Quote from: myrkul on April 23, 2013, 12:19:37 AM

You know, impaler, increasingly I get the impression that you are conflating interest with inflation, specifically with credit expansion.

I don't know whats giving you that idea, all my NPV examples lack any adjustment for inflation because both of us agree inflation is bad and no one in this thread is advocating for inflationary money. Demurrage can and should be implemented alongside policies that target zero long-term inflation. Your objection to inflation is different or perhaps just more inclusive in that you believe it has a whole slew of negative effects, I believe it destroys price information in the economy and I see no positive effect from it that can not be achieved with demurrage so I reject it on the price information basis alone and do not need to defend it.

Their is also a subtle argument against inflation that I've heard and while open too am not entirely convinced of, that is is by nature non-uniform across the economy. The new money created either by the printing press or through credit expansion generally get put in the hands of the same people first (entrepreneurs able to get loans or government) and they enjoy the benefits of the preexisting low prices before they are bid up and then simultaneously enjoy paying back their loans with money that has reduced value (unless the lender is wise enough to pad the interest rate to compensate for inflation). Now this isn't to scapegoat entrepreneurs, governments or banks, the fact is you have new money entering an economy in a non-uniform manor and you would have the same problem if it was all given to the poor or any other select group, every dollar held is not spawning a nickle to making every individual 5% wealthier (nominally). So it must 'ripple' outwards in waves and cause disruption in prices and possibly creating a significant wealth transfer. Demurrage because of it's absolute uniformity won't cause that, it's a bit analogous to how the surface of a bath tub remains smooth when you drain water from the bottom, but it is covered in ripples when you fill it from above with the spigot.

The effect of inflation is generally included in the Discount rate of a NPV calculation because its one factor that would lead us to discount future money. But inflation if it is truly a broad and uniform increase in prices and wages then our future cash flows should increases even as our business activity remains consistent. If we take inflation into account to increase our discount rate then we should also modify the expected future cash flow.

So in our tree example lets add 5% inflation. Now if the $1000 dollars is what lumber sells for in the present then we can expect that lumber to be selling for $131,500 in 100 years after 100 years of inflation. The discount rate is now increased to 10% by combining the interest rate and the inflation rate. The tree is once again worth just a few dollars and the whole venture is unprofitable, effectively inflation is canceling out if it's on both sides of the equation. If their were no demurrage and no interest at all and we had a discount rate of 5% from inflation alone, and used the expected future inflated price of lumber then this would also cancel out and give a $900 profit.

Only problem is we expect inflation to effect interest rates to some degree. Maybe the effect is the same as demurrage, maybe not. As I said I'm not defending inflation and think it has significant downsides that rule it out as a solution when we have demurrage as a better option, so I don't really care to go into it's effects. But don't think I've confused inflation with interest because I'm counting the interest rate as a discount rate for NPV calculus, if I can put money in a bank and get X% return then any future sum of money needs to be compared to how much money I would need to put in a bank today to get that much. In the simplest example a dollar one year from now is worth 95 cents today because if I had 95 cents today I could put it in a bank earn interest and have a whole dollar in one year. Being able to earn interest makes them equivalent and thus discounts the future.