5 ms·

"It's is in limited supply, as money pretty much has to be." An adjustable and growing money supply is much more the norm.

ashray 13y ago
True, and bitcoin does stick to this norm. The rate of bitcoin production is predictable for the next 100+ years. More can be produced with more effort, it's just not as easy as printing notes. So it is adjustable and it is growing. The price rise is caused by speculation and demand, not because new bitcoins aren't being produced.
- parasubvert 13y ago
  Bitcoin does not stick to that norm. The supply is completely inelastic. Whereas a money supply typically requires different rates of creation or even destruction to respond to the market demand, partiularly in a time of currency hoarding (such as we are experiencing now in the real global economy). There is also a strong argument for multiple currencies with different supplies of money rather than a single global supply, so there can be mutual adjustment of prices and wages without the social wreckage of a deflationary spiral (such as Southern Europe is currently experiencing because of the Euro).
  - ashray 13y ago
    How many of those 'requirements' are because of powerful entities abusing the system? What are the forces that have caused those requirements to arise with traditional currencies? Did you mean inflationary spiral for Southern Europe? Or are prices for things dropping there right now? Not sure.. But again, a lot of what happens is because of constantly 'hacking' the system (raise the debt ceiling, print more money, etc.). Using that as the norm and presenting an argument against the 'hack ability' of the new system seems flawed. Maybe there needs to be better research into what happens, why it happens, and how it can be prevented. Inflationary currency most likely isn't the right answer considering the issues it has caused so far... Deflationary may not be either.
    - parasubvert 13y ago
      No one can realistically claim they truly understand the current system. The Austrian economists seductively claim this, but that's because they reject empiricism as a way of challenging their axioms. Keynes seems to have hit upon the most predictive model we have for how economies operate at scale with currency, especially how we can get into depression-like circumstances when internet rates are 0% like they have been these past 5 years. But we are still debating whether he was a genius, villain, or charlatan, because people refuse to look at the data and arguments with fresh eyes. So what constitutes a "hack", vs "bug", vs "works as designed" is a matter for debate. You point to the debt ceiling - that's a non-economic political enomaly unique to the USA (and interestingly, iirc, Denmark). It's not so much a hack as a periodic configuration change. You also mention inflation. Currently there's very little inflation anywhere in the world. We are printing money everywhere, and yet there is no real inflation, not a peep, completely contrary to over 5 years of dire warnings from inflation hawks. Why is that? You'd think there may be a lesson here. Southern Europe had massive capital inflows from the North during the past 10 years, leading to wage and price inflation. Private excesses led to a massive crash in demand when the financial crisis hit, and a major outflow of capital. So now the South is uncompetitive relative to their Northern neighbors. The typical tool to get more competitive is to drop their exchange rates relative to their peers to bring export prices inline. but with the Euro, they can't do that. So they're stuck in a deflationary spiral - difficult (high unemployment, lowered workforce participation) and destructive (business and livelihoods destroyed and permananent damage to the country's wealth generating capacity) considering prices and wages tend to be sticky downwards and thus don't trend in a nice linear manner. The above situation doesn't occur quite as suddenly and badly in the USA among its member states because they have fiscal integration, which enables Federal transfers to poorer states to shore them up relative to their peers. Decay and deflation still eventually happens if the underlying reason is structural (see the Detroit area). But Southern Europe itself was a growth story, not a case of mismanagement but rather a victim of reckless investment with no EU system to soften the blow when there is a crisis. As for the requirements on the money supply, there is plenty of history out there discussing the trouble with previous eras of the gold standard (see the Great Depression), or decentralized free money (the USA had hundreds of currencies in the 18th century- the civil war reparations was the onus to coalesce into a standard Federal reserve currency). We have switched between predominantly commodity (deflationary) currency and debt-issuance (inflationary) currency for thousands of years. There's dangers on both sides.
  - DennisP 13y ago
    Well we also have litecoin, peercoin, and a variety of ideas for future currencies. So we might end up with a pretty nice system of competing currencies, rather than one giant deflationary one.
    - parasubvert 13y ago
      That, I agree.
DennisP 13y ago
Limited, not fixed. Bitcoin's supply is growing, just not near as much as demand. The dollar is limited by not allowing everyone to run printing presses. Admittedly, Bitcoin's growth rate isn't adjustable. In any case, I think there's no way to start from zero value, as Bitcoin did, and go to real value, without some serious price appreciation. The first transactions have to be for quite tiny amounts. Aside from that, I see the deflation as a clever hack to drive adoption. Arguments that it prevents use in transactions would only really apply if it were our only money.

