Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

Quote from: jtimon on June 29, 2012, 07:41:44 PM

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.

Sure, that would be relevant if some government forced people to hoard. However, ask yourself this -- why would there be an increase in hoarding?

A general decrease on interest rates (and capital yields) that is caused just by healthy capital accumulation and prosperity.
See my sequence of events above.

Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

And what's the right reaction to that? (Hint: It's an increase in hoarding.)

You assume that the right action for the individual is always the better for society (or the economy as a whole, whatever you prefer). That's very common but I don't think it is always the case.
In this case, I don't see how it would work.
The medium of exchange is substracted from circulation on the market and that makes it more valuable on the market. Therefore, we need to substract more money from circulation? I think the signal for the money owners here does not balance the cause (a decrease in money lent).

Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

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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.

Same thought exercise: Why would the velocity of money go up?

Only with inflation. With demurrage it should remain constant at a high velocity. No one should ever keep big amounts of money for long. I don't see what circumstances can change this.

Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

What's the right reaction to that? (Hint: It's an increase in the velocity of money.)

When Keynes tries to substitute the hoarded money with newly created money at a lower than market rate the result is lower interest but more hoarding.
When we reach the limit (zero interest), all the money hoarded will flow into the market again in a hyperinflationary spiral that no central bank can stop. The right reaction for the individual is to drop the money first to save himself but I don't see how this is good for the economy.
That inflationary process can also happen (at a lower scale) without an elastic supply of money. After the runnaway deflation (that we agree must stop), the money will flow into the market again, also at an accelerated speed.

Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

Sure, if you imagine a health, stable, productive economy suddenly has some magic change in some parameter for no reason, the effect will likely be bad. That's the problem with government interference in a free economy. But it's not a problem when people react to real changes with sensible responses.

I'm assuming a free market and capital money in my sequence of events. What am I missing?

Quote from: JoelKatz on June 30, 2012, 05:17:18 AM

The "store of value" / "medium of exchange" balance for money is like the supply / demand balance of prices. It pushes consumption and production to optimum times just as prices push production and consumption to optimum items. Sometimes, the optimum time to produce is now, the optimum time to consume is later, and the optimum time to invest is later. When this happens in a sane monetary system, deflation encourages hoarding.

I see how more lending vs spending can lead to more investment. But I don't see how more hoarding vs lending can lead to more investment.
I don's see how more hoarding vs speding can lead to more investment neither. This is what I'm saking you to explain me.