Quote from: tee-rex on March 06, 2015, 04:36:07 PM

Quote from: johnyj on March 06, 2015, 03:41:17 PM

Again, it is a common mistake by economists to use currency as an absolute measure of value. But I understand that it is extremely difficult for them to understand that currency's value fluctuates all the time, since they have been using currency to measure value since they barely can do 1+1. If they start from an international point of view by looking at FOREX market, then they will understand that currency's stable value is just an illusion. Get rid of that illusion, then people will not look at the numbers in their account to decide if they are profitable or not, they will look at what they really gain from a certain economy activity

I have just one question. What are you as a producer going to do with negative profit, i.e. a loss that you may incur as a result of decreasing prices? Remember that you have to pay wages from your income, and your employees don't care about your ideas (absolute measure of value and all that) but love cash.

Indeed, if you use cash as unit of value, you will have this problem. And Keynes said that people prefer a rising cash income and rising price over a dropping cash income and dropping price. It is this basic instinct make inflative monetary policy seems reasonable

The problem is, in today's inflation based model, most of the new money do not enter economy as increased projects and salary, those money were used to buy assets and debt, which makes majority of people poorer

However, if new money can not be created at ease, and money becomes more valuable over time, business can still profit if there is demand

Take a bitcoin mining business for example, a mining rig of 2000W power now generate far less bitcoin income than 2011, but as a thumb of rule, the mining operation still roughly holds a line of 6 months return on investment (btc wise), regardless of bitcoin's exchange rate. And now the whole mining industry is making much more income than 2011, they are building larger sites, hiring more people. Those employees have much less bitcoin income comparing to 2011 due to the rise of bitcoin's exchange rate, but their purchasing power increased due to the overall industry is expanding. The reason is simply because the market demand is increasing at a fast pace, it is the market demand, not money supply, decide if a business is profitable or not

On the other hand, during 2014, mining rig price dropped as a result of contraction of aggregate demand, but that is a important sign of market telling you that now demand is weak, you must scale down the supply. Artificially increase the demand by printing more money does not change the fact that now aggregate demand is lower: When you are tired, you should sleep, instead of drinking more coffee. Luckily, bitcoin has a fixed daily supply, so the only way to adjust to shrinking demand is to drop its price and scale down the mining operation, everything worked as it should