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An increase in supply alone isn't debasement. A higher supply doesn't imply a lower value, because what you do with that new supply matters. If you mint a $10T
by arcticbull 5y ago
An increase in supply alone isn't debasement. A higher supply doesn't imply a lower value, because what you do with that new supply matters. If you mint a $10T coin and throw it under your mattress, then you haven't decreased the value of anything even though the supply has increased dramatically.
This is why we measure, and why Austrian economics fell out of favor decades ago.
See Japan for a concrete example. [1, 2] Their M2 money supply is almost 2.5X higher since 1990 but their CPI is dead flat over the same time period. It's actually seriously problematic for them.
[1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
[2] https://tradingeconomics.com/japan/money-supply-m2 https://tradingeconomics.com/japan/money-supply-m2
- thaumasiotes 5y ago> If you mint a $10T coin and throw it under your mattress, then you haven't decreased the value of anything even though the supply has increased dramatically. How has the supply increased in this scenario? What if, instead of minting the coin, you just tell people that you've done so? The supply of money has only increased if you're able to spend the putative addition to the money supply.
- arcticbull 5y agoYou can tell them all you want, but as Japan shows us, it doesn't actually matter. What matters is what you do with the supply which is why we measure.
- thaumasiotes 5y agoLet's focus on the opening question, "how has the supply increased in this scenario?".
- arcticbull 5y agoI'm sorry I don't understand the question. Are you asking how supply works in my hypothetical, simplified example where the point I'm trying to make is that new supply in isolation doesn't matter - what you do with it does? Or as you asking how it happens in the real-world example of Japan, where their supply increased from 400000B JPY to 1200000B JPY between 1990 and present, while everything remained the same price? And how this is seriously problematic in their economy?
- thaumasiotes 5y agoYou claimed that minting a coin with face value $10T increased the money supply. I'm saying this is not true, because that coin cannot be spent and therefore doesn't contribute to the money supply. It doesn't matter what you write on the coin. What matters isn't what you do with "money"; it's what you can do with it.
- arcticbull 5y agoAgain, Japan proves you wrong and me right because they 3X'd their money supply and prices stayed exactly the same for 30 years in real and notional terms. Austrian economics does not explain that. Which is why we don't use it.
- thaumasiotes 5y agoTripling the money supply cuts the value of money by a factor of three. Without any exceptions. There is no other possible outcome. That's not even an Austrian idea. But there are other things that affect the value of money. Tripling the money supply and seeing the value of money stay constant tells you that something else was pulling the value of the yen up at the same time that additional supply was pulling it down.
- arcticbull 5y ago> Tripling the money supply cuts the value of money by a factor of three. Without any exceptions. There is no other possible outcome. That's not even an Austrian idea. This is not true, though, haha. Which is why the Austrian model, which only takes into account the former, is obviously and woefully incomplete - and has been rejected.