Quote from: jerye on June 12, 2013, 11:25:55 AM

There ever exists only 2 types of investments. I being investments and R being next period returns and currency being capped:

1) I
2) I>R. Keeping the money makes more sense then investing. So these investments are never made.

The problem with a capped currency is almost all investments fall into category 2 and therefore a bitcoin only world would stifle investment.

Read more: https://bitcointalk.org/index.php?topic=213860.0

You are right about the premises but not the conclusion, because your economic thinking is wrong.

Lowering the level of investment is not wrong if the level of investment is too high.
There is a healthy level of investment (E.G. between 10 and 20% of your net worth) and there is unhealthy levels (E.G. less than 10% and more than 20%).
In the case of not enough investment, the society (or individual) is not able to rebuild the capital consumed in production (E.G. substituting a milling machine with another milling machine when the first become obsolete or break down)
In the case of too much investment, the society (or individual) is investing in something unable to return enough to justify the investment (and associated risks). In short, the investment is at a loss.

With a fixed money supply it is impossible for the government (for anyone) to manipulate the currency so to cause booms and the correlated busts. It can not push people to invest just because it drugged and doped the markets with unlimited cash injections.

As too much money is spent in investment or consumption, the prices spike and people is forced to slow down investment and consumption.

As consumption is lower and only high yields investments are allowed by the markets (compared with inflating fiat), people is able to continuously accumulate real capital (stuff) to use to increase production, make it more efficient, and so on. Capital accumulation is fundamental, because productivity is linked to the capital available:
a man with a shovel is a lot less efficient than a man with a caterpillar, but the latter need a lot more capital.
The work done by the first is one or two orders of magnitude lower than the work done by the latter, but the capital needed is much lower.
The first could be able to earn 5$/hours where the latter could earn 20$ (after the costs are deducted) but one need just 10$ of capital where the latter need 10K $ of capital.
The first could save 1$ at hour of work where the latter could save 12 $.

With a depreciating currency like the US$, with an inflation of 5% (if it was so low) a men would need 500 hours of work (around 6 months of work) just to keep the value of his saving constant at 10.000$ (and be able to move from a hand shovel to a mechanic one).
First year he would be able to save 2800 $, but the price of the MS would be 10.500.
In the second year, he would reach 5600+140 (he also raised his earning of 5% - if he is lucky), but now the caterpillar price is 11.250 $.
In the third year he reach 8827 US$ and the price would go to 11812 $.
In the fourth year he reach 12.068 US$ and the price move up to 12155 $.

If the currency kept his value (so prices are stable) he would be able to buy a mechanical shovel in 3 years and half, where with a 5% depreciating currency he would be able to buy it in just more than four years.
This guy would delay the ability to go from 5$/h to 20$/h for more than 6 months (months he would just work, eat and sleep to save as much as possible).
Due the additional six months, he would not be able to earn 42.000 additional $.

The difference between the two scenarios are staggering: the US paper $ (with 5% inflations) guy lost 6 months and 42.000$ (in constant purchasing power) compared to the gold $ guy.
These 42K$ and six months are available to consume and invest more and earlier.

In the inflating scenario, the people increasing their purchasing power faster are the people able to obtain newly printed $ before all other at low interest, buy stuff and resell it later at higher prices (aka carry trade). They do not benefit society with more good and services, just suck wealth from it.