Quote from: toknormal on June 15, 2016, 09:29:28 PM

Quote from: adamstgBit on June 15, 2016, 07:54:21 PM

all i'm saying is i dont buy the idea that we CANNOT have stable prices with a fixed monetary supply

Well I think it's time you bought it Wink

You run a fairground. At the entrance people buy tokens - 1 token counts for 2 rides. Inside the fairground, there is only 1 currency: token currency. (Call it Bitcoin if you like).

Each day, you have an average of 100 people inside the gates at any one time, each person buys on average 5 tokens. So you maintain a "money supply" of 500 tokens which are constantly being recycled, even though the ride capacity is not fully utilised.

Then one Saturday, due to excellent weather, you get a 50% surge in visitors. Now you have 3 choices:

1. inflate the prices so that 1 ride costs 1 token instead of half a token
2. turn people away
3. get more tokens (inflate the money supply) and keep prices the stable

Sure, you can have stable prices with a fixed monetary base, but only if demand for liquidity remains stable (which is cannot in a dynamic economy).

I understand what you are trying to say, but that analogy is a plain fallacy.
The cap on your "token driven fairground economy" isn't the number of tokens on that Saturday afternoon, but the capacity of your riders. You could use solution no.1, or 3. still the number of people/hour who can use the rides is hard limited by spacetime:)

Also, i think you made a grave error in the calculation, which is you only spoke about supply side; if people really want to ride the marry-go-round, they will compete, like paying more than the usual 2 tokens/ride(!!) - that is a clear price function, if demand > supply, price goes up, even if temporarily, and especially with fixed money supply (isn't that the whole point of prices, to allocate resources for needs for the highest marginal utility ?).

Solution number 2. is not a choice only in case if none the would be buyers agree to pay more than the usual 2 tokens. Otherwise, the fairground owner will have a blast day :-). Or, you should calculate which solution is better: 1/2 the token price/ride versus the max number of people served paying the original 1/1 price.

So, in short, the whole idea, that fixed money supply can not serve an economic system seems flawed to me, because it does not matter, which side of the equation you take as given (supply or demand), you can always put temporary market multipliers to either side. (in other words, deflation is the exact thing as inflation mathematically, but in deflation demand drives the multiplier, in inflation the supply does.)

EDIT: don't get me wrong, i have read your post about the derivates, fascinating stuff, still i disagree. If Bitcoin is a near 100% liquid base, M0, than it is like a child play, to make technical solutions - sidechain tokens representing the same function as derivatives, still not over the fixed supply (!) to mitigate future risk. The whole problem of today's monetary system is that the overwhelming majority of derivatives represents way more than simple risk mitigation contracts - casino gambles basically. See this chart for that example:

http://i2.wp.com/money.visualcapitalist.com/wp-content/uploads/2015/12/all-the-worlds-money-and-markets-dv.png?w=1130

EDIT2: do not get me wrong, i love Your thoughts and writing, very comprehensive, i love the deepnes behind them, i just happen to disagree on this one -maybe i am totally wrong, please do your best to disprove me :-) . Respect!