Quote from: bitzox on June 17, 2013, 09:34:17 PM

ok, you're trying to argue some of the finer points of economic theory without a basic understanding of the economic knowledge that underpins said argument. For example your assumption about why we went off the gold standard is 100% wrong, it had 0 to do with a finite supply of gold and everything to do with competitive currency devaluation and the funding of an unpopular war in Vietnam. For reference see this for the short version

https://en.wikipedia.org/wiki/Nixon_Shock

Or this for the more complete coverage

https://en.wikipedia.org/wiki/Bretton_Woods_system

Also if you think that we didn't realize their was a finite supply of gold until the 20th century you are seriously insulting the intelligence of everyone who lived from the Renascence (and probably before that) until 1971 when the gold standard was officially abandoned. In addition you must realize that the supply and demand for a medium of exchange is inherently different from the simple supply and demand curves discussed in most econ classes. Growth in population does not ipso facto mean an increase in demand for currency. Prevailing interest rates have a much bigger effect on the supply of money than population growth. This will be especially true as population growth stalls, which according to the UN will occur sometime in the 22nd century at around 10 billion people. The capacity for population growth is not unlimited, thus invalidating this "obvious fact:"

Quote from: sidhujag on June 17, 2013, 07:04:33 PM

Obvious Fact: Population growth is not capped

As to the argument that deflation promotes hoarding and stifles economic growth and innovation, you are partially right but your logic in getting the the almost correct conclusion is faulty. My first counter example is any kind of electronic you have ever purchased in your entire life. You knew with 100% certainty that if you waited a year you could get the same performance for cheaper or better performance for the same price. Yet at some point you decided to go ahead and buy said electronic. This is a perfect example of what would happen in a truly deflationary economy, it promotes responsible consumption, rather than rampant conspicuous consumption promoted by our current economic model.

This is 100% a good thing for humanity and society as a whole. Just as the total supply of bitcoins is limited, the total sum of all natural resources is limited. You cannot have economic growth in the 5-6% range every year going forward to infinity. Their are limiting constraints (land area, oil, minerals, water, etc) that will impose upper limits on our consumption. I cannot stress this point enough, a money supply that is allowed to grow infinitely will eventually destroy itself as natural resources are not infinite.

On to the divisibility of bitcoin. Many deflationary economies ran into trouble because the medium of exchange was not fungible enough. As deflation occurs and prices fall, things eventually should be priced below the smallest possible denomination. Bitcoin solves this problem by being essentially infinity divisible (obviously its not truly infinite but for the purposes of this discussion we can assume that it is). This means that no matter how far prices fall bitcoin can adjust so that no product or service becomes to cheap to purchase. For example int he US you cannot buy something that costs .5 cents with cash, you need to buy do or make the transfer electronically, bitcoin avoids this problem entirely.

This completely invalidates your "obvious fact":

Quote from: sidhujag on June 17, 2013, 07:04:33 PM

Obvious Fact: More people on earth means more demand for natural resources as basic necessities, and as a result more currency in circulation has to supply the demand for these resources.

In fact more currency coming in to circulation simply devalues all currency currently held in circulation, it does nothing to "supply the demand for these resources" a quote I cant make any sense out of. (To avoid future misunderstandings I suggest you replace the blanket terms supply and demand with more specific terminology, especially when taking about multiple supply demand curves). I think here you are trying to say that as demand for natural resources increases (while supply of NR stays constant) the supply of currency needs to increase if we want to keep the price of said natural resources consistent. If the supply of currency is constant while demand increases the price of said currency will rise meaning the price of said natural resources will decrease (currency is more valuable so you can buy more with it).

So instead of increasing the supply of currency in a futile attempt to maintain prices why not let prices fall as the value of money increases? This dovetails nicely into a discusses of innovation. You talk about profits being squeezed out so people would be less likely to pursue innovation. Because bitcoin is infinitely dividable we never have to worry about profits going to 0, as we can just divide the currency into smaller and smaller denominations. At the same time the price of goods is going down. Would you be willing to risk money to make a 1 Satoshi profit per product sold today? of course not. But would someone 100 years from now be willing to do it when a Satoshi is enough o feed a family for a year? Of course.

Their are numerous examples in history of deflationary economies succeeding, they are just ignored by Keynesian economic thinkers, which is why you probably have never heard of them. Scottish Free banking in the 18th and 19th centuries come first and foremost to my mind. The Mystery of Banking by Murry Rothbard has some great examples of how deflationary economies can work and how inflationary ones are doomed to failure by definition(as well as a host of other interesting topics). He does a much better job of explaining why in great detail so if you don't believe my brief and incomplete treatise on the subject I would suggest you read it.

I know I probably didn't address all of your points or concerns but I think this is a good starting point.

TL:DR Population growth is capped by natural resources, an infinity divisible deflationary currency allows for innovation through lower prices. People will accept lower wages because prices are lower. Supply and demand for a medium of exchange cannot be equated to supply and demand for a good or service. Read stuff by Murry Rothbard

Wow great stuff, this is the kind of reponse I was hoping for.

I will reply when I have time to read through the entire post, but kind of wrote ad hoc and not politically correct on purpose because 1) I'm a programmer and inherently lazy and 2) I didn't think anyone would care and would "just get it".

ie: Obvious Fact: Population growth is not capped

For our purposes its not capped, we aren't at a point where the Earth cannot handle any more people, at that point we won't know what we will do, build into the sky? who knows, either way as of now and foreeable future growth is not capped.

and you pointed out that interest rates > population growth for currency supply. Yes but what is the underlying driver for interest rates? It is based on inflationary/deflationary pressures and as more there are more people, more people working earning money, it becomes deflationary if currency is capped. If you divide that currency, the value at each you work for also decreases unless the value of 1 btc increases the same amount that you divide the currency ie 1 decimal place and you have 10x increase in value.

You misunderstood also when I said that I liked a currency that can grow infinitely, yes but at what rate did I say? Alt's with no cap aren't growing or can't grow by design like the USD is growing. The rate at which it grows is the key in understanding why a no cap system in this case works while a cap system may or may not. In the end its all about incentive, and you have to drive the economy with the right incentives, although deflation sends the right messages, in practice a pure deflationary economy offers minimal incentive for the service or production side of a market because there is simply not enough of it over just working+holding money.

Basically if you dumb the problem down to 10 people, the money supply will be based on an interest rate which is a result of a) what those 10 people are buying/selling at going rates, which is affected by rules/incentives/external resources used and a maximal cap to that resource, how precious is it? as well as the number of people in the system which may act in the system.