Quote from: bubblesort on March 24, 2013, 12:20:51 AM

I don't think that argument is relevant. Surda is basically saying that "yes, this money is horrible at circulating but you can circulate other things instead of money so this money should not be expected to circulate well."

That's like if I walked into a room and saw somebody driving a tiny finishing tack with a sledge hammer and offered them a small finishing tack hammer and they told me "the sledge hammer doesn't drive finishing tacks well but there are other things that do it well so I'm going to keep using the sledge hammer!" and went back to using the sledge hammer to drive the tiny finishing tack.

TLDR; if people do not want to spend, increasing the money supply can trick them into spending but can't "fix the economy".

I think you misinterpreted my argument. My argument is that people's consumption/savings ratio is not determined by the changes in the money supply, but by their time preference, and that people can react differently than described in the keynesian model. At best, the changes in the money supply can distort information about the relationship between scarcity of resources and demand for consumption, and cause people to make decisions that appear are nominally correct but really aren't. In the absence of the distortion (i.e. if the changes in the money supply fail to trick people, there is no insider information and no Cantillon effect), people compensate by postponing consumption using a different liquid asset. This does not require that the choice of the dominant medium of exchange (money) changes. People would still use the inflating money to trade, but will reduce their cash balances in preference to, say, gold. So the price level will rise, but consumption/savings ratio will remain, only the composition of liquid asset holdings will change.

Conversely, if the price level is falling, people will compensate by increasing their cash (and credit holdings in the same unit), and reduce the holding of liquid assets that aren't denominated in the same unit, e.g. commodities such as gold, or foreign currencies. Again, no change in the consumption/savings ratio, just the composition of liquid asset holdings restructures and the price level changes.

People do not magically turn into misers if the price level is decreasing, similarly as there is no reason for people to turn into hedonists if the price level is increasing. Rather, they might be prevented on reacting according to their preferences, for example due to the Cantillon effect, interventionism, externalisation of costs, barriers to entry in capital markets, giving preferential legal treatment to national money such as legal tender laws, capital gains taxes, sales tax on precious metals, and so on.

Please note that I did not actually use Austrian assumptions in my "liquidity portfolio" counterargument (I specifically excluded the information distortion and Cantillon effect). And Krugman wrote papers in the 70s and 80s where he analyses competition of currencies in international trade with respect to liquidity. Let me quote him:

Quote from: Krugman

The discussion in this section has concentrated on the medium-of-exchange role of international money in isolation. In fact, there is some interdependence among roles. The links which seem clear are these: if the dollar is a good store of value, the costs of making markets against the dollar are lower, thus encouraging the vehicle role.

The essence of this argument (people choose their liquid asset holding based on the price changes of liquid assets) is exactly the same as mine. Why he forgot about it after 30 years I don't know, you need to ask him.

The other two problems that I describe in my article, confusing capital with information about capital, and conflating changes in the money supply with changes in the price level should also be acceptable to non-Austrians. In particular the argument that credit deflation must end when banks establish 100% reserves is, in my opinion, so blindingly obvious that I'm baffled how people can still argue that a credit deflation "spiral" is even logically possible.