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Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoi

by maaku 13y ago

Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoin for example.

adventured 13y ago
Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation. Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.
- maaku 13y ago
  What I'm saying is that deflation is an arbitrary choice made by Satoshi in the construction of bitcoin. It is unrelated to the issue of state backing. Bitcoin could just have easily had a perpetually increasing monetary supply. This literally would have been a single line change to the bitcoin source code. Freicoin does something similar with it's demurrage and perpetual reward.
- drcube 13y ago
  "Price fluctuations in the value of currency" is the definition of inflation/deflation. Monetary policy can cause inflation, but it's not the only way inflation can occur. Wikipedia: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."
  - Bootvis 13y ago
    I'm not saying that Friedman is right but this is a thorny issue in economics: Inflation is always and everywhere a monetary phenomenon. —Milton Friedman, 1963
    - drcube 13y ago
      Sure, it's a monetary phenomenon, but that doesn't mean it always comes from monetary policy. In fact, the big reason monetary policy exists is to control inflation. Without monetary policy, inflation and deflation depend solely on the production of the economy compared to the relatively fixed supply of money. Which is what will happen if bitcoin takes off. Growing economy + fixed money supply = deflation. So the GP was wrong when he said there can be no inflation by definition once all the bitcoins have been mined and the supply is fixed. Deflation (negative inflation) is pretty much guaranteed with a fixed money supply. There's more stuff to buy with the same amount of money, so things will cost less. Consistent deflation will be very upsetting for the status quo. I'm not saying it's a good thing or a bad thing, but when the incentives shift towards keeping your money in a shoebox, and against using banks, taking or giving out loans, investing and spending, that's going to be a huge change.
      - Bootvis 13y ago
        However, with Bitcoin the percentage claim on the total economy is constant. So, in a sense, the real price of all consumer goods also remains constant. In this view there is no inflation or deflation and inflation indeed is a purely monetary phenomenon. What is correct view? I don't know, the only thing I remember about the monetary economics class I took, is that the professor and I didn't agree. About what I don't know. I do know that these are interesting times for him and colleagues. When/if Bitcoin stabilizes they can study the effect of monetary policy, the PPP, etc. I almost want to become one.
        maaku 13y ago
        > So, in a sense, the real price of all consumer goods also remains constant. No, you're ignoring GDP growth. As the bitcoin economy grows (more goods and services available), the share of the pie 1 bitcoin represents correspondingly grows. This results in decreasing prices, i.e. price deflation.

by maaku 13y ago

Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoin for example.

adventured 13y ago

Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation. Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.

maaku 13y ago
What I'm saying is that deflation is an arbitrary choice made by Satoshi in the construction of bitcoin. It is unrelated to the issue of state backing. Bitcoin could just have easily had a perpetually increasing monetary supply. This literally would have been a single line change to the bitcoin source code. Freicoin does something similar with it's demurrage and perpetual reward.
drcube 13y ago
"Price fluctuations in the value of currency" is the definition of inflation/deflation. Monetary policy can cause inflation, but it's not the only way inflation can occur. Wikipedia: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."
- Bootvis 13y ago
  I'm not saying that Friedman is right but this is a thorny issue in economics: Inflation is always and everywhere a monetary phenomenon. —Milton Friedman, 1963
  - drcube 13y ago
    Sure, it's a monetary phenomenon, but that doesn't mean it always comes from monetary policy. In fact, the big reason monetary policy exists is to control inflation. Without monetary policy, inflation and deflation depend solely on the production of the economy compared to the relatively fixed supply of money. Which is what will happen if bitcoin takes off. Growing economy + fixed money supply = deflation. So the GP was wrong when he said there can be no inflation by definition once all the bitcoins have been mined and the supply is fixed. Deflation (negative inflation) is pretty much guaranteed with a fixed money supply. There's more stuff to buy with the same amount of money, so things will cost less. Consistent deflation will be very upsetting for the status quo. I'm not saying it's a good thing or a bad thing, but when the incentives shift towards keeping your money in a shoebox, and against using banks, taking or giving out loans, investing and spending, that's going to be a huge change.
    - Bootvis 13y ago
      However, with Bitcoin the percentage claim on the total economy is constant. So, in a sense, the real price of all consumer goods also remains constant. In this view there is no inflation or deflation and inflation indeed is a purely monetary phenomenon. What is correct view? I don't know, the only thing I remember about the monetary economics class I took, is that the professor and I didn't agree. About what I don't know. I do know that these are interesting times for him and colleagues. When/if Bitcoin stabilizes they can study the effect of monetary policy, the PPP, etc. I almost want to become one.
      - maaku 13y ago
        > So, in a sense, the real price of all consumer goods also remains constant. No, you're ignoring GDP growth. As the bitcoin economy grows (more goods and services available), the share of the pie 1 bitcoin represents correspondingly grows. This results in decreasing prices, i.e. price deflation.