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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

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.
      - fladrif 5y ago
        A couple things. Your first statement appears to be circular, it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Secondly, I'm not sure what the rest of the first paragraph is in aid of, it seems like you're stating that capital is useful which I don't think was ever in question. Sure, the article never mentioned anything about deflationary currency, but you were responding to a comment that a deflationary currency would have issues that you seemed to respond in opposition to. If you don't have a stance on deflationary currency, what is your argument for or against? On that note, I believe that bitcoin fits the definition of a deflationary currency, and having looked up 'stable' money supply haven't found a consensus on what that means. Could you explain how you define that?
        ric2b 5y ago
        > it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Simple, because the investment would return more than the natural rate of deflation alone would.
        fladrif 5y ago
        On its face that would appear to be a bald assertion. Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth. Investments would have to have very high upside to be worth a stable but lower rate of deflation. Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.
BenoitEssiambre 5y ago
There's a reason the experts sided with Keynes as you mention (or others like Milton Friedman). Flaws were found in Hayek's reasoning that made his models simply fail to add up.
ncmncm 5y ago
There is no Nobel Prize in economics. There is a group that hijacked the name for their own prize, whom the Nobel committee has no contact with. They are, of course, economists, so any merit in their prize is only as much as economists' at large. The which is, let us say, disputed.

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.
    - fladrif 5y ago
      A couple things. Your first statement appears to be circular, it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Secondly, I'm not sure what the rest of the first paragraph is in aid of, it seems like you're stating that capital is useful which I don't think was ever in question. Sure, the article never mentioned anything about deflationary currency, but you were responding to a comment that a deflationary currency would have issues that you seemed to respond in opposition to. If you don't have a stance on deflationary currency, what is your argument for or against? On that note, I believe that bitcoin fits the definition of a deflationary currency, and having looked up 'stable' money supply haven't found a consensus on what that means. Could you explain how you define that?
      - ric2b 5y ago
        > it doesn't answer the question of why an entity would want to invest their money on an uncertain venture when it would just be worth more doing nothing with it. Simple, because the investment would return more than the natural rate of deflation alone would.
        fladrif 5y ago
        On its face that would appear to be a bald assertion. Investments inherently contain risk which would dissuade potential investors if they have a stable source of growth. Investments would have to have very high upside to be worth a stable but lower rate of deflation. Secondly, I'm not sure how you can be certain that investment returns, without regard for risks, could be higher than the deflation rate.

BenoitEssiambre 5y ago

There's a reason the experts sided with Keynes as you mention (or others like Milton Friedman). Flaws were found in Hayek's reasoning that made his models simply fail to add up.

ncmncm 5y ago

There is no Nobel Prize in economics. There is a group that hijacked the name for their own prize, whom the Nobel committee has no contact with. They are, of course, economists, so any merit in their prize is only as much as economists' at large. The which is, let us say, disputed.