Quote from: vrotaru on September 27, 2011, 08:39:11 PM

Well, maybe I could have said it better. The only reason to save money is for spending it at later date. So for every 10 (20) hoarders who do not spend right now, there's an ex-hoarder who just now spending, spending, spending. Then he will start "hoarding" again, and someone else will spend. That is what I had in mind when speaking about a "constant rate of hoarding".

I see. And I realise I must correct myself. Hoarding doesn't cause deflation, an increase in the hoarded money pool does. A decrease causes inflation.
The more constant that pool is, the more stable V and P.

Quote from: vrotaru on September 27, 2011, 08:39:11 PM

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No. I mean the price of the capital is being reduced and also its nominal yields (assuming the percentual capital yield remains constant).

And the problem is? While it may be only half of the old price but every coin can buy now twice as much.

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Yes, in my example, the baker will buy his supplies cheaper and could also maintain his standart of living with a lower wage, but the interest he's paying for the loan stays the same. Also, if for years he only pays the interest and then sells his capital to pay the principal of the loan, his nominally devalued bakery won't pay the principal of the loan.

I'd say you should qualify your "Deflation is bad". Namely, deflation is bad for entrepreneurs/investors who heavily rely on loans, and especially those cannot learn neither from thought experiments nor experience. Also if everybody expects price deflation even a lower percent become more attractive for lenders. Especially if those are long-time savers.

Call me an optimist, but I really do think that people will learn. If a project is worth starting purely from investor savings then there is a loan percent at which it worth starting from loans. And only foolish investors... but that's obvious.

There should be no difference between investors that rely on loans and investors that doesn't. The self-financing entrepeneurs should think that they're lending to themselves. All borrowers and money holders investors are competing in the same market, the money holder must account the costs of capital-money even if he doesn't have to borrow it.
Yes deflation can lower interest rates (negative inflation premium) but it cannot lower the interest to zero.
A more extremist example:
Stable prices, 5% interest rates and capital yields. The entrepreneur should get at least a 5% profit/yield in his investment.
10% deflation, interest rates (and therefore minimum capital yields) drop to 0.1%, the entrepreneur should get a 10.1% profit yield in his investment.
So effectively the minimum capital yields become the interest rate + deflation instead of only the interest rate.
From my point of view, to meet demand, the minimum yield of the means of production should be 0. When that yield is reached, as much capital of the same type (which competes with itself) has been created. Other profits tend to zero by competition, capital yields don't. But this is another topic.

Quote from: vrotaru on September 27, 2011, 08:39:11 PM

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So if I hoard 200,000 bricks in my house that's going to investment?

Now, that was funny. No, that's not investment. But if you sell the bricks and keep the money, the price of bricks will go down and investors needing bricks will get them cheaper and this way you'll have more investments.

My point that an increase in the hoarding pool doesn't lead necessarily to more investments. You assume that someone will buy the bricks, but they can stay in the stock of the producer. Or the deflation can force him to sell them at a lost, which will cause is bankrupt. Wasn't his business profitable? It was without deflation, but not with it.

Quote from: vrotaru on September 27, 2011, 08:39:11 PM

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1) Not all what is saved is invested.
2) Deflation makes money-capital more desirable in relation to real capital, but money-capital doesn't produce anything if it isn't invested/lent.

1) And there's no need for it. Saving (as in "hoarding") can pull out of circulation a certain amount of money, but it will not pull out of circulation the produced goods. The one which were already sold by savers.
2) No money-capital doesn't produce anything. But... Money hold as capital (uninvested), lowers the prices of goods for money which is invested and makes the investment money more productive.

This may be the central point of our disagreements. You say that money can't yield on its own, it needs profitable investments.
But money performs services on its own and "it can charge" for those services.
Money is by definition the more liquid asset. That represents an insurance against uncertainty that the money holder gets for free. The rest of the money users are paying indirectly for that insurance.
Also, money is needed for trade, even when there's no profitable potential investments nor growth. And "the wares pay" for that reallocating service. The basic interest is included in the final selling price of every product. The merchant not only collects his wage from the final selling price, but also the interest on the liquidity he needs in his operations. Again, if the merchant have the money, it should consider that he's lending to himself, because he's competing with other merchants that operate with borrowed money.
In this sense, capital-money is the only authentic capital (here I define capital as something that has sustained yields rather than means of production) and the interest rate is what protect the means of production (that need financing to come into existence, not simple nets) yields. Capital that won't yield as much as money does is simply not financed, and that prevents further competition within a certain type of capital.

Quote from: vrotaru on September 27, 2011, 08:39:11 PM

Enough, I think. The other points are either minor disagreements, or, IMHO, will add little.

In fact there's a source of major disagreement that you missed there:

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The posibility of hoarding for free, that free insurance (a service that the rest of society provides) is what causes interest.