed money supply model vs dynamic supply model isn't hard. Fixed money supply is too simplistic to enable currency value stability in modern global trade.


With bitcoin, the most important flaw isn't deflation per se, but the rate in which deflation is created. Bitcoin was created to have a strong starting momentum, with attracting people to adopt because it will be much harder to adopt later. That is why the supply is 50% coins in 5 years, and the rest in 120 years. I would give bitcoin a chance if the deflation rate wouldn't be this steep, but with this curve it won't ever be an serious financial tool. The first users will adopt because of greed, and the later users won't adopt because of that same greed. It will mostly be a get-rich-quick tool for gamblers, and will be far from being a serious currency.
But I won't get tired of repeating that it doesn't mean that we should laugh at the entire idea. The idea of creating an transparent open sourced monetary system, that is supported by the internet, is a major leap in the evolution of finance. The future will probably bring forward currencies that have the complexities needed to be a quality currency in the world of modern global trade. But the difference between bitcoin and this "future currency", is like between the first digital calculators and todays PCs. If bitcoin can't handle the complexities, then it doesn't mean that no open-sourced digital currency can't do it also.

[anu]

That's what the volatility complaint boils down to as far as I can tell. The question is: Why? Why do people think it is bad that the value of their holdings goes up? People are literally saying that for bitcoin to be able to be used as a currency the price needs to stop increasing. What the hell is that about?

Bad always begs the question: "Bad for who?". Nobody complained so far that the prices for computers went down. If it were bad, the IT industry would be in a deep crisis since the early 60s and we would all suffer from cheap PCs, mobile phones, ABS and ESP in cars....

If you are chin-deep in debt you need prices to go up. So you need to tell everyone that printing more money is good for them.

[ErisDiscordia]

It may be that under historic conditions, deflation does tend to be bad.  Though, I wonder conditions have changed sufficiently to mitigate its historical "badness".  Specifically, I wonder if being able to price goods in real-time helps mitigate deflation's badness.  Is it possible to assess the extent to which the inability to price in real-time affected historical cases of depression from deflation?  Just thinking out loud here. 

Thanks for the question, Proudhon.

For a myth to be adopted by a society, it must have at one point in time been useful.  Between 1700 - 1900, England was on a hard-money standard and price levels over these two centuries were fairly stable (although sometimes volatile).  The "deflation is bad" myth had not yet been adopted¹.

Around the turn of the last century is when the "deflation is bad" myth truly took hold.  Our productive abilities were increasing extremely fast--so much could be produced with so little human input.  We had the factories in place to increase real output Q (from M V = P Q) and the will of the capitalists to push technology forward, but with a fixed-supply currency the only way Q could increase was if P decreased. 

Like you said, we didn't have the internet back then and efficiently communicating real-time prices was difficult.  Q increased only modestly, but since productivity had improved to such an extent, there was less work available an unemployment increased during the Great Depression.  And thus was born the myth that "inflation is good."  The Fed increased the money supply M (by devaluing the dollar vs gold), which allowed Q to reach its potential without the fast drop in P that would have been required due to mankind's rapid advances in productivity.

The first thing the increased Q went to was WWII.  We could produce so much stuff that we had to destroy it in order to keep the people employed!

But this got the people working, validated the "inflation is good" myth, and gave birth to our modern consumer economy.  Our consumer economy is a relic from the Great Depression that says that if we don't consume our resources fast enough then people will lose jobs and will be back in a depression. 

Our "deflation is bad" myth stems from our grandparents' inability to communicate real-time prices in 1933 efficiently enough to just let P fall to where it needed to be. 


¹But already early pioneers in anarchism like your namesake were working towards ways to provided fair access to capital for the people.  Pierre-Joseph Proudhon "unsuccessfully tried to create a national bank, to be funded by what became an abortive attempt at an income tax on capitalists and shareholders...it would have given interest-free loans."  I think Proudhon saw the unrealized potential in the people to increase real output Q if they only had equitable access to money.  [Wikipedia]

Thanks for this Peter - a very insightful post!

I keep wondering about one thing which is being left out of this discussion: divisibility.

