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Bitcoin reminds me a lot of monetarism, where the thinking goes to increase the money supply at the same rate as that of productivity: https://en.wikipedia.org/

Bitcoin reminds me a lot of monetarism, where the thinking goes to increase the money supply at the same rate as that of productivity: https://en.wikipedia.org/wiki/Monetarism https://en.wikipedia.org/wiki/Monetarism I'm not a huge believer in monetarism. It pretty much precludes all aspects of monetary policy save growing the money supply to influence the economy. I think Bernanke and the policy of quantitative easing played a crucial role during the 2008 financial crisis, along with TARP and ARRA, and that would not have been possible if the U.S. dollar physically obeyed the properties of Bitcoin. A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?

tdhz77 8y ago
I'm in agreeance here. Using bitcoin takes away a lot of financial tools. The Federal Reserve has a purpose and a responsibility, using bitcoin would send us backwards not forwards.
- sauwan 8y ago
  Regardless of the correctness of that, does it matter? If people begin to adopt crypto as a currency, what can be done about it?
  - Nursie 8y ago
    Even cryptocurrency enthusiasts aren't using 'crypto' as a currency, outside of a few niches like black market drug sales, they're using it as a sort of speculative commodity.
  - dmitriid 8y ago
    People using cryptocurrency will rediscover and re-invent all the institutions that are required to run an economy and have a currency: banks, regulations, courts, enforcement, proof of identity...
- kneel 8y ago
  It's perfectly reasonable to use both fiat and cryptocurrencies. If you don't agree with the federal reserve policy or a politician's short-sightedness, you have an alternative.
  - seppin 8y ago
    Central Banks are independent from politics for a reason.
    - theseatoms 8y ago
      That "independence" is a fast-dissolving illusion.
- theseatoms 8y ago
  > using bitcoin would send us backwards not forwards. This statement strongly implies that the US (and global) monetary situation is headed in a good, positive direction for human flourishing.
- monsterbash506 8y ago
  We already have the equivalent of a central bank for cryptocurrency, it's called Maker and it controls the "price" of Ethereum via interest rates.
deleted 8y ago
[deleted]
xiphias2 8y ago
Business cycles are the effect of under/overinvestments. With Bitcoin it's much harder to get a loan with near-0 interest rates, as money can't be printed out of thin air. The banks would have a real risk of not getting back their investment when they would be lending, so they would be forced to be much more conservative. The power would shift to angel investors, who use their own money to invest in / lend to businesses.
- Nursie 8y ago
  > With Bitcoin it's much harder to get a loan with near-0 interest rates, as money can't be printed out of thin air. But a new cryptocurrency can be. The network effect is literally all a specific chain has going for it. Though of course with an 'official' chain that's not the case.
  - xiphias2 8y ago
    Sure, you can create a currency which can have bail outs by having a magic private key for yourself, just like how central banks work right now. Good luck getting other people to use that currency though :)
    - rrdharan 8y ago
      Isn't that exactly what ethereum eventually demonstrated via the DAO fork? The core developer team effectively wields this power, but people still seem to be using their currency.
      - throwawaylolx 8y ago
        Yes, people use central banks as well. However, if you want to opt-out of centralized control, you have the option to use Bitcoin instead of fiat, Ethereum, or any other coin that had an ICO.
      - xiphias2 8y ago
        Ethereum has very different philosophy (just as an example it's supposed to be an universal computer, not a cryptocurrency). I'm in the Bitcoin camp, and I think that the Ethereum developers are not careful enough with the changes they make to a multibillion dollar system, but you are right, many people like to use it.
throwawaylolx 8y ago
But monetarism is directly opposed to Bitcoin-like monetary policies?
duxup 8y ago
That and the big concern about QE was the impending inflation that was going to happen, and then anytime now and ... then didn't. Those tools seem not just powerful, but at times have had limited side effects that folks who don't like them insist will happen. I wouldn't go swinging those tools for no reason or for little cause, but they seem effective.
- briatx 8y ago
  > QE was the impending inflation that was going to happen QE backstopped the inflation that already happened during the credit boom. By supporting housing prices (and other associated bad debt) they essentially prevented a deflationary spiral, which one could think of as an unwinding of inflation. End result: ever higher housing prices and generally stagnant incomes. It's a complex topic and a deflationary spiral was probably worse for the economy, but QE did affect inflation.
mikeash 8y ago
Can we get some real world input on your thought experiment by looking at how past economies behaved while on the gold standard, at least during periods where mining production wasn’t too high?
crumpets 8y ago
