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Would it raise the value of the currency if the central bank didn't know this stash was destroyed? It seems like this pile of cash would still be considered to

Would it raise the value of the currency if the central bank didn't know this stash was destroyed? It seems like this pile of cash would still be considered to be "in circulation" until the central bank declared it to not be.

mouse_ 3y ago
Yes
thaumasiotes 3y ago
The central bank's knowledge isn't relevant in any way. The value of the currency goes up because the willingness of people to spend it went down. You can't spend money that doesn't exist, so this effect will occur regardless of anyone's knowledge of anything.
- croes 3y ago
  By your logic the currency goes up when the poor get poorer
  - thaumasiotes 3y ago
    Yes, if a million poor people lose $1 each, that has the same effect as one guy losing $1 million.
    - croes 3y ago
      If million people lose $1, nobody cares. If one guy loses 1 million he might cut costs that will affect others. If people like Musk lose wealth because of sinking stock prices, his workers don't have suddenly more buying power.
      - thaumasiotes 3y ago
        Something seems to have gone badly wrong in your choice of example - that didn't even involve any money.
        croes 3y ago
        It's money just not cash. Most money is book money and the burning of 1 million doesn't change the purchasing of the people because cash isn't linked to a finite resource like gold.
- satellite2 3y ago
  I don't really understand your comment. Generally it's accepted that the value went up because it became more rare as the number of unit went down. Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price.
  - thaumasiotes 3y ago
    > Generally it's accepted that the value went up because it became more rare as the number of unit went down. That's true. > Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price. That can't be true in any meaningful way, because all the money doesn't represent the price of everything in the economy. "Everything in the economy" is always worth many multiples of "all the money". The definition you'll see in economics is MV = PY. It's defined with reference to the concept of GDP, and the variables are: M is the amount of money (that year). V is the "velocity of money", the average number of times that a particular dollar gets spent (that year). P is the price level. The value of money (that year) is 1/P. Y is the amount of non-monetary stuff that is produced (that year). (I would be happier if Y was the amount of non-monetary stuff that existed, but that does not appear to be how economists prefer to talk about it. This set of definitions lets you say that MV is equal to NGDP.) You can characterize the effect of destruction of money as a reduction in M or as a reduction in V. If you take the view that the money still exists, because it's listed on a balance sheet somewhere, then M has not gone down, but under that view V still has; it's impossible to spend that money. Assuming everyone's urge to spend as a function of their ability to spend stays unchanged, you'll see that the party who locked up $1 million (by destroying it) will, as a result, spend less. Everyone else in the relevant universe is unaffected and spends just as much as they would have anyway. Then, by our special analysis, the amount of total money spent has gone down, and the amount of money in existence hasn't, so the velocity of money has gone down. Y is unaffected by the destruction of money. For PY to go down while Y stays constant, P must go down, which means that 1/P, the value of money, goes up. ------ Note that the implication of this velocity-based analysis is that, if a miser with tons of money in bank accounts that he'll never use happens to one day withdraw some of that money and destroy it, there will be no effect on the value of money. This is correct; that money had already been effectively destroyed when the miser committed to not spending it. (Over a much longer term, the effect of destruction would be visible when the miser's heirs inherited a smaller amount of money than otherwise and consequently spent less.)
- VSGrode 3y ago
  [dead]
Exuma 3y ago
A better question is do I make everyone else’s dollar worth more for the duration that I hold and don’t spend my dollars
- ImHereToVote 3y ago
  Yes. That is precisely why we don't get runaway inflation when people own a ton of property or have tons of money in index funds. That money supply isn't doing anything in particular.
- thaumasiotes 3y ago
  Do you make everyone else's stock worth more for the duration that you hold your shares without selling them? Rephrasing that question, if you were holding a bunch of shares of stock, and you sell them, will that lower the price of that stock?

mouse_ 3y ago

Yes

thaumasiotes 3y ago

The central bank's knowledge isn't relevant in any way. The value of the currency goes up because the willingness of people to spend it went down. You can't spend money that doesn't exist, so this effect will occur regardless of anyone's knowledge of anything.

croes 3y ago
By your logic the currency goes up when the poor get poorer
- thaumasiotes 3y ago
  Yes, if a million poor people lose $1 each, that has the same effect as one guy losing $1 million.
  - croes 3y ago
    If million people lose $1, nobody cares. If one guy loses 1 million he might cut costs that will affect others. If people like Musk lose wealth because of sinking stock prices, his workers don't have suddenly more buying power.
    - thaumasiotes 3y ago
      Something seems to have gone badly wrong in your choice of example - that didn't even involve any money.
      - croes 3y ago
        It's money just not cash. Most money is book money and the burning of 1 million doesn't change the purchasing of the people because cash isn't linked to a finite resource like gold.
satellite2 3y ago
I don't really understand your comment. Generally it's accepted that the value went up because it became more rare as the number of unit went down. Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price.
- thaumasiotes 3y ago
  > Generally it's accepted that the value went up because it became more rare as the number of unit went down. That's true. > Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price. That can't be true in any meaningful way, because all the money doesn't represent the price of everything in the economy. "Everything in the economy" is always worth many multiples of "all the money". The definition you'll see in economics is MV = PY. It's defined with reference to the concept of GDP, and the variables are: M is the amount of money (that year). V is the "velocity of money", the average number of times that a particular dollar gets spent (that year). P is the price level. The value of money (that year) is 1/P. Y is the amount of non-monetary stuff that is produced (that year). (I would be happier if Y was the amount of non-monetary stuff that existed, but that does not appear to be how economists prefer to talk about it. This set of definitions lets you say that MV is equal to NGDP.) You can characterize the effect of destruction of money as a reduction in M or as a reduction in V. If you take the view that the money still exists, because it's listed on a balance sheet somewhere, then M has not gone down, but under that view V still has; it's impossible to spend that money. Assuming everyone's urge to spend as a function of their ability to spend stays unchanged, you'll see that the party who locked up $1 million (by destroying it) will, as a result, spend less. Everyone else in the relevant universe is unaffected and spends just as much as they would have anyway. Then, by our special analysis, the amount of total money spent has gone down, and the amount of money in existence hasn't, so the velocity of money has gone down. Y is unaffected by the destruction of money. For PY to go down while Y stays constant, P must go down, which means that 1/P, the value of money, goes up. ------ Note that the implication of this velocity-based analysis is that, if a miser with tons of money in bank accounts that he'll never use happens to one day withdraw some of that money and destroy it, there will be no effect on the value of money. This is correct; that money had already been effectively destroyed when the miser committed to not spending it. (Over a much longer term, the effect of destruction would be visible when the miser's heirs inherited a smaller amount of money than otherwise and consequently spent less.)
VSGrode 3y ago
[dead]

Exuma 3y ago

A better question is do I make everyone else’s dollar worth more for the duration that I hold and don’t spend my dollars

ImHereToVote 3y ago
Yes. That is precisely why we don't get runaway inflation when people own a ton of property or have tons of money in index funds. That money supply isn't doing anything in particular.
thaumasiotes 3y ago
Do you make everyone else's stock worth more for the duration that you hold your shares without selling them? Rephrasing that question, if you were holding a bunch of shares of stock, and you sell them, will that lower the price of that stock?