Would the scenario of the Great Depression have played out differently, if the money supply possessed infinite divisibility, like Bitcoin? As opposed to the actual gold-backed fiat system that was in place, where you couldn't practically increase M to account for the increase in productivity. I feel like the possibility of infinite divisibility of money really pokes holes into the "deflation is bad" argument.

The modern finance is built in a way that money changes by following the economy, so the money in circulation is in balance with the economic development. If you keep the money supply static, while the economic growth is dynamic as usual, then the outcome is an unstable currency with constantly changing prices.

Since the external factors affecting economic growth are constantly changing (as you say) I think it becomes a choice between:

dynamic growth vs. fixed money supply vs. dynamic prices

and

dynamic growth vs. dynamic money supply vs. fixed prices

Personally I would feel happier with the fixed money supply. It is much easier to fix, for starters. It doesn't even require a human central planner, which can be badly informed and/or corrupted. Also I view prices as signals about how much people value certain things and I like my signals as pure and without distortion as possible. When we are trying to fix prices by managing the money supply (by using unelected central planners!) we don't change the underlying reality the price signals are expressing. But we do distort these signals, which causes all sorts of havoc, colloquially known as "malinvestment".

But if we can assume that most posters here are not part of the establishment, why then are so many people opposed to it? Simple brainwashing? That answer seems a little too easy somehow.

It is an easy answer, but a very potent one. I wouldn't call it brainwashing, though. I call it programming your mental operating system and you can get different versions of it. You may passively accept the programming of your community, of MSM, seek out alternative operating systems or try to learn how to program yourself. Because I assume that most people don't have a high skill level of "self-programming" they are left to choose between the memes that are floating around. And most of these support the currently dominant view that deflation is bad for the economy and what is needed is centrally managed inflation. Many people will have this sort of idea as a starting point and may be reluctant to change it, because they don't find the arguments to do so persuasive. It is a difficult debate, because it involves deeper questions such as "do we want to have perpetual economic growth?".

[counter]

to my understanding bitcoins price usually goes up when there is problems with the current financial markets that are in place.  obviously some speculating but it's more then that to me.

[johnyj]

There is an illusion that goods price should not change over a certain period (price level stability)

This is wrong, because the productivity is increasing all the time and creating more supply and less demand, every goods' value should drop constantly over time. And if you compare many different type of goods, the speed of their depreciation are all different

A currency that is increasing in value over time will reflect that truth more precisely. In another word, there will never be a price level stability if the productivity is improving. So the best currency should be the one with fixed supply, not the one that can keep the price level stable, which is impossible to achieve for all the goods at the same time

[Erdogan]

It may be that under historic conditions, deflation does tend to be bad.  Though, I wonder conditions have changed sufficiently to mitigate its historical "badness".  Specifically, I wonder if being able to price goods in real-time helps mitigate deflation's badness.  Is it possible to assess the extent to which the inability to price in real-time affected historical cases of depression from deflation?  Just thinking out loud here.  

Thanks for the question, Proudhon.

For a myth to be adopted by a society, it must have at one point in time been useful.  Between 1700 - 1900, England was on a hard-money standard and price levels over these two centuries were fairly stable (although sometimes volatile).  The "deflation is bad" myth had not yet been adopted¹.

Around the turn of the last century is when the "deflation is bad" myth truly took hold.  Our productive abilities were increasing extremely fast--so much could be produced with so little human input.  We had the factories in place to increase real output Q (from M V = P Q) and the will of the capitalists to push technology forward, but with a fixed-supply currency the only way Q could increase was if P decreased.  

Like you said, we didn't have the internet back then and efficiently communicating real-time prices was difficult.  Q increased only modestly, but since productivity had improved to such an extent, there was less work available an unemployment increased during the Great Depression.  And thus was born the myth that "inflation is good."  The Fed increased the money supply M (by devaluing the dollar vs gold), which allowed Q to reach its potential without the fast drop in P that would have been required due to mankind's rapid advances in productivity.

The first thing the increased Q went to was WWII.  We could produce so much stuff that we had to destroy it in order to keep the people employed!

But this got the people working, validated the "inflation is good" myth, and gave birth to our modern consumer economy.  Our consumer economy is a relic from the Great Depression that says that if we don't consume our resources fast enough then people will lose jobs and will be back in a depression.  

