3 ms·

If your currency deflates, that means a dollar today is worth less than a dollar tomorrow. When you invest money (via loans or buying equity), you trade currenc

If your currency deflates, that means a dollar today is worth less than a dollar tomorrow. When you invest money (via loans or buying equity), you trade currency for tangible assets, like stocks or capital. In order for the investment to make sense, the growth on the asset needs to be larger than the growth of the value of the money, plus risk. So in a deflationary currency, loan interest rates must be higher to be worth it. If loan interest rates are higher, then the cost of doing business increases. If the cost of doing business grows, the price of goods to increases. And when the price of goods increases, this causes the amount of goods sold to drop. This causes the income of the business to drop. Which increases the risk of investment, causing interest rates to go up. This cycle continues until everyone is holding on to their cash, and no one is spending. The way to break the cycle is to have cash start to lose value, or inflate. Then the interest rates drop, and people start to spend their money. Another way to think about it is: Say it costs 1.00$ to make a loaf of bread in 2020. By 2030, there's a robot that can make a loaf of bread for 0.10$ in 2020 dollars. So because society has become more productive in those 10 years, the work you did in 2020 is now worth 0.10$ 2020 dollars. So we can think of a dollar as representing the cost of goods, at the time that you did it. So if you make 1$ worth of bread in 2020, it should be able to buy the same amount of bread in the future. So we inflate the currency 10x, so bread still costs for 1$ in 2030, but now there's 10x the amount of bread to go around, and people make 10x the salary, so for people who are currently making money, bread is 10x cheaper. Now, you still want some inflation on top of this, since you want to push people away from sitting on money and towards putting that money to productive use. But that's the core rationale.

jl2718 6y ago
No. It’s worth $10 because you saved your (non-inflationary) money. And you spent the last 10 years making a bread robot instead of working in the financial sector. And how is ‘investing’ a productive use of capital? In deflationary regime, business is about cash flow. Inflationary regime investments are all speculation, and everybody has to play the game. This Keynesian argument comes from a nihilistic disregard for social structures, the environment, and future generations. Look him up. “In the long run, we’ll all be dead” - Keynes
- karpierz 6y ago
  Investing is a productive use of cash. Cash is a token that represents the goods produced to earn it. You can redeem it for goods, or lend it to someone if they can make better use of it. If they can make better use of it now, you make a deal that they'll give you more of these tokens later. If you hold onto cash, it does nothing. If you invest it, either directly, or by giving it to another entity to invest on your behalf (IE, a chequeing account at a bank or mutual fund), it allows someone else to make use of it, and in exchange, you will be repaid with more cash in the future.
- noahtallen 6y ago
  If in a deflationary environment people hold onto their money, then there will be less spending. That means less business income. That means small business close, and big businesses hire less people. That means people get less money, which leads to less spending, etc. If we want to have something like UBI to take care of income instead of work, that still comes from tax dollars, which relies on economic activity (capital gains from investment, income tax, sales tax, etc). In other words, less economic activity has specific impact on real world people and how much money they can get. It’s not just about investing, not just about billionaires.
- imtringued 6y ago
  When you earn money in 1800 and use it in 2021 then a baker in 1800 failed to get your money and his time was wasted. He could have used that time to bake bread but you didn't buy bread. Now that it is 2021 you are asking the baker to bake twice as much bread for your sake even though you did nothing to help the baker run his business. In fact, you did the opposite. Turns out there are less bakers in the future and your money becomes worthless anyway. >This Keynesian argument comes from a nihilistic disregard for social structures, the environment, and future generations. Look him up. “In the long run, we’ll all be dead” - Keynes Is this supposed to be a joke? How are old people becoming rich through no work, no productive investment whatsoever supposed to help future generations? Future generations receive greater incomes than their previous generations thanks to inflation. With deflation they receive lower incomes than their previous generations. When you own deflationary money and you do nothing with it you basically create a claim to future work in the past. By working at a simple 1800s job you have created a claim to the labor of someone working a software job even though you took no part in enabling that job to exist in the first place. Same with the bread baker robot. By holding onto the currency you never created an economic environment that enabled such an investment to be made. You just held onto the currency and once someone was foolish enough to build the robot you obtained a claim to its productivity.
ablekh 6y ago
> The way to break the cycle is to have cash start to lose value, or inflate. Then the interest rates drop, and people start to spend their money. If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease. > ... people make 10x the salary ... Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought).
- karpierz 6y ago
  > If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease. If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future? Now, if you're talking about erosion of wages over, that's less of an issue of inflation, and more an issue of the power dynamic between owners of capital and owners of labour. > Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought). Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions. The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods.
  - ablekh 6y ago
    > If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future? It depends on the situation. For example, if one lives paycheck to paycheck or close to that, then I don't see how they would not put a bit "under the mattress" (emergency fund) and spend the rest on basic needs. There is only so much food one can buy to store at home for future consumption. On the other hand, if income >> costs, that's a totally different story ... > Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions. No problem. Re: "depends on the surrounding conditions" - it is a very diplomatic way of avoiding touching the core of the income inequality issue. > The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods. Not sure I understand this point. It seems to be against one of the basic economic principles that I remember (price of goods = cost of production + margin / added value) - where cost of production implies exactly "how much energy or effort went into those goods". Perhaps, I'm dumb as rock or completely forgot Economics 101. :-) For example, if a TV model A costs $200 and model B costs $2000, it is not just because they "represent [different] goods produced", but because model B is much more expensive to produce and/or it has much more added value [real and/or perceived] than model A.

