as nostr:nprofile1qqsd6gzh24hc3fjv4ng8t5q87xlysru5njgl6mgvf4vnhtxdk24tmcspr4mhxue69uhkummnw3ezucnfw33k76twv4ezuum0vd5kzmp0qy2hwumn8ghj7mn0wd68ytn00p68ytnyv4mz7qgkwaehxw309aex2mrp0yhx6mmnw3ezuur4vghs8v0ega pointed out, it's a fine metaphor.
maybe its difficult to visualize the external air pressure as "demand for money" but it checks out đź‘Ť
so if the balloon shrinks despite internal pressure increasing (more moneys), is it still inflation?
As I said, I believe demand for money is infinite, so I don't think the balloon metaphor is applicable.
the price of one unit of the current reserve currency ("money") is 921 sats.
or two bananas
or â…” a can of tuna fish
or 5 rounds of 9mm
not infinite.
but beliefs are nice i guess.
That's not demand for money, those are prices/worth as measured in different things.
the Austrian School generally treats money as a commodity, it's price measured by its purchasing power.
if people have higher demand for money, it would naturally be more expensive as measured by other goods.
No, demand is finite in price theory. It has dimensions of quantity, price, and a curve moving along different quantities & prices. It also has many inputs that can be quantified by elasticities.
It is the individual's desire that may be considered infinite, but even them we have ordinal numbers to determine what desires are stronger.
You are possibly reinforcing the metaphor…a system where external pressure (money demand) dominates internal pressure (money supply) = shrinking balloon = deflation.
Demand for money is not infinite. In fact, there is no real demand for money at all, only demand for the things you can buy now or in the future for money. So you want the money to buy other things, not for the money itself. The closest thing to organic demand for money is the store of value trait of good money; you temporally arbitrage production changes relative to money supply hoping that that money can buy you the same or more value in the future, that's another dimension added but is still ultimately only demand for the things money can buy.
This means 2 things of course, one, that "demand for money" is ultimately only network effects (the set of all markets accepting a type of money is a network) and two, that "demand for money" and supply increase do not occur in lockstep, there's an interesting feedback loop there actually, but that demand follows supply increase relative to production increase.
đź‘€
Why would you say it's only network effects (unless you guys are talking specifically about demand for one kind of money over another)?
The way I see it is the following: money is demanded fundamentally because of uncertainty, i.e. economic agents don't know what they need in future and how much of it they might need. They don't even know what might be available in the future in the first place, so at virtually no point will somebody refuse to have more money for the same amount of effort, whereas one might stop wanting more units of a particular good or service for obvious reasons.
more fundamental than arbitrage against uncertainty is simple exchange. we need something to trade for shit we need.
"demand for money" is the liquidity for the different economic nodes that want to exchange with each other. not individuals wishing they had more purchasing power or greater hedge against future uncertainty. at least in the strict economic sense.
so when the macro demand for exchange increases, it isn't inflationary for there to be a similar increase in monetary units.
So, demand for money is demand for things you can acquire with that money. It is demand for access to markets that utilize that money. Necessarily this is demand for one kind of money over another, because you want the things that money can buy and there aren't very many markets (yet) where merchants let you decide which money you want to give them. And when people select a money that they decide they want to have, they're going to select the one that's easiest for them to use to get the things they need, which is going to be the one that others also want because they need to spend to get the things they need and so on. Textbook network effects.
Money is demanded fundamentally because of hunger and thirst. And nobody will turn down more money because it's this magic substance that be transformed into anything they want; they want other things and that's the appeal of money. But yes, uncertainty about the future is risk that can be negated by just having more money. That risk calculation is actually the same math a fractional reserve banker would do to determine how much reserves they need on hand, which is fun to think about.
and also point should be made
the number of vertices in this diagram is what is colloquially known as "demand for money"
(theres also a conversation about interest and time preference to be had)