Our "deflation is bad" myth stems from our grandparents' inability to communicate real-time prices in 1933 efficiently enough to just let P fall to where it needed to be.  


¹But already early pioneers in anarchism like your namesake were working towards ways to provided fair access to capital for the people.  Pierre-Joseph Proudhon "unsuccessfully tried to create a national bank, to be funded by what became an abortive attempt at an income tax on capitalists and shareholders...it would have given interest-free loans."  I think Proudhon saw the unrealized potential in the people to increase real output Q if they only had equitable access to money.  [Wikipedia]

I offer an alternative view ( or maybe additional): After the world war I, some countries (USA) declared redeemability at prewar par. England did the same in 1925. This was a major pain, as prices did not adjust accordingly and there were problems with trade balance and unemployment.

Whether this was real or not, can be discussed. A producer will always whine at price reductions of his produce, when the proper reaction should be to strive to be the best, or leave the business. But a producer always have some argument power, and the producers of labour also have violent unions or unions backed by government violence.

There is also the poor/rich divide, where the poor are those who hold money or assets enumerated in the money unit, while the rich have estates and factories and therefore are pro devaluation, and presumably the rich have more political power.

Or understanding. Even now, people I speak to, who save in money and has not yet bought a house, don't care about inflation as long as their wages go up accordingly, even if it goes counter to their interests.

[Erdogan]

This underscores also the magnificent, number one, above all other traits of bitcoin: The fact that it can not be inflated. Even under the traditional gold standard, where fiat is redeemable and backed, there are always 1. the political discussion of being on the gold standard, and 2. the question of the actual volume of the backing reserves. It is always tempting to print more than the reserves, as it has a small immediate effect on prices, and there are always plenty of crises to justify it.

[Zapffe]

Since the external factors affecting economic growth are constantly changing (as you say) I think it becomes a choice between:

dynamic growth vs. fixed money supply vs. dynamic prices

and

dynamic growth vs. dynamic money supply vs. fixed prices

Personally I would feel happier with the fixed money supply. It is much easier to fix, for starters. It doesn't even require a human central planner, which can be badly informed and/or corrupted. Also I view prices as signals about how much people value certain things and I like my signals as pure and without distortion as possible. When we are trying to fix prices by managing the money supply (by using unelected central planners!) we don't change the underlying reality the price signals are expressing. But we do distort these signals, which causes all sorts of havoc, colloquially known as "malinvestment".

It would certainly be easier to handle, if there is no handling and money could just run with a fixed rate. Corruption of the central planners is a serious issue, but that could be fixed if people would actually spend more then 5 minutes to do research on who will they elect for the public office. Corruption isn't caused by economic philosophy, but rather by intellectual development of the general society.

But still, it's more efficient to have a central planner, and to have a dynamic supply rate. If supply rate isn't regulated to cause price stability, then it would cause you a lot of problems if you are in finance or even if you're an entrepreneur. When doing prognosis, then you have to calculate in the possible inflation (or deflation for that matter). When the inflation rate is stable, then you can create more solid prognosis and predict the needed numbers. With fixed supply and unstable value of money, you can never be sure which way will it go next year, or even next month. Doing business will be more of an lottery, and that's not a good thing. It's not good when competition is decided by luck, not by competence.
To me, saying that the modern monetary system would do better without centralization, is like saying that an symphony orchestra would do better without a conductor, or an football team would do better without a captain. We don't have to change the system, we have to change the people who have control over the system. People will always be in charge, and it's a good thing. Machines automate our work, but the major choices still come from the people. We don't need an Terminator 2/I, Robot type of scenario where some A.I. takes over society. Leadership still needs heart and common sense that only humans can offer. Don't blame the system, but blame yourself for not caring enough for electing the right people to lead the system.

