7 ms·

A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html https://benoitessiambre.com/s

A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html

Geee 5y ago
That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford. Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.
- acdha 5y ago
  Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time. More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
  - Geee 5y ago
    There isn't monetary deflation in bitcoin (expect for lost coins). As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
    - Taniwha 5y ago
      There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century. So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
  - lottin 5y ago
    No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.
    - acdha 5y ago
      The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower. This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
      - lottin 5y ago
        > The fixed currency supply guarantees it No, it doesn't. Bitcoin can lose 50% of its value in a matter of hours, as recent experience shows, despite being in a limited supply.
        imtringued 5y ago
        You're right a fixed supply isn't enough to guarantee it, you still need productivity growth and technological progress, something we've had for a long time. Given enough growth a 50% crash is nothing.
        fladrif 5y ago
        So the only way bitcoin isn't deflationary is if demand for it continually goes down over time until it's irrelevant. If demand either goes up or stays the same, it will behave deflationary (wallets getting lost). This doesn't seem to be a good performance pattern for a currency.
  - imtringued 5y ago
    >More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. Yeah it is basically people getting screwed by increased wealth inequality and then as a response they don't think of a way to build a system without losers, instead they join a system where the old dynamic makes them the winners. The only difference is that you start from a clean slate from 2008 onwards.
    - ric2b 5y ago
      > as a response they don't think of a way to build a system without losers Which system is that?
- noahadavis 5y ago
  Does making governments less stable really not make economies less stable?
  - atweiden 5y ago
    It would seem so, yes. But I disagree with the GP’s premise: claiming economies rise and fall based on monetary policy alone is like claiming the Roman empire fell because they debased their currency. It’s a contributory factor, but certainly not the only one. We’d need to assess the merit of anarcho-capitalism vs collectivist democracy to understand whether disempowering governments would in fact decrease economic stability.
    - imtringued 5y ago
      Yes there is a hole in the article. He didn't mention that Germany lost WW1. Every other nation suffered the same problems but they could get away from them without hyperinflation, Germany couldn't because increasing the monetary supply does not repair an economy. If one were to completely oversimplify everything the roman empire fell into the "war + debasement" bucket though but it also had a lot of other problems. They were actively fighting a war which meant they couldn't control the influx of barbarian refugees (huns drove them out) at their border. They then committed a grave mistake. They deported all barbarians and killed those who stayed. Some barbarians gathered near the border and formed a big army which then proceeded to plunder Rome. The problems didn't start with money, they got worse because of money.
  - Geee 5y ago
    Governments that overspend or misallocate capital are a burden to the economy. With sound money, a badly managed country can go bankrupt because they can't print more money. It isn't the fault of the money, while this is the usual argument. It's just the nature of honest money. So, it results in destabilizing governments that are overspending, but stabilizing those that are not.
    - noahadavis 5y ago
      You don't see the side-effects of destabilizing a government as potentially disastrous for an economy? Governments and economies can have many different forms, but there are clear cases where destabilizing one will destabilize the other and ultimately lead to mass suffering for a period of time. Imagine what would happen if a government in a place like the Middle East or parts of Africa collapsed. History has shown that a new government often doesn't rise up from the ashes without lots of tears and bloodshed. What do you think happens to people's standards of living? How much of their time and money do you think it will take just to get back what they used to have?
narrator 5y ago
Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished. [1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money https://en.wikipedia.org/wiki/The_Denationalization_of_Money
- fladrif 5y ago
  The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.
  - narrator 5y ago
    It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.
    - fladrif 5y ago
      I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.
      - narrator 5y ago
        Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs. We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.
imtringued 5y ago
Nice article. Pretty much matches what I have figured out myself but you gave it a new perspective that I hadn't thought of.

A deflationary coin cannot stabilize without destabilizing the economy that trades in it. https://benoitessiambre.com/specter.html https://benoitessiambre.com/specter.html

Geee 5y ago

That argument isn't true. Deflationary currency can destabilize governments, not the economy. Econonomies fail because they're run by incompetent governments, who spend more than they can afford. Bitcoin is not guaranteed to be deflationary. It's deflationary when the economy is growing. It's inflationary when the economy is shrinking. Deflation will slow down economy, and inflation will accelerate economy. It's a stable self-correcting system, which would correct itself to match the average economic growth globally.

