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Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation. Just need to look at what's going

by donatj 7y ago

Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation. Just need to look at what's going on in Venezuela, right now. Increased supply of anything lowers it's value.

lordnacho 7y ago
> Increased supply of anything lowers it's value. Network goods? Are telephones more valuable when more people have them? Road networks? Just pointing out that many things in economics are not so obvious. You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.
- beerandt 7y ago
  I know there's an economic element to networks, but in the context of what we're talking about, more people having a telephone is a measure of the products quality, not supply. Capacity of the network would equal supply. Right? Unless I'm grossly missing something.
  - IggleSniggle 7y ago
    The value of a single phone is zero, 2 phones grants each owner the ability to contact one person (2 units of value total), 3 grants 3 owners 2 each (6), 4 -> 3 (12), 5->4 (20). In other words, increasing the size of the network multiplies the value of the entire network by that amount (factorial). In a phone network, there are a few different tipping points where the _ubiquity_ adds additional value. At a certain point, having a phone is worthwhile because everyone you could possibly want to talk to also has one. (this is also why I still have an account on Facebook). The same can be said of a currency network. It becomes more valuable the more people you can exchange it with. People using US dollars outside the US gain value from knowing they have a trusted "stable third party" currency, and at the same time US dollars become more value to citizens of the US because they can now use that currency for purchases in that other country. Having 20 phones with one owner is practically worthless, even though the network capacity is theoretically high. Distributing those phones among twenty people is what generates the real value. But you can't really distribute 20 phones equally among 200 people. You need sufficient saturation of currency for its distribution to be of any real value, because you need enough quantity to be able to use it to do its job as a holder of arbitrary value exchange.
    - beerandt 7y ago
      I appreciate the response. I get that... (I think) I just don't get why that necessarily has anything to do with supply itself. It has to do with the distribution, and as a result, the quality or utility of the network. As you said, one person having 20 phones is off dubious value, but 20 additional people with phones might increase the network's quality. The supply (20) is independent of the resulting quality/saturation/useful node count. On the other hand, increased nodes could be seen as a negative. Like the US-Russia hotline. Or Facebook after it opened up to users without college email accounts. Sometimes supply might affect the quality of a network, and therefore the value of having a node (phone) on that network. But to say supply increases with demand is misleading, to me. Increased quality increases demand, at a rate greater than the rate demand is decreased due to increased supply. If supply happens to increase quality, then yes supply might dominate the equation such that demand increases as supply increases. But that doesn't mean the fundamental relationship between supply and demand has changed, it's just been minimized for particular cases. Or maybe I'm just getting confused by transitive semantics.
      - IggleSniggle 7y ago
        I would agree with most of what you said here. To echo your semantics and in the greater context of this thread, I was merely pointing out that increasing the supply (and in the case of money, distribution/saturation) could increase the "quality" at a rate faster than the forces that that push the "quality" down in terms of "quality" per unit of currency. In the specific case of money, there is an additional group psychology at play: if you believe your money won't be worth as much tomorrow as it is today, then you should spend it today if you can. Since the value derived from currency is in its exchange (it's not producing any value sitting under a mattress), it increases the "quality" of the currency for it to be circulating.
        beerandt 7y ago
        Yea, if we're talking about money supply I suspect the phone comparison might be apt in a slightly different way. I haven't seen anyone touch on it in this thread, but I've read opinions where people have blamed companies for hoarding all of the newly available cash, especially for stock buybacks. If there's any truth to that, it would make sense, since companies can usually get better rates and first dibs at market level loans/ bonds/ etc than small business or individuals. In the phone analogy, (if we assume there's some value having multiple phones) this would be like a new dialing prefix being released, and companies buying up the numbers hundreds at a time at bulk rate discount, leaving little or no additional numbers for individuals. So supply was increased, but the businesses hoarding new numbers prevents any quality improvement if the network.
fzeroracer 7y ago
If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis. Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable. But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.
- beerandt 7y ago
  I honestly don't get these network arguments. The market isn't for seats on buses, it's for timely transportation. The quality of the transportation affects the value. Which in the case of buses, more buses equals a better, more frequent and readily available product. The number of seats isn't the limiting factor. It's just a side effect of somewhat standardized bus sizes. Am I missing something?
pjc50 7y ago
Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money. Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce. Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.
trcarney 7y ago
I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value. [0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is-the-must-have-ski-and-snowboarding-accessory https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...
littlestymaar 7y ago
Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1]. The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away. > Increased supply of anything lowers it's value. It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while? [1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...