There is an illusion that goods price should not change over a certain period (price level stability)

This is wrong, because the productivity is increasing all the time and creating more supply and less demand, every goods' value should drop constantly over time. And if you compare many different type of goods, the speed of their depreciation are all different

A currency that is increasing in value over time will reflect that truth more precisely. In another word, there will never be a price level stability if the productivity is improving. So the best currency should be the one with fixed supply, not the one that can keep the price level stable, which is impossible to achieve for all the goods at the same time

Goods price drops in a normal matter if you are dealing with an technological product. Then the speed of technological development will cause intense competition, and products soon become obsolete. This is the price of technological development.
But there are also resources thats extraction rate and demand growth is quite stable and predictable. The important thing is to let money follow these resources, so they would give money the same stability. Gold was a good resource for that, but it became too unstable because of the strong speculative attraction and lack of regulations. Oil was good for some time, until the price started to depend too much on the outcomes of wars, that also caused a lot of speculation and instability. I think that the future is agricultural products because of their rising importance. The phrase "bitcorn" wasn't as much as funny to me, as it was farsighted.

[billyjoeallen]

There's some confusion, but deflation is not bad in and of itself. It is a symptom/consequence of certain bad economic conditions, such as the liquidity in a market drying up. Sometimes deflation occurs when new technology such as mass production simply means products and services are less expensive and more available.

A currency that increases in value encourages savings and capital formation, which leads to increased productivity and less wasteful and environmentally harmful consumerism.

[Erdogan]

[...]
But still, it's more efficient to have a central planner, and to have a dynamic supply rate. If supply rate isn't regulated to cause price stability, then it would cause you a lot of problems if you are in finance or even if you're an entrepreneur. When doing prognosis, then you have to calculate in the possible inflation (or deflation for that matter). When the inflation rate is stable, then you can create more solid prognosis and predict the needed numbers. With fixed supply and unstable value of money, you can never be sure which way will it go next year, or even next month. Doing business will be more of an lottery, and that's not a good thing. It's not good when competition is decided by luck, not by competence.
[...]

Here you propose that the inflation rate (of prices) can be stable. But if it is, it is just a matter of computation to convert from a zero inflation rate to some positive inflation. To suggest that people can be fooled into spending, or workers fooled into believing that the value of their wages don't go down when they are nominally fixed, is foolish, and an expression of a master mentality.

Even if it is theoretically possible to have a stable inflation rate (in prices) or a zero inflation rate, it is not possible in practice, because 1. the point of the whole thing is making it unpredictable, to shake out those calculating with a stable inflation, 2. it is counter to the interest of the elite, 3. there is always a crisis that needs to be curtailed with printing and 4. even with the best intentions, it is difficult, after an expansion, to tax more only to rein in the extra fiat.

A zero inflation rate (in money supply) does not necessarily imply unstable prices. The typical seasonal demand variations for money can be countered with temporary expansion in private credit level between firms in the different production stages. A general increase in the savings rate should lead to price reductions (including interest), also increased productivity should lead to price reductions. A natural disaster destroying vast volumes of capital and consumer goods, should lead to a price increase.

An increase or reduction of population will effect prices, unessesarily maybe, but it doesn't matter, because it is known to everybody and they can adjust.


 

[Zapffe]

[...]
But still, it's more efficient to have a central planner, and to have a dynamic supply rate. If supply rate isn't regulated to cause price stability, then it would cause you a lot of problems if you are in finance or even if you're an entrepreneur. When doing prognosis, then you have to calculate in the possible inflation (or deflation for that matter). When the inflation rate is stable, then you can create more solid prognosis and predict the needed numbers. With fixed supply and unstable value of money, you can never be sure which way will it go next year, or even next month. Doing business will be more of an lottery, and that's not a good thing. It's not good when competition is decided by luck, not by competence.
[...]

Here you propose that the inflation rate (of prices) can be stable. But if it is, it is just a matter of computation to convert from a zero inflation rate to some positive inflation. To suggest that people can be fooled into spending, or workers fooled into believing that the value of their wages don't go down when they are nominally fixed, is foolish, and an expression of a master mentality.

Even if it is theoretically possible to have a stable inflation rate (in prices) or a zero inflation rate, it is not possible in practice, because 1. the point of the whole thing is making it unpredictable, to shake out those calculating with a stable inflation, 2. it is counter to the interest of the elite, 3. there is always a crisis that needs to be curtailed with printing and 4. even with the best intentions, it is difficult, after an expansion, to tax more only to rein in the extra fiat.

