Quote from: unk on June 26, 2011, 06:05:01 AM

Quote from: westkybitcoins on June 26, 2011, 05:41:50 AM

First, let's look at "who benefits and who suffers." In a centralized, inflationary monetary system, this is pretty clear. The primary beneficiary is the one who gets to create more money (or I suppose more accurately, those immediately able to use the new money in exchange for goods and services at full value. This could be the central bank itself. This could be the entities bailed out via newly minted cash.)

just as an example, bailouts of banks are an extremely recent phenomenon and have little to do with historical inflation. i've never criticised anyone who opposed bailing out the banks. i simply insist that people who criticise the very existence of central banks at least try to learn, in detail, how newly created funds enter the monetary system. almost nobody here seems to manifest that understanding, but that doesn't stop them from criticising the system they don't understand.

OK. Do you agree that the primary beneficiary in a centralized, inflationary monetary system is the one who gets to create more money? If not, who is the primary beneficiary?

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What about with bitcoins? Well, remember that the bitcoin network doesn't go and periodically destroy bitcoins. There's simply a cap on the number of them that will ever exist. So the primary beneficiaries of any deflation are ALL the voluntary holders of bitcoins. So far, no problem there, is there? And the primary suffering in this case? Those who lose their bitcoins.

Please take a second and think about how ingenious that is.

ah, the near-religious faith in the 'ingenious' design of bitcoin. as i've demonstrated many times before, i've studied the code in detail and have commented on its strengths and weaknesses; i don't need to sit and reflect on its ingenuity.

nothing about bitcoin depends on a shift of wealth from those who lose funds to those who keep them. indeed, bitcoin would probably be stronger, rather than weaker, if there were a convenient way to recover funds that were lost, as some developers have proposed via a 'keepalive'-like system or a variety of other mechanisms.

(strictly speaking, 'deflation' is a bit imprecise when applied to a system where the money supply stays constant, and 'non-inflation' would be a more precise term, but i'm using 'deflation' the way most people do in this forum - that is, in a way, that does not at all depend on funds being lost by people who corrupt their wallets.)

the wealth transfers i was talking about are more complex than what i think you have in mind. for example, in a non-inflationary system, wages will need to fall as prices fall, and wealth will be transferred based on the relative rates at which they fall. note that the relative rates cannot be derived theoretically, because in the real world they depend on complex macroeconomic and psychological factors. if you propose a world with no transaction costs and perfectly competitive markets, you propose an ideal world that doesn't exist, and the economic conclusions you reach won't be particularly useful in our world.

OK.

(1) Who initiates these wealth transfers in a non-inflationary system?

(2) Who SHOULD be the initiator of these wealth transfers in a monetary system?

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Third, there's something far more fundamental we're overlooking. Our opinions on the issue don't matter. The fact is: people choose non-inflationary systems. You can call that stupidity, ignorance, cowardice, whatever. People do. They do it over and over, every time. They choose non-inflation over inflation. This is proved by the fact that governments have to resort to legal tender laws and having tax payments required to be in their own currency.

it's absolutely not proved by that; many other things explain legal-tender laws, both historically and conceptually. if you adopt this sort of reasoning, you just assume your conclusion. the point i've made many times in this forum, in much greater detail, is that the inflation or deflation of a monetary instrument doesn't matter at all for investment decisions unless you take into account contextual factors, because if you're occupying an ideal theoretical realm, the inflation or deflation of competing instruments can be priced into the instruments. in the 'real world', of course, that pricing is imperfect, but that doesn't mean that inflation or deflation magically 'wins', and there's absolutely no historical evidence to bear out the kind of phenomenon you're describing (the systematic preference by large populations for deflationary currency instruments).

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Gresham's law ceases to exist in the absence of coercion. Thought experiment: go to a nation, any nation. Give them a choice: they can transact in a non-inflationary fiat money, or some other inflationary fiat money, or even both, with all contracts and debts honored equally. They can pay taxes in either form of money they wish. Of course, they still can have access to all the other means of asset protection; just ensure there will be no penalties or punishments given to them for choosing one fiat money over the other in regular use. Oh, and don't bar anyone from informing others about the true natures and consequences of each.

Which of the fiat monies do you think people will choose? Seriously, is there even any question?

you're forgetting that the exchange rate between the two will matter, as well as the relatively riskfree interest available in both. you can't compute the merits of the competing instruments without considering those factors.

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So say what we will, people have spoken. They don't want inflationary monies. THE MASSES DISAGREE WITH YOUR ASSESSMENT OF THE ILLS OF A NON-INFLATING CURRENCY. They only deal with it because it's forced down their throat by people who feel the need to save them from themselves.

i think you're just repeating this point over and over, but which masses? where? if your economic understanding of the foreign-currency markets is coming from the wikipedia page on gresham's law, note that at present it's simply an unjustified tirade against legal-tender laws, as many people in the 'talk' page of the article have pointed out.

I really didn't think you would even dispute this. I actually thought "no one would publicly try to defend the idea that the majority of people would voluntarily choose an inflationary currency over a non-inflationary one."

Once I saw that you did, I even got ready to ask you what sort of evidence you were going to accept to the contrary, and to spend time accumulating it for this post.

But I have a better idea....

Let's presume for the moment that you might be right. That people, in general, naturally gravitate toward an inflationary currency as opposed to a non-inflationary one.

If so, would you advocate for the abolition of legal tender laws and of the mandatory payment of taxes in a government-created medium of exchange?

That would seem to be the most important point here.

If yes, then good, I agree with you. Let's just see for ourselves the result.

If no, then why not, if doing such wouldn't result in an exodus of people from inflationary currencies anyway?

(EDIT: Slight tonal adjustment)