Prices should fall as a result of the gains in productivity. They are only rising as a result of manipulation of money which is not the free market or capitalism. You’re measuring from within that system of manipulation. “GDP” should fall as prices fall to their marginal cost of production.
Discussion
Jeff, while I agree with you, I get Stu’s argument from my friends all the time. How would an economy thrive with a deflationary currency? Their argument is that the economy would contract because everyone would hoard Bitcoins and stop spending. They would all just hoard bitcoins and not buy anything today because they would expect the prices to be lower tomorrow! And why would anyone invest in new businesses if the return on their investments only go down along with their products’ marginal costs? Being in the current system, I don’t have any convincing arguments against that!
Their argument presumes that you people only purchase things because their money is losing value. It is false. And It borders on insanity people believe it WHILE at the same time using a phone that gets better every year, busing a computer or TV, eating food, etc.
I give them the same argument. 🤔
However it seems they believe that growth is what makes an economy healthy. The argument is that Apple, for instance, could not be successful without having prices rising. While it’s production efficiencies are increasing, it cannot repay its debts if it reduces prices. Apple has to have prices rise because it has to service its debts. The argument continues. How can Apple invest in greater amounts of capital equipment without borrowing money first? It would need debt for that. Then later, sales would provide the money to pay off the debt. My answer to that is Apple would have to save enough money to invest in the capital equipment first. The response to that is “fine for Apple… that have lots of money but how would a startup get going without debt? …and if the value of money keeps going up, why start a new business if the return on savings incentivizes just hodling?”
There would still be debt. You could still take out loans. The goal would be to provide so much value with a new product that you make enough to cover your debt OR a company that figured out a way to reduce the cost of a product could borrow to start up and undercut the competition, therefore, capturing all that value to pay back to the lender.
Lending, borrowing, paying off, and defaulting all existed before the current system. To take Jeff's argument, people are so ingrained in this system and the wacky numbers that it's hard to see the other system.
This is a good answer, so many false assumptions in our economic thinking... The money manipulation is ultimately a political beast, as governments keep kicking the can down the road. It's not sustainable, but I fear the chaos that results is not going to make a transition to bitcoin easy or obvious for most.
We need better definitions... Wealth is only roughly correlated to things like money, it's actually created with new knowledge, and has no potential limit. "Wealth is the repertoire of physical transformations that one is capable of causing" - David Deutsch (https://www.exkn.io/optimism). This kind of thinking lies at the intersection of Austrian Economics and Critical Rationalism.
I'm skeptically hopeful knowledge creation (technological innovation) may change things fast enough that the money manipulation becomes irrelevant...
You can sustain a fiat system so long as your nominal tax revenue always grows faster than your nominal debt servicing cost.
If your nominal debt servicing cost is growing faster than your nominal tax revenue then you in a Malthusian catastrophe and your currency will eventually be debased to zero.
We currently have high inflation by design because it reduces the debt/GDP ratio and eases the burden of servicing the debt.
This isn’t an easy thing to do, because it means bondholders are losing purchasing power whilst it goes on. If they sell off it forces you to print more as buyer of last resort and you can actually blow yourself up.
So there’s a fine line, but Fed are trying to walk it. What else are they to do?
Meanwhile, commodities will inflate and you don’t want to be stuck in fiat denominated instruments during these inflationary debt/GDP realignments.
Combine this with an international fiat monetary standard where all parties are doing the same thing and you realize why the transition of the system will come from outside the system. #Bitcoin
Yes, but ones purchasing power increases over time. People aren't going to stop eating, or buying items that they value/need/desire. As far as I'm concerned, this is the main inventive that turns humanity from mindless consumption and creates the incentive to take purchasing decisions more seriously. Economic activity may slow, but that which remains will be far more productive, add more value to humanity and reduce the entropy (waste) found in the current system.
I see one problem in this argument. In a consumption based society where almost nobody knows how to survive on their own means, how do you want people to only hoard their bitcoin?
They don’t have the choice to spend some only to survive. Now they need entertainment. They don’t have the choice to spend again. This argument does not hold any ground what so ever in the current societal model.
If the price of production would fall as technology advances I would argue that people could afford saving more intelligently and therefore also spend more into consumable goods without the use of credit. The money can therefore be used to produce more goods more efficiently instead of greasing the pockets of bankers.
… because sooner or later those people hoarding are dead.
Use it or lose it, you ain’t taking it with you.
What’s your theory how we will solve the issue of many people losing the opportunity to work because of being replaced by technological advancement? The increase in purchasing power doesn’t solve this, does it?
Prices falling to their marginal cost of production does solve. Just hard to see from our existing system that dominates your view.
You don’t pay for the air you breath - why not? Marginal cost of production is zero - except in space or underwater where marginal cost is higher to service that air.
As jobs are replaced, prices fall naturally allowing people more for less which is the entire point of technological progress.
It is hard to understand, yes. How can the marginal cost of living become 0? There is always some sort of minimum energy required to produce something, even if everything is done by machines/AI. And if it’s not 0 how do the many people that have no jobs afford even the cheapest necessities. The only option I see is UBI. But where will that come from? What do I not understand/see that you do?
Follow the trend instead of trying to think of the system in absolutes and designing flaws into it based on them.
(The money from UBI would “have” to come from making things more expensive)
Energy too is likely to follow the trend towards free and abundant.
Have you ever lived in a place that experienced generational unemployment driven by technology?
Because this isn’t what happens.
Karl Marx went deep into this argument. He believed that technology would free laborers from the constraints of capital by enabling them greater productivity and consumption with less work. That didn’t turn out to be the case. Capitalists controlled the technology, so they pocketed the value difference created by it, and just had laborers working for less money.
The people will only gain from the growth in productivity if those gains are not co-opted by our masters. The masters’ plan is to use the technology and make the workers obsolete and destitute. The jobless and poor are the easiest to control.
You hit the nail on the head! With bitcoin our masters can’t co-opt the gains because in a currency with a fixed supply, the productivity gains go down to the workers via the increase in purchasing power. Power is taken away from the elites. Capitalists can still control their capital equipment but they can’t control the economy. The protocol controls the economy to benefit everyone!
Someone had asked what's one of the things a #Bitcoin world will bring about that is most important to you:
My answer is a serious reduction in the work week. As technology brings prices closer to cost, your cost of living goes way down, which means more time spent with family, friends, and hobbies. Will be an amazing world where everyone only has to work a few hours a week for the necessities and open up time for creativity and invention of things we can't even dream.
I hope that’s what we will see
Let’s assume the money supply is fixed.
If productivity rises then yes, prices should fall, if we also assume demand remains constant.
If demand falls then prices might collapse and the additional productivity is worthless.
If demand rises as productivity rises then price might stay constant.
Assuming a fixed money supply, prices are a function of both demand and supply.
If the money supply is not fixed, then prices are a function of demand, supply and money.
In any monetary system demand is crucial in order to justify supply. If demand falls then there is no value to additional supply, whether that additional supply comes via productivity gains, cheaper resources or whatever.