A zero inflation rate (in money supply) does not necessarily imply unstable prices. The typical seasonal demand variations for money can be countered with temporary expansion in private credit level between firms in the different production stages. A general increase in the savings rate should lead to price reductions (including interest), also increased productivity should lead to price reductions. A natural disaster destroying vast volumes of capital and consumer goods, should lead to a price increase.

An increase or reduction of population will effect prices, unessesarily maybe, but it doesn't matter, because it is known to everybody and they can adjust.


 

What I was talking about, was that with dynamic money supply, the prices and the inflation rate are a lot more stable then they would be with fixed supply. Decent companies also have an stable system for salary raises, to both rewards workers and to take inflation into consideration. You are blaming the faults of the greedy entrepreneurs on the system.

There is no such thing as perfect stability, and I have never claimed that there is one. I just compared two models and brought out the one that has more stability.
If the money supply will be static, then money will be much more attractive to speculative play, and the value of money will be dictated by the market leaders, who can manipulate it according to their choosing.
It's still funny to see how the same people who often present themselves as "anti-establishment" or "anti-Fed", are mostly also in favor of ultra-liberal views of Greenspan, who was actually to blame for messing up Fed together with US finance. Bernanke has just been a loyal dog who follows the same trail that Greenspan put in motion. The trail where money regulation is trusted in the hands of the private sector without the supervision or restrictions from Fed itself. This has caused the US to go into a growing bubble that is on the verge on popping. You can't just let the mob run wild without any central leadership. A person is smart, but the mob is dumb, greedy and without perception of limits.

[ErisDiscordia]

Corruption of the central planners is a serious issue, but that could be fixed if people would actually spend more then 5 minutes to do research on who will they elect for the public office.

We don't have to change the system, we have to change the people who have control over the system.

Don't blame the system, but blame yourself for not caring enough for electing the right people to lead the system.

These are sentiments admirable in its optimism - even for me, a self-proclaimed incorrigible optimist!

I disagree very strongly with them, though. I don't think exchanging people at the top of the pyramid would help. We have tried this many times, after all, but somehow we always seem to end up with the "wrong" and corrupt people up there, if only there was a way to vote in the right people...

No, the problem, to me, seems to be with the system itself, its centralized nature in particular. Even if intelligent people of good will find themselves in the seats of power, they have many obstacles to overcome if they want to steer the system in a way beneficial to many. Obstacles like:

1) power corrupts. And if they don't get seduced by its promises, they can be blackmailed by those who would like to keep the status quo
2) power attracts the corrupted - a corollary to the above point. This increases the likelihood of the "wrong people" finding themselves in power.
3) information flow in centralized systems has poor efficiency due to the absence of effective feedback mechanisms. This might be the most important one. Even if people of good will sincerely work for the benefit of all, the information they base their decisions on is mostly crap, because it gets filtered through the prejudices of those in the line of command before it reaches the person(s) in charge of decision-making.
4) centralized points of failure (even, or maybe especially in decision-making) make the system more fragile, more dependent on the people in charge. Also they amplify bad decisions. A single household making bad financial decisions is sad. A whole country doing so is catastrophic.

Besides, the antithesis to centralization is decentralization, not centralization with machines in charge (as opposed to humans). Based on historical data and current technological development I feel like the changing/dismantling of the current system has better chances of bringing about positive change than exchanging the people in charge of said system. I'm not sure if that is even possible, surely we don't imagine the politicians who we are allowed to vote for, to be actually in charge of the most important decisions?

EDIT:

It's still funny to see how the same people who often present themselves as "anti-establishment" or "anti-Fed", are mostly also in favor of ultra-liberal views of Greenspan, who was actually to blame for messing up Fed together with US finance. Bernanke has just been a loyal dog who follows the same trail that Greenspan put in motion. The trail where money regulation is trusted in the hands of the private sector without the supervision or restrictions from Fed itself. This has caused the US to go into a growing bubble that is on the verge on popping.