ashray 13y ago

True, and bitcoin does stick to this norm. The rate of bitcoin production is predictable for the next 100+ years. More can be produced with more effort, it's just not as easy as printing notes. So it is adjustable and it is growing. The price rise is caused by speculation and demand, not because new bitcoins aren't being produced.

parasubvert 13y ago
Bitcoin does not stick to that norm. The supply is completely inelastic. Whereas a money supply typically requires different rates of creation or even destruction to respond to the market demand, partiularly in a time of currency hoarding (such as we are experiencing now in the real global economy). There is also a strong argument for multiple currencies with different supplies of money rather than a single global supply, so there can be mutual adjustment of prices and wages without the social wreckage of a deflationary spiral (such as Southern Europe is currently experiencing because of the Euro).
- ashray 13y ago
  How many of those 'requirements' are because of powerful entities abusing the system? What are the forces that have caused those requirements to arise with traditional currencies? Did you mean inflationary spiral for Southern Europe? Or are prices for things dropping there right now? Not sure.. But again, a lot of what happens is because of constantly 'hacking' the system (raise the debt ceiling, print more money, etc.). Using that as the norm and presenting an argument against the 'hack ability' of the new system seems flawed. Maybe there needs to be better research into what happens, why it happens, and how it can be prevented. Inflationary currency most likely isn't the right answer considering the issues it has caused so far... Deflationary may not be either.
  - parasubvert 13y ago
    No one can realistically claim they truly understand the current system. The Austrian economists seductively claim this, but that's because they reject empiricism as a way of challenging their axioms. Keynes seems to have hit upon the most predictive model we have for how economies operate at scale with currency, especially how we can get into depression-like circumstances when internet rates are 0% like they have been these past 5 years. But we are still debating whether he was a genius, villain, or charlatan, because people refuse to look at the data and arguments with fresh eyes. So what constitutes a "hack", vs "bug", vs "works as designed" is a matter for debate. You point to the debt ceiling - that's a non-economic political enomaly unique to the USA (and interestingly, iirc, Denmark). It's not so much a hack as a periodic configuration change. You also mention inflation. Currently there's very little inflation anywhere in the world. We are printing money everywhere, and yet there is no real inflation, not a peep, completely contrary to over 5 years of dire warnings from inflation hawks. Why is that? You'd think there may be a lesson here. Southern Europe had massive capital inflows from the North during the past 10 years, leading to wage and price inflation. Private excesses led to a massive crash in demand when the financial crisis hit, and a major outflow of capital. So now the South is uncompetitive relative to their Northern neighbors. The typical tool to get more competitive is to drop their exchange rates relative to their peers to bring export prices inline. but with the Euro, they can't do that. So they're stuck in a deflationary spiral - difficult (high unemployment, lowered workforce participation) and destructive (business and livelihoods destroyed and permananent damage to the country's wealth generating capacity) considering prices and wages tend to be sticky downwards and thus don't trend in a nice linear manner. The above situation doesn't occur quite as suddenly and badly in the USA among its member states because they have fiscal integration, which enables Federal transfers to poorer states to shore them up relative to their peers. Decay and deflation still eventually happens if the underlying reason is structural (see the Detroit area). But Southern Europe itself was a growth story, not a case of mismanagement but rather a victim of reckless investment with no EU system to soften the blow when there is a crisis. As for the requirements on the money supply, there is plenty of history out there discussing the trouble with previous eras of the gold standard (see the Great Depression), or decentralized free money (the USA had hundreds of currencies in the 18th century- the civil war reparations was the onus to coalesce into a standard Federal reserve currency). We have switched between predominantly commodity (deflationary) currency and debt-issuance (inflationary) currency for thousands of years. There's dangers on both sides.
- DennisP 13y ago
  Well we also have litecoin, peercoin, and a variety of ideas for future currencies. So we might end up with a pretty nice system of competing currencies, rather than one giant deflationary one.
  - parasubvert 13y ago
    That, I agree.

DennisP 13y ago

Limited, not fixed. Bitcoin's supply is growing, just not near as much as demand. The dollar is limited by not allowing everyone to run printing presses. Admittedly, Bitcoin's growth rate isn't adjustable. In any case, I think there's no way to start from zero value, as Bitcoin did, and go to real value, without some serious price appreciation. The first transactions have to be for quite tiny amounts. Aside from that, I see the deflation as a clever hack to drive adoption. Arguments that it prevents use in transactions would only really apply if it were our only money.