Post
Topic
Board Economics
Re: Some dilemma regarding investments and social welfare in an all bitcoin economy
by
Impaler
on 23/05/2013, 09:09:13 UTC
Your describing how deflation reduces the incentive to invest.  The systemic effect of reduced investment is that #5 growing future goods in fact do not grow.  But this leads to a catch-22, once their is no growth the conditions fro growth exist again, and once their is growth it's very existence is self defeating.  The result is a fluctuation stop-start serious of growth spurts and growth stoppages or outright contractions which we call the 'business cycle'.

Freicoin developers are well aware of this shortcoming in BTC and have implemented a solution thought up over a hundred years ago by German/Argentine monetary theorist Silvio Gesell.  Coins simply lose face value at a modest rate of 5% a year. This changes the math of #1 to I - Demurrage < R which cascades to allow a real growth rate equal to demurrage rates.