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Fascinating. Still, I'm not sure the problem with the babysitting scrip applies to bitcoin. You must be very careful to differentiate between monetary deflatio

by nas 16y ago

Fascinating. Still, I'm not sure the problem with the babysitting scrip applies to bitcoin. You must be very careful to differentiate between monetary deflation and price deflation. In the case of the babysitting scrib, it sounds like it was clearly a problem of monetary deflation. The payment of dues took coupons out of circulation, deflating the monetary supply. Aside from lost wallets, bitcoin does not have monetary deflation. A doomsday scenario involving price deflation is just a theory since as far as I know there has never been an example in real-life. Logically, it does not make sense to me but I-Am-Not-An-Economist. Bitcoin has been undergoing price deflation for much of its life. So far, it has not caused a problem except that vendors are inconvenienced by relatively quickly changing prices.

po 16y ago
I not sure if the lessons there are applicable either. There are a ton of differences. For one thing the coupons 'value' was fixed to an amount of work and they were not divisible. Also don't miss the sidebar at the end of that article. I was firmly in the "inflation is always bad" camp until I started thinking about it a bit. Inflation is definitely an incentive not to hoard the currency. It causes money to flow back into the economy. Now I'm not sure where I stand on the issue other than I know that I don't understand it enough. Suppose a Buffet-like successful person was able to hoard up 10% of bitcoin. This money is effectively out of circulation because he's a scrooge that will never spend it. Because bitcoin is divisible, it doesn't really matter much and the price reflects the amount in circulation. Then let's say he died and passed it onto his kids who were irresponsible and spent it all in 3 years. The amount in circulation would be increased by a huge amount (assuming that most people have some savings) relative to the amount in circulation before. The liquidity of the bitcoin would change significantly but the underlying value of it doesn't. I believe that's what you were talking about with monetary deflation and price deflation, no? Based on that, it means I would expect the price of bitcoin to fluctuate quite wildly. Then again, I guess gold has the same problem.

by nas 16y ago

po 16y ago

I not sure if the lessons there are applicable either. There are a ton of differences. For one thing the coupons 'value' was fixed to an amount of work and they were not divisible. Also don't miss the sidebar at the end of that article. I was firmly in the "inflation is always bad" camp until I started thinking about it a bit. Inflation is definitely an incentive not to hoard the currency. It causes money to flow back into the economy. Now I'm not sure where I stand on the issue other than I know that I don't understand it enough. Suppose a Buffet-like successful person was able to hoard up 10% of bitcoin. This money is effectively out of circulation because he's a scrooge that will never spend it. Because bitcoin is divisible, it doesn't really matter much and the price reflects the amount in circulation. Then let's say he died and passed it onto his kids who were irresponsible and spent it all in 3 years. The amount in circulation would be increased by a huge amount (assuming that most people have some savings) relative to the amount in circulation before. The liquidity of the bitcoin would change significantly but the underlying value of it doesn't. I believe that's what you were talking about with monetary deflation and price deflation, no? Based on that, it means I would expect the price of bitcoin to fluctuate quite wildly. Then again, I guess gold has the same problem.