well, what else do we want to call the consortium of the FED and the big commercial banks if not "the establishment"? It's not like during the Greenspan years the government was suddenly completely uninvolved in financial markets. As you are surprised about the view of some people, I find myself surprised how people can point to the 90s and 2000s and say: "see the free market has failed!" - after which I scratch my head and wonder "what free market?". I would expect the participants of a free market to fail if they behaved like the big banks did. But they didn't, they were propped up and zombified by the government. Now we can wait for a while, pretend that everything is OK, until the whole system implodes, whereas we had the option of just letting bad players implode - just like with Gox. Now there is a much freer market at work and see what is happening? No one is getting bailed out, people are hurting from it...and with no one but themselves to blame and no Big Brother to turn to for protection they are actually starting to take responsibility into their own hands and demanding stuff like proof of reserves and liquidity under threat of not doing business with companies unwilling to provide them. Now THAT is how you improve a system. You let the bad parts, ideas and investments fail while they are still of little consequence, before their failure can turn into systemic risks.

[Zapffe]

Corruption of the central planners is a serious issue, but that could be fixed if people would actually spend more then 5 minutes to do research on who will they elect for the public office.

We don't have to change the system, we have to change the people who have control over the system.

Don't blame the system, but blame yourself for not caring enough for electing the right people to lead the system.

These are sentiments admirable in its optimism - even for me, a self-proclaimed incorrigible optimist!

I disagree very strongly with them, though. I don't think exchanging people at the top of the pyramid would help. We have tried this many times, after all, but somehow we always seem to end up with the "wrong" and corrupt people up there, if only there was a way to vote in the right people...

No, the problem, to me, seems to be with the system itself, its centralized nature in particular. Even if intelligent people of good will find themselves in the seats of power, they have many obstacles to overcome if they want to steer the system in a way beneficial to many. Obstacles like:

1) power corrupts. And if they don't get seduced by its promises, they can be blackmailed by those who would like to keep the status quo
2) power attracts the corrupted - a corollary to the above point. This increases the likelihood of the "wrong people" finding themselves in power.
3) information flow in centralized systems has poor efficiency due to the absence of effective feedback mechanisms. This might be the most important one. Even if people of good will sincerely work for the benefit of all, the information they base their decisions on is mostly crap, because it gets filtered through the prejudices of those in the line of command before it reaches the person(s) in charge of decision-making.
4) centralized points of failure (even, or maybe especially in decision-making) make the system more fragile, more dependent on the people in charge. Also they amplify bad decisions. A single household making bad financial decisions is sad. A whole country doing so is catastrophic.

Besides, the antithesis to centralization is decentralization, not centralization with machines in charge (as opposed to humans). Based on historical data and current technological development I feel like the changing/dismantling of the current system has better chances of bringing about positive change than exchanging the people in charge of said system. I'm not sure if that is even possible, surely we don't imagine the politicians who we are allowed to vote for, to be actually in charge of the most important decisions?

"We have tried many times" is a weak excuse in my book. Most of the people are illusioned that they have to choose from the choice that is presented to them. "But he looked like a good guy on TV" isn't exactly research on the electee. The right people are mostly the ones that are not promoted through the media. They are the ones who you can value, only after reading their thoughts and looking at their history in-depth. If more people would vote like this, then there wouldn't be the problems that have been addressed in this topic.

From all the virtues that todays generation lacks, the lack of responsibility sticks out the most. People always find an abstract system, or some unknown dark forces to blame for the things that are happening around them. Only few are able to realize that we, the people, are the ones who are causing all of this with our lack of care and responsibility.

Yes, power can corrupt and power does attract the corrupted, but it's the job of the Good Guys to beat the Bad Guys. Whether you like it or not, but human beings have a lot on common with animals, and specifically with herd animals. If the herd is without proper leadership, then the herd isn't competitive in relation to other herds. The heard will be weaker and less capable of progression. Humans also derive from social group animals, who have the same rules of typical herd mentality. There are always the strong who stand out and there are always the weak who will instinctively start to follow the strong. You could also be the lone wolf, but every hunter knows what eventually happens to these lone wolves without a pack.

[Erdogan]

[...]
But still, it's more efficient to have a central planner, and to have a dynamic supply rate. If supply rate isn't regulated to cause price stability, then it would cause you a lot of problems if you are in finance or even if you're an entrepreneur. When doing prognosis, then you have to calculate in the possible inflation (or deflation for that matter). When the inflation rate is stable, then you can create more solid prognosis and predict the needed numbers. With fixed supply and unstable value of money, you can never be sure which way will it go next year, or even next month. Doing business will be more of an lottery, and that's not a good thing. It's not good when competition is decided by luck, not by competence.
[...]

