Keynesian economists have stated that a deflationary currency, one which increases in purchasing power relative to other goods over time, is inherently negative for an economy because it creates a financial ecosystem which entices individuals and businesses to save money rather than using it to create jobs and invest in companies. They claim that a deflationary currency incentivizes the individual to adopt a buy and hold strategy because they know it will be worth more tomorrow than it is today. This is often referred to as hoarding and it can lead to lower interest rates and increase long term investments. In doing so, this decreases the velocity of money in the economy, or the speed at which units of money change hands. In a healthy economy, a high velocity of money is a very good thing, so a decrease in velocity would be unfavorable. Because the monetary base of bitcoin cannot be expanded, the currency would be subject to severe deflation, and this is something which we have seen to be true thus far.
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Austrian school of thought counters the idea that deflation is inherently negative, claiming that as deflation occurs in all stages of production, entrepreneurs who invest benefit from it. As a result, profit ratios tend to stay the same and only their magnitudes change. In other words, in a deflationary environment, goods and services decrease in price, but at the same time the cost for the production of these goods and services tend to decrease proportionally, effectively not affecting profits.
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