Quote from: JoelKatz on June 26, 2012, 11:34:25 AM

Quote from: jtimon on June 26, 2012, 10:28:33 AM

Think of an island of farmers that hoards money during good times. When a disaster happens all habitants take their money out to buy food but there isn't. Where's the storage of value here?

The storage of value is the goods the currency didn't buy. If I buy a can of beans and eat it, that can of beans is gone. If I instead save my money, that can of beans is still there.

When you do work, you are paying into the economy, providing goods and services for everyone else. When you spend your money, you are taking out of the economy, cashing out the value you deposited.

Great so far. Only add that the beans are still there as wares. And wares perish. The perfect example is labor, a ware that perish fast and irreversibly. If today nobody uses one man's labor, those labor hours will be lost forever. Wares that don't perish so fast, imply storage costs thus increasing the cost of commerce (which a good money is supposed to minimize).
Anyway, let's go back to your point...

Quote from: JoelKatz on June 26, 2012, 11:34:25 AM

When you hoard money, the economy has the benefit of the goods and services you provided to get that money but hasn't had to pay you out. You have invested in the economy as a whole at that point as your goods and services provide benefits to others that grows the economy as a whole. At some point, you spend that money and cash out the investment of the goods and service you provided.

Under ordinary circumstances, deflation reflects a healthy economy. You invested goods and services into the economy and then deferred withdrawal, earning interest because your contribution to the economy continues to make possible other economic growth.

Ok your explanation is that hoarding money is in certain sense like "owning shares of the economy as a whole" and since you haven't redeemed your services for another service yet, you're somehow entitled to that profit.
But growth comes from investments. I see how lent money enables more investing, but I fail to see how hoarding produces the same thing.
Because you want make use of the demand you deserve and the supply remains the same, prices fall. When prices fall because the supply is increased, everything is fine, we're being more productive. But I don't see how a drop in demand makes us any good. When demand for consumption goods is replaced with demand for capital goods (when investments increase) I understand that more prosperity should follow, but you're saying that deflation is good per se even when it's not a result of an increase of the supply of wares.
This hoarding deflation also reminds me to a ponzi scheme or at least to a bubble on money.
Say we hoard 5% of the PIB each year. Each year, the profit to the money hoarders in concept deflation increases more, because the more we hoard, the more deflation there is. Imagine we reach a point in which we've hoarded 90% of the total money supply and use only the remaining 10% for trade. When the hoarders try to "cash out" those profits, the bubble will burst, only the firsts to "cash out of cash" will take the proffits, the last ones will find that there's an incredible inflation now and all what they counted as "profits from deflation" are gone.
An economy that hoards money during fruitful years is not better prepared for later years of scarcity just for having piled up that cash.
"The harvest has been a disaster this year and the supply of wares in general has been reduced, but don't worry, we all have lots of gold hoarded at home." But with hoarded money you can only increase "the demand" in future years, the supply won't increase no matter how big our monetary reserves.
So why allow the demand to be artificially withdrawn from the market? Why allow hoarding at all?
To enable money to perform the so called "storage of value" function?
That's not even possible. We would be asking for magic.

Quote from: JoelKatz on June 26, 2012, 11:34:25 AM

The myth is that spending grows the economy. In fact, spending withdraws value from the economy. There is no difference between your buying a banana to eat it and your buying a banana to destroy it. That consumption grows the economy is our old friend the broken window fallacy. It is production that grows the economy.

In an economy that isn't manipulated by people with guns, deflation reflects the return on investment of deferred consumption -- providing value and then not taking one's compensation until later.

I agree that the broken window example is a fallacy and that "spending grows the economy" is a myth. But not my myth.
What I'm saying is that money should not try to perform the function of store of value and my island example was in fact an attempt to prove that it is not even possible. When money can be withdrawn from the market, from its function as a medium of exchange, it affects general prices in ways that can be dangerous.
My claim is that a deflation caused by an increase in hoarding is not equivalent to that caused purely by economic growth and increased efficiency. Deflation caused by an increase in hoarding (a decrease in the velocity of money) is not harmless. Ideally the velocity of money should remain more or less constant and demurrage is the only thing that I know that can produce that desired result.