Here you propose that the inflation rate (of prices) can be stable. But if it is, it is just a matter of computation to convert from a zero inflation rate to some positive inflation. To suggest that people can be fooled into spending, or workers fooled into believing that the value of their wages don't go down when they are nominally fixed, is foolish, and an expression of a master mentality.

Even if it is theoretically possible to have a stable inflation rate (in prices) or a zero inflation rate, it is not possible in practice, because 1. the point of the whole thing is making it unpredictable, to shake out those calculating with a stable inflation, 2. it is counter to the interest of the elite, 3. there is always a crisis that needs to be curtailed with printing and 4. even with the best intentions, it is difficult, after an expansion, to tax more only to rein in the extra fiat.

A zero inflation rate (in money supply) does not necessarily imply unstable prices. The typical seasonal demand variations for money can be countered with temporary expansion in private credit level between firms in the different production stages. A general increase in the savings rate should lead to price reductions (including interest), also increased productivity should lead to price reductions. A natural disaster destroying vast volumes of capital and consumer goods, should lead to a price increase.

An increase or reduction of population will effect prices, unessesarily maybe, but it doesn't matter, because it is known to everybody and they can adjust.


 

What I was talking about, was that with dynamic money supply, the prices and the inflation rate are a lot more stable then they would be with fixed supply. Decent companies also have an stable system for salary raises, to both rewards workers and to take inflation into consideration. You are blaming the faults of the greedy entrepreneurs on the system.

There is no such thing as perfect stability, and I have never claimed that there is one. I just compared two models and brought out the one that has more stability.
If the money supply will be static, then money will be much more attractive to speculative play, and the value of money will be dictated by the market leaders, who can manipulate it according to their choosing.
It's still funny to see how the same people who often present themselves as "anti-establishment" or "anti-Fed", are mostly also in favor of ultra-liberal views of Greenspan, who was actually to blame for messing up Fed together with US finance. Bernanke has just been a loyal dog who follows the same trail that Greenspan put in motion. The trail where money regulation is trusted in the hands of the private sector without the supervision or restrictions from Fed itself. This has caused the US to go into a growing bubble that is on the verge on popping. You can't just let the mob run wild without any central leadership. A person is smart, but the mob is dumb, greedy and without perception of limits.

If you have a market based interest rate, the wider money supply (including some forms of credit) will be dynamic, but adjust according to the demand for money.

Greenspan is ultra-liberal? That is a new one. An elitist, pretending to not understand money, pretending to not understand the destructive forces of monetarism, pretending that central planning is capitalism, and pretending to not see the absurdity that is the government colluding with big firms. That is how I describe him.

[ErisDiscordia]

"We have tried many times" is a weak excuse in my book.

Don't get me wrong, I'm not suggesting to stop trying, just because we have failed so many times already. Even though I'm sure you've heard about Einsteins famous definition of insanity...

As long as the door is open for the testing of alternatives, which have never been tried before it's all fine with me. And we do have alternatives which have been unavailable due to insufficient cultural or technological development for most of history. Like Bitcoin. We should keep trying these as well, maybe even with a priority. Just in case electing the right people won't work again, or maybe we come up with some better solutions during the process

From all the virtues that todays generation lacks, the lack of responsibility sticks out the most. People always find an abstract system, or some unknown dark forces to blame for the things that are happening around them. Only few are able to realize that we, the people, are the ones who are causing all of this with our lack of care and responsibility.

Yes, I agree that as a generation and culture in general we behave very irresponsibly. Towards the environment, each other and even ourselves - just look at the amount of obese, or otherwise unhealthy people. I feel this is a cultural problem, though. Many of us don't take personal responsibility for our choices. This then extends into politics and we end up in a situation in which people don't feel the personal responsibility to help their financially struggling neighbor, the homeless person, to educate their own children and look after their own health. After all, we have now delegated the responsibility to "the system". We have health insurance, public schools, social security programs and supposed professionals with our best interests in mind running these things. And the way to take responsibility becomes doing research on candidates for public office and campaigning to vote them in - maybe running yourself for office. I'd like to see more direct responsibility. A culture where we don't just avert our eyes from the beggar and mutter some complaint about how the system isn't taking care of him, but feel the sting of personal responsibility upon such a sight.