>A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Similar to how it behaved during the gold-backed dollar era. "Money shortages" were a thing often leading to market corrections during the early 1900s. This book references it several times: https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera...
short_sells_poo 8y ago
> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. No wonder economists have such a bad reputation about forecasts :D. It's almost a question of religion. My gut feeling is the following: Outside of an isolated economy, the bitcoin economy would be rapidly buried by other economies that can inflate their money supply at will. Even with boom and bust cycles, the bitcoin economy is unlikely to survive competing with a China like entity who will just fuel their own expansion with debt until the bitcoin economy is in the toilet. In case of an isolated economy, it would eventually start to stagnate as cash becomes an appreciating asset that is better to hoard than invest. Taken ad absurdum, you'd end up with a completely dead economy with a small handful of hoarders sitting on all the cash. Of course, in the real world there'd have been a revolution long before, since people can't eat coins and eventually people would resort to barter and most likely a new fiat currency would emerge naturally.
- oblomovshchina 8y ago
  >Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. You could model it by building a popular MMO around it, I'm sure.
- stcredzero 8y ago
  Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. No wonder economists have such a bad reputation about forecasts :D. It's almost a question of religion. My gut feeling is the following... Same thing could be said of questions of software methodology. Most decisions are made on the basis of "gut feelings."
DennisP 8y ago
Probably with a greater emphasis on equity finance rather than loans; i.e. ICOs but with better regulation than people assumed in 2017. That way you're essentially growing the money supply much like the current system does with loans. This would also be somewhat similar to Hayek's ideas about competing private currencies.
karpodiem 8y ago
"A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?" The same way money has existed for thousands of years but without the kick the can down the road of debt crushing future generations that has been a post WW2 global economic phenomenon? When the currency collapses or a new currency is put forth, then you will know the power of Bitcoin. "But MUH bitcoin hodlers who don't have electricity in Venezuela, what good did Bitcoin do them?" Ask the ones who were 1) smart enough to hold Bitcoin 2) Left Venezuela if they preferred to leave with A) Cash B) Gold or C) Bitcoin when they left.
ucaetano 8y ago
> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Terribly. Bitcoin is by design deflationary, which creates an incentive to maintain currency under the mattress. This is accentuated by the fact that bitcoin can't be used in fractional-reserve-banking. This means that there is little accumulated capital available to borrow and invest. It also means that any investment would need higher returns than the expected appreciation of a bitcoin, which might set a very high bar for investments, making raising capital nearly impossible. Today, in most open economies, nobody controls the supply of money, it is increased and decreased dynamically by the market according to supply and demand and to maintain a certain level of risk on the banking system (with some adjustments from the central bank).
- theseatoms 8y ago
  > which creates an incentive to maintain currency under the mattress. Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money. > Today, in most open economies, nobody controls the supply of money, ... With all due respect, this is demonstrably false. The Federal Reserve and its member banks control the supply of money.
  - AznHisoka 8y ago
    "Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money." I love this comment. Everyone just blindly says "People will put money in their mattress. Economy will go down" and then it's case closed.. but then what happens next? They just won't buy food? water? won't go to the mall? They just stay at home and hunker down? They won't even be watching entertainment since they won't be paying for a Netflix subscription too, apparently.
    - luckydata 8y ago
      It's not like it never happened before. Just read up on the great depression and you'll get an idea.
moduspol 8y ago
> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? A perhaps better comparison would be to "cryptocurrencies" instead of Bitcoin itself. Bitcoin is, by design, deflationary, but not all cryptocurrencies have to be, and once the infrastructure for widespread Bitcoin use is in place, it will be quite easy to support other cryptocurrencies. I'd be more interested in what an economy would look like when people can choose which currency to hold and spend while payment processors abstract away the rough edges (e.g. price anchoring, conversion) around accepting different cryptocurrencies. For example, if virtually all PoS systems in the US could handle both USD and Bitcoin, would virtually everyone choose to stick with USD? Or not? What if they also accepted Ethereum, Litecoin, Nano, and other crypto? And how would that economy behave during a boom/bust cycle? Or during hyperinflation like in Venezuela?