jl2718 6y ago

No. It’s worth $10 because you saved your (non-inflationary) money. And you spent the last 10 years making a bread robot instead of working in the financial sector. And how is ‘investing’ a productive use of capital? In deflationary regime, business is about cash flow. Inflationary regime investments are all speculation, and everybody has to play the game. This Keynesian argument comes from a nihilistic disregard for social structures, the environment, and future generations. Look him up. “In the long run, we’ll all be dead” - Keynes

karpierz 6y ago
Investing is a productive use of cash. Cash is a token that represents the goods produced to earn it. You can redeem it for goods, or lend it to someone if they can make better use of it. If they can make better use of it now, you make a deal that they'll give you more of these tokens later. If you hold onto cash, it does nothing. If you invest it, either directly, or by giving it to another entity to invest on your behalf (IE, a chequeing account at a bank or mutual fund), it allows someone else to make use of it, and in exchange, you will be repaid with more cash in the future.
noahtallen 6y ago
If in a deflationary environment people hold onto their money, then there will be less spending. That means less business income. That means small business close, and big businesses hire less people. That means people get less money, which leads to less spending, etc. If we want to have something like UBI to take care of income instead of work, that still comes from tax dollars, which relies on economic activity (capital gains from investment, income tax, sales tax, etc). In other words, less economic activity has specific impact on real world people and how much money they can get. It’s not just about investing, not just about billionaires.
imtringued 6y ago
When you earn money in 1800 and use it in 2021 then a baker in 1800 failed to get your money and his time was wasted. He could have used that time to bake bread but you didn't buy bread. Now that it is 2021 you are asking the baker to bake twice as much bread for your sake even though you did nothing to help the baker run his business. In fact, you did the opposite. Turns out there are less bakers in the future and your money becomes worthless anyway. >This Keynesian argument comes from a nihilistic disregard for social structures, the environment, and future generations. Look him up. “In the long run, we’ll all be dead” - Keynes Is this supposed to be a joke? How are old people becoming rich through no work, no productive investment whatsoever supposed to help future generations? Future generations receive greater incomes than their previous generations thanks to inflation. With deflation they receive lower incomes than their previous generations. When you own deflationary money and you do nothing with it you basically create a claim to future work in the past. By working at a simple 1800s job you have created a claim to the labor of someone working a software job even though you took no part in enabling that job to exist in the first place. Same with the bread baker robot. By holding onto the currency you never created an economic environment that enabled such an investment to be made. You just held onto the currency and once someone was foolish enough to build the robot you obtained a claim to its productivity.

ablekh 6y ago

> The way to break the cycle is to have cash start to lose value, or inflate. Then the interest rates drop, and people start to spend their money. If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease. > ... people make 10x the salary ... Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought).

karpierz 6y ago
> If people's money starts losing value, the last thing they would do is to be concerned with interest rates. With less valuable money, people would simply be able to afford a smaller consumption basket and, thus, spending will stay flat & consumption will decrease. If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future? Now, if you're talking about erosion of wages over, that's less of an issue of inflation, and more an issue of the power dynamic between owners of capital and owners of labour. > Where did this come from? Just because the productivity would increase 10x / cost would decrease 10x, it does not mean that workers would receive 100% of the relevant benefits. Most likely, 90%, if not more, of those would be routed to business owners (and robots' owners, if the machines are leased instead of bought). Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions. The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods.
- ablekh 6y ago
  > If your money starts losing value, do you A) put it under the mattress or B) trade it for things that you can either use now or that retain/grow their value in the future? It depends on the situation. For example, if one lives paycheck to paycheck or close to that, then I don't see how they would not put a bit "under the mattress" (emergency fund) and spend the rest on basic needs. There is only so much food one can buy to store at home for future consumption. On the other hand, if income >> costs, that's a totally different story ... > Sorry, I understand the confusion given I used the term 'salary'. I should have said something along the lines of 'value' or 'goods'. The split between workers and owners depends on the surrounding conditions. No problem. Re: "depends on the surrounding conditions" - it is a very diplomatic way of avoiding touching the core of the income inequality issue. > The point is that dollars are tokens that represent goods produced, at the time they were produced. Not how much energy or effort went into those goods. Not sure I understand this point. It seems to be against one of the basic economic principles that I remember (price of goods = cost of production + margin / added value) - where cost of production implies exactly "how much energy or effort went into those goods". Perhaps, I'm dumb as rock or completely forgot Economics 101. :-) For example, if a TV model A costs $200 and model B costs $2000, it is not just because they "represent [different] goods produced", but because model B is much more expensive to produce and/or it has much more added value [real and/or perceived] than model A.