I agree that just blaming "the system" or some conspiracy is an easy cop-out of your responsibility. But delegating that responsibility to a centralized institution and consider it done is just a tiny step from that.

Whether you like it or not, but human beings have a lot on common with animals, and specifically with herd animals. If the herd is without proper leadership, then the herd isn't competitive in relation to other herds. The heard will be weaker and less capable of progression. Humans also derive from social group animals, who have the same rules of typical herd mentality. There are always the strong who stand out and there are always the weak who will instinctively start to follow the strong. You could also be the lone wolf, but every hunter knows what eventually happens to these lone wolves without a pack.

Yes we have animal intelligence. But that is not all we have. We seem to have several layers of intelligence going from basic biological survival reflexes, through animal social intelligence, towards symbolic intelligence (ability to manipulate symbols), another layer of moral intelligence (animal intelligence is not sufficient for the level of complexity of our society) and several suspected further levels of intelligence.

The symbolic intelligence, which is the source of scientific breakthrough and technological innovation produces a rapid, exponential accumulation of knowledge and thus potential for change. The moral social intelligence is forever lagging to account for new technology shaping the environment we live in and for new scientific paradigms shaping the way we perceive the world. You could say that while the symbolic intelligence is concerned with interpreting symbols (what things are), the moral intelligence is concerned with what things should be - and making rules around that.

This is a roundabout way of saying that we should probably expect to evolve further away from animal-like forms of organizations as time passes.

Enjoying the gentlemanly discussion!

[ErisDiscordia]

Seems these thoughts are just floating in the air atm. This just came up on reddit - it's Alan Watts talking in the 60ties and he might as well be speaking to us in this thread right now, because he is discussing the exact same things we are.

https://www.youtube.com/watch?v=c7tlaF3dv_M&feature=youtu.be&t=12m35s

[erizo]

Greetings to all!. I think this discussion is focusing on what type of currency is good for the economy, but perhaps it is better to think what kind of currency is best for us   For example gold exists as a store of value, yes, but it is universally accepted as means of payment, regardless of economic disputes about how good or bad the gold standard. I think Fiat currencies and BTC can coexist.

's An idea: why not a currency with price stability? The process of mining could check the price on gold (indirectly, through another fiat currency), and when the cryptocurrency come down to a certain point, add a delay of a few days (15 or 30 days, for example) to a certain percentage of every transaction in progress, to decrease the usable money supply, increasing the price of the currency.

But if the price goes, a certain point relative to gold, it shall release the retained transactions, in order of highest antiquity, thus increasing the money supply to lower the value of the cryptocurrency.

What do you think?

[Erdogan]

Greetings to all!. I think this discussion is focusing on what type of currency is good for the economy, but perhaps it is better to think what kind of currency is best for us   For example gold exists as a store of value, yes, but it is universally accepted as means of payment, regardless of economic disputes about how good or bad the gold standard. I think Fiat currencies and BTC can coexist.

's An idea: why not a currency with price stability? The process of mining could check the price on gold (indirectly, through another fiat currency), and when the cryptocurrency come down to a certain point, add a delay of a few days (15 or 30 days, for example) to a certain percentage of every transaction in progress, to decrease the usable money supply, increasing the price of the currency.

But if the price goes, a certain point relative to gold, it shall release the retained transactions, in order of highest antiquity, thus increasing the money supply to lower the value of the cryptocurrency.

What do you think?

I think there is already an altcoin pegged to a basket of commodities. It is an interesting experiment, because you could inflate the supply to everyone proportionally to their holdings, and deflate the supply also from everybody proportionally to their holdings. With current fiat, new money goes to the elite, and reduction, if possible at all, has to come in by extra taxation.

Still, the the value of the backing stuff is hard to define, the timing of expansion and contraction of supply could lead to speculation, just like with bitcoin, and it is centralized (someone has to decide). I don't think it is feasable, nor necessary. Bitcoin does the job.