tdhz77 8y ago

I'm in agreeance here. Using bitcoin takes away a lot of financial tools. The Federal Reserve has a purpose and a responsibility, using bitcoin would send us backwards not forwards.

sauwan 8y ago
Regardless of the correctness of that, does it matter? If people begin to adopt crypto as a currency, what can be done about it?
- Nursie 8y ago
  Even cryptocurrency enthusiasts aren't using 'crypto' as a currency, outside of a few niches like black market drug sales, they're using it as a sort of speculative commodity.
- dmitriid 8y ago
  People using cryptocurrency will rediscover and re-invent all the institutions that are required to run an economy and have a currency: banks, regulations, courts, enforcement, proof of identity...
kneel 8y ago
It's perfectly reasonable to use both fiat and cryptocurrencies. If you don't agree with the federal reserve policy or a politician's short-sightedness, you have an alternative.
- seppin 8y ago
  Central Banks are independent from politics for a reason.
  - theseatoms 8y ago
    That "independence" is a fast-dissolving illusion.
theseatoms 8y ago
> using bitcoin would send us backwards not forwards. This statement strongly implies that the US (and global) monetary situation is headed in a good, positive direction for human flourishing.
monsterbash506 8y ago
We already have the equivalent of a central bank for cryptocurrency, it's called Maker and it controls the "price" of Ethereum via interest rates.

deleted 8y ago

[deleted]

xiphias2 8y ago

Business cycles are the effect of under/overinvestments. With Bitcoin it's much harder to get a loan with near-0 interest rates, as money can't be printed out of thin air. The banks would have a real risk of not getting back their investment when they would be lending, so they would be forced to be much more conservative. The power would shift to angel investors, who use their own money to invest in / lend to businesses.

Nursie 8y ago
> With Bitcoin it's much harder to get a loan with near-0 interest rates, as money can't be printed out of thin air. But a new cryptocurrency can be. The network effect is literally all a specific chain has going for it. Though of course with an 'official' chain that's not the case.
- xiphias2 8y ago
  Sure, you can create a currency which can have bail outs by having a magic private key for yourself, just like how central banks work right now. Good luck getting other people to use that currency though :)
  - rrdharan 8y ago
    Isn't that exactly what ethereum eventually demonstrated via the DAO fork? The core developer team effectively wields this power, but people still seem to be using their currency.
    - throwawaylolx 8y ago
      Yes, people use central banks as well. However, if you want to opt-out of centralized control, you have the option to use Bitcoin instead of fiat, Ethereum, or any other coin that had an ICO.
    - xiphias2 8y ago
      Ethereum has very different philosophy (just as an example it's supposed to be an universal computer, not a cryptocurrency). I'm in the Bitcoin camp, and I think that the Ethereum developers are not careful enough with the changes they make to a multibillion dollar system, but you are right, many people like to use it.

throwawaylolx 8y ago

But monetarism is directly opposed to Bitcoin-like monetary policies?

duxup 8y ago

That and the big concern about QE was the impending inflation that was going to happen, and then anytime now and ... then didn't. Those tools seem not just powerful, but at times have had limited side effects that folks who don't like them insist will happen. I wouldn't go swinging those tools for no reason or for little cause, but they seem effective.

briatx 8y ago
> QE was the impending inflation that was going to happen QE backstopped the inflation that already happened during the credit boom. By supporting housing prices (and other associated bad debt) they essentially prevented a deflationary spiral, which one could think of as an unwinding of inflation. End result: ever higher housing prices and generally stagnant incomes. It's a complex topic and a deflationary spiral was probably worse for the economy, but QE did affect inflation.

mikeash 8y ago

Can we get some real world input on your thought experiment by looking at how past economies behaved while on the gold standard, at least during periods where mining production wasn’t too high?

crumpets 8y ago

>A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Similar to how it behaved during the gold-backed dollar era. "Money shortages" were a thing often leading to market corrections during the early 1900s. This book references it several times: https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera...