by donatj 7y ago

lordnacho 7y ago

> Increased supply of anything lowers it's value. Network goods? Are telephones more valuable when more people have them? Road networks? Just pointing out that many things in economics are not so obvious. You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.

beerandt 7y ago
I know there's an economic element to networks, but in the context of what we're talking about, more people having a telephone is a measure of the products quality, not supply. Capacity of the network would equal supply. Right? Unless I'm grossly missing something.
- IggleSniggle 7y ago
  The value of a single phone is zero, 2 phones grants each owner the ability to contact one person (2 units of value total), 3 grants 3 owners 2 each (6), 4 -> 3 (12), 5->4 (20). In other words, increasing the size of the network multiplies the value of the entire network by that amount (factorial). In a phone network, there are a few different tipping points where the _ubiquity_ adds additional value. At a certain point, having a phone is worthwhile because everyone you could possibly want to talk to also has one. (this is also why I still have an account on Facebook). The same can be said of a currency network. It becomes more valuable the more people you can exchange it with. People using US dollars outside the US gain value from knowing they have a trusted "stable third party" currency, and at the same time US dollars become more value to citizens of the US because they can now use that currency for purchases in that other country. Having 20 phones with one owner is practically worthless, even though the network capacity is theoretically high. Distributing those phones among twenty people is what generates the real value. But you can't really distribute 20 phones equally among 200 people. You need sufficient saturation of currency for its distribution to be of any real value, because you need enough quantity to be able to use it to do its job as a holder of arbitrary value exchange.
  - beerandt 7y ago
    I appreciate the response. I get that... (I think) I just don't get why that necessarily has anything to do with supply itself. It has to do with the distribution, and as a result, the quality or utility of the network. As you said, one person having 20 phones is off dubious value, but 20 additional people with phones might increase the network's quality. The supply (20) is independent of the resulting quality/saturation/useful node count. On the other hand, increased nodes could be seen as a negative. Like the US-Russia hotline. Or Facebook after it opened up to users without college email accounts. Sometimes supply might affect the quality of a network, and therefore the value of having a node (phone) on that network. But to say supply increases with demand is misleading, to me. Increased quality increases demand, at a rate greater than the rate demand is decreased due to increased supply. If supply happens to increase quality, then yes supply might dominate the equation such that demand increases as supply increases. But that doesn't mean the fundamental relationship between supply and demand has changed, it's just been minimized for particular cases. Or maybe I'm just getting confused by transitive semantics.
    - IggleSniggle 7y ago
      I would agree with most of what you said here. To echo your semantics and in the greater context of this thread, I was merely pointing out that increasing the supply (and in the case of money, distribution/saturation) could increase the "quality" at a rate faster than the forces that that push the "quality" down in terms of "quality" per unit of currency. In the specific case of money, there is an additional group psychology at play: if you believe your money won't be worth as much tomorrow as it is today, then you should spend it today if you can. Since the value derived from currency is in its exchange (it's not producing any value sitting under a mattress), it increases the "quality" of the currency for it to be circulating.
      - beerandt 7y ago
        Yea, if we're talking about money supply I suspect the phone comparison might be apt in a slightly different way. I haven't seen anyone touch on it in this thread, but I've read opinions where people have blamed companies for hoarding all of the newly available cash, especially for stock buybacks. If there's any truth to that, it would make sense, since companies can usually get better rates and first dibs at market level loans/ bonds/ etc than small business or individuals. In the phone analogy, (if we assume there's some value having multiple phones) this would be like a new dialing prefix being released, and companies buying up the numbers hundreds at a time at bulk rate discount, leaving little or no additional numbers for individuals. So supply was increased, but the businesses hoarding new numbers prevents any quality improvement if the network.

fzeroracer 7y ago

If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis. Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable. But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.

beerandt 7y ago
I honestly don't get these network arguments. The market isn't for seats on buses, it's for timely transportation. The quality of the transportation affects the value. Which in the case of buses, more buses equals a better, more frequent and readily available product. The number of seats isn't the limiting factor. It's just a side effect of somewhat standardized bus sizes. Am I missing something?

pjc50 7y ago

Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money. Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce. Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.

trcarney 7y ago

I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value. [0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is-the-must-have-ski-and-snowboarding-accessory https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...

littlestymaar 7y ago

Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1]. The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away. > Increased supply of anything lowers it's value. It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while? [1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...