acdha 5y ago
Bitcoin is guaranteed to be deflationary as long as there’s a finite limit – if nothing else, lost keys would reduce the total over time. More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. After a decade of that being integral to the sales pitch I would be extremely surprised to see any major holder support breaking the deflationary model.
- Geee 5y ago
  There isn't monetary deflation in bitcoin (expect for lost coins). As a global reserve currency, bitcoin would act as an "index fund of everything". Economy is expected to grow, but it's not guaranteed. Which means that there's always a non-zero risk associated to it. There's more risk on short time scales, and less risk on long time scales.
  - Taniwha 5y ago
    There will be if it's successful - 90% of the bitcoins ever mined have already been mined, for bitcoin to be useful at a long term world wide level it needs to store enough value even as the size of the world economy grows - if it can't them it will become a limit on economic growth much as gold became in the last century. So because the number of bitcoin is fixed to remain relevant bitcoin will need to continually deflate (ie increase in value) so that there's enough to represent the size of the economy
- lottin 5y ago
  No currency is guaranteed to be deflationary. You may guarantee that the currency supply will behave in a certain way (although even that is debatable), buy you cannot guarantee that the price level in terms of such a currency will continuously fall.
  - acdha 5y ago
    The fixed currency supply guarantees it: unless the economy is shrinking at the same rate, each BTC becomes more valuable over time and that’d cause purchase prices for goods to trend lower. This has been a key part of the sales pitch for a decade: buy now and it’ll be worth more later, guaranteed, but that’s not good for an economy since it heavily incentivizes holding onto anything you aren’t forced to spend. Since Bitcoin has no innate demand, that’s an especially dangerous cycle since almost everyone has alternatives.
    - lottin 5y ago
      > The fixed currency supply guarantees it No, it doesn't. Bitcoin can lose 50% of its value in a matter of hours, as recent experience shows, despite being in a limited supply.
      - imtringued 5y ago
        You're right a fixed supply isn't enough to guarantee it, you still need productivity growth and technological progress, something we've had for a long time. Given enough growth a 50% crash is nothing.
      - fladrif 5y ago
        So the only way bitcoin isn't deflationary is if demand for it continually goes down over time until it's irrelevant. If demand either goes up or stays the same, it will behave deflationary (wallets getting lost). This doesn't seem to be a good performance pattern for a currency.
- imtringued 5y ago
  >More importantly, the people hawking it _really_ want it to be deflationary because that effectively makes them landed gentry getting richer without any effort on their part. Yeah it is basically people getting screwed by increased wealth inequality and then as a response they don't think of a way to build a system without losers, instead they join a system where the old dynamic makes them the winners. The only difference is that you start from a clean slate from 2008 onwards.
  - ric2b 5y ago
    > as a response they don't think of a way to build a system without losers Which system is that?
noahadavis 5y ago
Does making governments less stable really not make economies less stable?
- atweiden 5y ago
  It would seem so, yes. But I disagree with the GP’s premise: claiming economies rise and fall based on monetary policy alone is like claiming the Roman empire fell because they debased their currency. It’s a contributory factor, but certainly not the only one. We’d need to assess the merit of anarcho-capitalism vs collectivist democracy to understand whether disempowering governments would in fact decrease economic stability.
  - imtringued 5y ago
    Yes there is a hole in the article. He didn't mention that Germany lost WW1. Every other nation suffered the same problems but they could get away from them without hyperinflation, Germany couldn't because increasing the monetary supply does not repair an economy. If one were to completely oversimplify everything the roman empire fell into the "war + debasement" bucket though but it also had a lot of other problems. They were actively fighting a war which meant they couldn't control the influx of barbarian refugees (huns drove them out) at their border. They then committed a grave mistake. They deported all barbarians and killed those who stayed. Some barbarians gathered near the border and formed a big army which then proceeded to plunder Rome. The problems didn't start with money, they got worse because of money.
- Geee 5y ago
  Governments that overspend or misallocate capital are a burden to the economy. With sound money, a badly managed country can go bankrupt because they can't print more money. It isn't the fault of the money, while this is the usual argument. It's just the nature of honest money. So, it results in destabilizing governments that are overspending, but stabilizing those that are not.
  - noahadavis 5y ago
    You don't see the side-effects of destabilizing a government as potentially disastrous for an economy? Governments and economies can have many different forms, but there are clear cases where destabilizing one will destabilize the other and ultimately lead to mass suffering for a period of time. Imagine what would happen if a government in a place like the Middle East or parts of Africa collapsed. History has shown that a new government often doesn't rise up from the ashes without lots of tears and bloodshed. What do you think happens to people's standards of living? How much of their time and money do you think it will take just to get back what they used to have?

narrator 5y ago

Nobel Prize winner F.A Hayek, who also famously predicted the denationalization of money in the 1970s[1], provided the excellent counterargument to this in the debate with the proto-Keynesians back in the 30s concerning stable supply money vs. inflationary money: https://mises.org/library/hayek-paradox-saving https://mises.org/library/hayek-paradox-saving Hayek was later interviewed in the 70s and said he was mystified when Keynes was promoted to godhood upon his death. He claimed the debate had not yet finished. [1] https://en.wikipedia.org/wiki/The_Denationalization_of_Money https://en.wikipedia.org/wiki/The_Denationalization_of_Money

fladrif 5y ago
The linked article doesn't address the effects of deflationary currency at all, it describes the notion of including capital in the description of economies.
- narrator 5y ago
  It criticizes the statement by Keynes that savings leads to depression due to underconsumption and thus there must be regularly monetary stimulus, meaning expansion of government borrowing and hence, the money supply. Hayek was a proponent of the gold standard and fixed money supply at this time and the Keynesians promoted fiat money and a flexible money supply and monetary policy.
  - fladrif 5y ago
    I'm not familiar with Hayek, so you may need to fill in gaps where I may have them, but the argument in the article (as I understand) specifically establishes the context where savings are presumed invested into capital. How I understand deflationary currency is that investments are not incentivized, and would therefore not lead to the situation as described in the article.
    - narrator 5y ago
      Investment is naturally incentivized because the only reason capital is created is to lower the cost of production. If you build a factory, or invest in a machine to make things and it costs the same to manufacture those things in the factory or with the machine as it would to manufacture them by hand, why did you even build the factory in the first place? The inputs used to construct the factory would be better used for other things and thus the business loss from building a useless factory or unnecessary piece of equipment is the economically efficient because it is a misuse of labor and material inputs. We are not talking about deflationary money either. We are talking about stable money supply, which is what Bitcoin is.

imtringued 5y ago

Nice article. Pretty much matches what I have figured out myself but you gave it a new perspective that I hadn't thought of.