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Here[1] Nobel-laureate Milton Friedman, argues that the majority of money, specifically the stuff industry and consumers touch, should be constant-supply -- tha

by bdcs 13y ago

Here[1] Nobel-laureate Milton Friedman, argues that the majority of money, specifically the stuff industry and consumers touch, should be constant-supply -- that is to say, identical to bitcoin's model. "My favorite proposal really is a little bit more sophisticated—or less sophisticated if you want to look at it that way—than a straight increase in the quantity of money. I would—if I had my choice—freeze the amount of [currency plus bank reserves]. Not increase it." I'd be interested in hearing your, and other's, thoughts on the topic. [1]http://www.econlib.org/library/Columns/y2006/Friedmantranscript.html http://www.econlib.org/library/Columns/y2006/Friedmantranscr...

rayiner 13y ago
You're taking the quote out of context. "High powered money" is not what consumers touch, and it is not the majority of money. In the very next paragraph he says: "Now, you would think that that's a bad idea because there would be no provision for expansion; however, high-powered money [currency plus bank reserves] is a small fraction of total money and the ratio of total money to high-powered money has been going up over time." For the definition of "high powered money", see: https://en.wikipedia.org/wiki/Monetary_base https://en.wikipedia.org/wiki/Monetary_base ("in economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is defined as the sum of currency circulating in the public and commercial banks' reserves with the central bank. The monetary base must not be confused with the money supply which consists of currency circulating in the public and non-bank deposits with commercial banks. Normally, the money supply excceds the monetary base by far; the ratio of the two is referred to as the money multiplier. If one excludes currency from the definitions, the monetary base is not a subset of the money supply - rather, the two are disjoint sets. On the commercial banks' balance sheets, the former belongs to the assets whereas the latter belongs to the liabilities.") With Bitcoin, the total money supply is fixed (which Friedman acknowledges as a "bad idea" in your quote), not just the monetary base, because there is no fractional reserve banking in Bitcoins (or at least I'm not clear how you'd build fractional reserve banking on top of Bitcoins).
- bdcs 13y ago
  Thank you for the reply. I don't believe I took the quote out of context, as I wrote what Friedman said, almost verbatim without commentary. The monetary base is the stuff consumers touch because -- literally -- if you're touching it, then it is monetary base (cash, etc). > there is no fractional reserve banking in Bitcoins (or at least I'm not clear how you'd build fractional reserve banking on top of Bitcoins). Fractional reserve banking with bitcoins works exactly the same as it does with anything else (modern USD, USD 110 years ago [gold-backed], etc.) Friedman explicitly says, keep the amount of currency constant, and use fractional reserve to increase the amount of monetary supply, as needed for expansion. We can do exactly this with bitcoin. Do you disagree?
  - apu 13y ago
    I don't believe I took the quote out of context, as I wrote what Friedman said, almost verbatim without commentary. "Out of context" means you omitted other text that changes the meaning of the text you did quote. See rayiner's comment about this (the very next paragraph...) The monetary base is the stuff consumers touch No, it is not. See the wikipedia link and Rayiner's comment, which explicitly refutes this (The monetary base must not be confused with the money supply which consists of currency circulating in the public) It is hard to take your arguments on good-faith if you make such blatantly false statements.
    - bdcs 13y ago
      Milton Friedman meant monetary base, in your nomenclature. From Wikipedia's "Money Supply" article: "MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply." Please reread that last sentence before replying.

by bdcs 13y ago

rayiner 13y ago

You're taking the quote out of context. "High powered money" is not what consumers touch, and it is not the majority of money. In the very next paragraph he says: "Now, you would think that that's a bad idea because there would be no provision for expansion; however, high-powered money [currency plus bank reserves] is a small fraction of total money and the ratio of total money to high-powered money has been going up over time." For the definition of "high powered money", see: https://en.wikipedia.org/wiki/Monetary_base https://en.wikipedia.org/wiki/Monetary_base ("in economics, the monetary base (also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is defined as the sum of currency circulating in the public and commercial banks' reserves with the central bank. The monetary base must not be confused with the money supply which consists of currency circulating in the public and non-bank deposits with commercial banks. Normally, the money supply excceds the monetary base by far; the ratio of the two is referred to as the money multiplier. If one excludes currency from the definitions, the monetary base is not a subset of the money supply - rather, the two are disjoint sets. On the commercial banks' balance sheets, the former belongs to the assets whereas the latter belongs to the liabilities.") With Bitcoin, the total money supply is fixed (which Friedman acknowledges as a "bad idea" in your quote), not just the monetary base, because there is no fractional reserve banking in Bitcoins (or at least I'm not clear how you'd build fractional reserve banking on top of Bitcoins).

bdcs 13y ago
Thank you for the reply. I don't believe I took the quote out of context, as I wrote what Friedman said, almost verbatim without commentary. The monetary base is the stuff consumers touch because -- literally -- if you're touching it, then it is monetary base (cash, etc). > there is no fractional reserve banking in Bitcoins (or at least I'm not clear how you'd build fractional reserve banking on top of Bitcoins). Fractional reserve banking with bitcoins works exactly the same as it does with anything else (modern USD, USD 110 years ago [gold-backed], etc.) Friedman explicitly says, keep the amount of currency constant, and use fractional reserve to increase the amount of monetary supply, as needed for expansion. We can do exactly this with bitcoin. Do you disagree?
- apu 13y ago
  I don't believe I took the quote out of context, as I wrote what Friedman said, almost verbatim without commentary. "Out of context" means you omitted other text that changes the meaning of the text you did quote. See rayiner's comment about this (the very next paragraph...) The monetary base is the stuff consumers touch No, it is not. See the wikipedia link and Rayiner's comment, which explicitly refutes this (The monetary base must not be confused with the money supply which consists of currency circulating in the public) It is hard to take your arguments on good-faith if you make such blatantly false statements.
  - bdcs 13y ago
    Milton Friedman meant monetary base, in your nomenclature. From Wikipedia's "Money Supply" article: "MB: is referred to as the monetary base or total currency. This is the base from which other forms of money (like checking deposits, listed below) are created and is traditionally the most liquid measure of the money supply." Please reread that last sentence before replying.