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> The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions. What's this statement based on? As a t
by scottiebarnes 4y ago
> The economy only works if you have a slightly inflationary, stable, highly liquid method of conducting transactions.
What's this statement based on?
As a thought experiment, say a load of survivors wash upon a deserted island, eventually settling into economic roles. I don't think their economy or productivity grinds to a halt because there isn't enough liquid currency. They are constrained by their access and production of real world resources.
- gitfan86 4y agoImagine one person on the island is good at fishing. He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity.
- scottiebarnes 4y ago> He will stop fishing as soon as everyone has plenty of fish to eat because there is no way to liquidate his assets. Sounds like his problem is lack of demand, not currency liquidity. > But if the island became connected to a trading route he could trade excess fish for gold or another non perishable asset, he could store up those assets. But he would only do that if he believed that those assets had liquidity. Ok, but that kind of breaks the island economy experiment, given that he was already trading fish in a closed system for some other good or currency.
- gitfan86 4y agoThat is my point. A barter system works just fine with you only have a few people on a small island producing a small number of good and services. When you have a large number of goods and services available you need a medium of exchange that has good liquidity.