Post
Topic
Board Bitcoin Discussion
Re: on what condition can people have fath for bitcoin just like for gold?
by
Peter R
on 20/03/2014, 15:59:18 UTC
The amount of money in a nation's money supply is crucial to the health of its economy. If there is not enough money in circulation, the economy cannot grow.
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That's just a part of Econ101. It's one of many basic economic principles that very few people here seem to understand.

This is not true, regardless of whether you're a Keynesian or an Austrian economist.  The quantity theory of money states that

   M V = P Q,         (1)

where M = money supply, V = money velocity, P = price level, Q = real output (goods, service, etc).  I think the vast majority of economists agree with this equation, although their opinion may differ on how it should be used.

It is common to associate a growing economy with growing real output, Q (i.e., more goods being produced, more services being used, etc.).  If you re-arrange Eq. (1) to solve for real output, Q, you get

   Q = M V / P .

So real output, Q, can grow three different ways (or more properly, it has 3 degrees of freedom):

   1.  Money supply, M,  can increase (what you said).
   2.  Money velocity, V, can increase (e.g., an increase in the rate that bitcoin-days are destroyed)
   3.  Price level, P, can decrease (the feared deflationary spiral).