short_sells_poo 8y ago

> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. No wonder economists have such a bad reputation about forecasts :D. It's almost a question of religion. My gut feeling is the following: Outside of an isolated economy, the bitcoin economy would be rapidly buried by other economies that can inflate their money supply at will. Even with boom and bust cycles, the bitcoin economy is unlikely to survive competing with a China like entity who will just fuel their own expansion with debt until the bitcoin economy is in the toilet. In case of an isolated economy, it would eventually start to stagnate as cash becomes an appreciating asset that is better to hoard than invest. Taken ad absurdum, you'd end up with a completely dead economy with a small handful of hoarders sitting on all the cash. Of course, in the real world there'd have been a revolution long before, since people can't eat coins and eventually people would resort to barter and most likely a new fiat currency would emerge naturally.

oblomovshchina 8y ago
>Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. You could model it by building a popular MMO around it, I'm sure.
stcredzero 8y ago
Endless studies could be written about it, since the topic is very complex and outcomes are pretty much impossible to predict. No wonder economists have such a bad reputation about forecasts :D. It's almost a question of religion. My gut feeling is the following... Same thing could be said of questions of software methodology. Most decisions are made on the basis of "gut feelings."

DennisP 8y ago

Probably with a greater emphasis on equity finance rather than loans; i.e. ICOs but with better regulation than people assumed in 2017. That way you're essentially growing the money supply much like the current system does with loans. This would also be somewhat similar to Hayek's ideas about competing private currencies.

karpodiem 8y ago

"A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles?" The same way money has existed for thousands of years but without the kick the can down the road of debt crushing future generations that has been a post WW2 global economic phenomenon? When the currency collapses or a new currency is put forth, then you will know the power of Bitcoin. "But MUH bitcoin hodlers who don't have electricity in Venezuela, what good did Bitcoin do them?" Ask the ones who were 1) smart enough to hold Bitcoin 2) Left Venezuela if they preferred to leave with A) Cash B) Gold or C) Bitcoin when they left.

ucaetano 8y ago

> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? Terribly. Bitcoin is by design deflationary, which creates an incentive to maintain currency under the mattress. This is accentuated by the fact that bitcoin can't be used in fractional-reserve-banking. This means that there is little accumulated capital available to borrow and invest. It also means that any investment would need higher returns than the expected appreciation of a bitcoin, which might set a very high bar for investments, making raising capital nearly impossible. Today, in most open economies, nobody controls the supply of money, it is increased and decreased dynamically by the market according to supply and demand and to maintain a certain level of risk on the banking system (with some adjustments from the central bank).

theseatoms 8y ago
> which creates an incentive to maintain currency under the mattress. Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money. > Today, in most open economies, nobody controls the supply of money, ... With all due respect, this is demonstrably false. The Federal Reserve and its member banks control the supply of money.
- AznHisoka 8y ago
  "Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money." I love this comment. Everyone just blindly says "People will put money in their mattress. Economy will go down" and then it's case closed.. but then what happens next? They just won't buy food? water? won't go to the mall? They just stay at home and hunker down? They won't even be watching entertainment since they won't be paying for a Netflix subscription too, apparently.
  - luckydata 8y ago
    It's not like it never happened before. Just read up on the great depression and you'll get an idea.

moduspol 8y ago

> A thought experiment: how would an economy run solely on a Bitcoin-like currency behave? And how would it respond to business cycles? A perhaps better comparison would be to "cryptocurrencies" instead of Bitcoin itself. Bitcoin is, by design, deflationary, but not all cryptocurrencies have to be, and once the infrastructure for widespread Bitcoin use is in place, it will be quite easy to support other cryptocurrencies. I'd be more interested in what an economy would look like when people can choose which currency to hold and spend while payment processors abstract away the rough edges (e.g. price anchoring, conversion) around accepting different cryptocurrencies. For example, if virtually all PoS systems in the US could handle both USD and Bitcoin, would virtually everyone choose to stick with USD? Or not? What if they also accepted Ethereum, Litecoin, Nano, and other crypto? And how would that economy behave during a boom/bust cycle? Or during hyperinflation like in Venezuela?