Worth noting is that until bitcoin there was no such thing as a fixed commodity money. The concept of perfect/known scarcity is a new phenomenon.
Discussion
perhaps also worth noting that Mises and Rothbard specifically say that the number of monetary units doesn't matter.
I agree with them but probably for a different reason from you.
at the risk of preaching to the choir 😅
Mises defines inflation as increase in the money supply ABOVE increase in the demand for money.
so according to him,
increasing the money supply along with demand for money isn't inflation at all.
I’ve always had trouble with this because all else equal prices don’t change but under what circumstances is there the same demand and supply (no change) of products and services but an increased demand for the money? Breaks my brain a little. But I’m not deeply studied in these things.
If Satoshi's coins move to a burn address, demand for that money likely goes up.
If Satoshi's coins move to Binance, demand for money likely goes down.
(all else equal)
Sorry I’m late to this party…
You can have the same demand and supply of goods and services, but an increased demand for money when people choose to hold onto money instead of spending it, usually due to fear, uncertainty…So that will reduce the velocity of money, leading to deflation.
I think Bitcoin's fixed supply is a meme and nothing more. I believe money needs a certain amount of inflation or else hoarding becomes more important than spending which defeats the entire purpose of money as a neutral MoE. This is why I love Monero's tail emission, it solves the fixed supply hoarding issue and also long term protects the chain's security.
on a Bitcoin standard, it is against peoples interest to invest their own money,
since everyone's money automatically becomes more valuable from the investments made by *other people*
why NOT just hold when you can reap the value creation of other people without any effort?
Here’s why I don’t believe a fixed money supply would stop investment.
Human nature plays a key role, where people are driven to accumulate more. Even in a Bitcoin-based system, the incentive to grow wealth remains. Investing in companies involves risk, but the potential reward is earning more sats. That incentive structure doesn’t go away just because the money supply is fixed.
If global productivity increases by 2–5% annually, individuals will naturally seek out investment opportunities that outperform that baseline. The pursuit of returns above average productivity is what drives capital allocation, innovation, and entrepreneurship.
A fixed money supply doesn't inherently cause harmful deflation, it simply reflects improved output. Money acts as a measuring stick. If there's only one week of food left in the world, the price of that food will skyrocket, even under a Bitcoin standard, not because of the monetary system, but due to scarcity.
Investment thrives on incentive, and incentives don't disappear in a hard money system.
I could be wrong, but I haven't found a compelling argument as to why it is yet.
Tbh i don't think you're really wrong. an equilibrium will be reached and there will still be investment.
but in setting up a permanently deflationary condition, we are actively discouraging it.
the more economic growth that exists, the greater the incentive for each individual to not invest.
in addition to my concerns about setting the barrier to entry too high, its just a bad incentive structure to have everyone profit at the expense of those who actually generate economic activity.
That's a fair concern. I'm not sure however if I agree with the framing that everyone profits at the expense of those who generate economic activity.
I don't like leeches, which is partly why I hate the current welfare state. But I do like that everyone benefits from technological advancements over the long term, even if they didn't directly contribute to it.
isn't that what it is though?
the amount on monetary deflation is directly proportional to the increase in economic activity.
only some people generate the increased activity.
but everybodys profits through increased in buying power.
Yes, but wouldn't those who generate the increased productivity outperform the price deflation, gaining more purchasing power than the average non producer?
i dont think it's necessarily true that they outperform. as long as their investments are profitable right? because they get the deflation plus whatever extra.
but they're not necessarily profitable of course.
they're business owners VCs and whatever who are targeting some amount of return and increasing economic activity over what it would otherwise be.
but they increase GDP and contribute to the deflation even if individually theyre not profitable.
the deflationary level becomes a target they need to beat to justify investing their capital. it raises the bar and slows economic activity.
its understandable after decades of irresponsible debasement everybody is excited for deflation. but its really just PTSD and not good economic thinking.
I think I understand what you’re getting at. Essentially, the need to outperform the deflation rate sets a higher bar for investment returns, which raises the barrier to starting a business and could slow overall economic growth. Is that the core of your argument?
You may be right, and it’s something I’ve thought about too, but I tend to believe the stronger argument is that economic growth would actually accelerate under a fixed money supply, not decelerate.
As I mentioned earlier, prices would become a key signal for productivity. If the price of certain goods drops significantly, entrepreneurs may not feel an urgency to act, since the potential reward wouldn't justify the risk of investing capital in that direction. But that’s the point: the market is signaling that no additional productivity is needed there at the moment. On the other side, even under a fixed monetary system, if a product or service becomes scarce, whether globally or due to local conditions like natural disasters, prices will rise. This rise signals an opportunity and incentivizes new production where it’s actually needed.
Personally, I believe a fixed money supply wouldn’t suppress innovation or productivity, it would redirect it more efficiently. Productivity would slow in oversupplied or low-demand areas, and increase in areas where supply is constrained and demand is high.
For example, if energy costs spike in one region, the market is signaling a potential profit opportunity. If costs are low elsewhere, it’s signaling that capital may be better allocated elsewhere.
Markets need elasticity, but the key question is where that elasticity should exist...
In a system with hard-capped money, I believe that flexibility would manifest in prices rather than in the supply of money itself.
Elasticity in pricing > elasticity in money
By the way, I don’t think enough Bitcoiners make a real effort to steelman the argument for monetary elasticity. Instead of just reinforcing their own views (which I do think are directionally correct), it would be valuable for more of them to understand how other economic schools actually see the world.
Also, just want to say, I really appreciate you. No homo 😂
When things become so easy to make that there is very little profit, they will be included in other services as a way to improve the other service. Calculators are essentially free now, yet we all expect them to be available on our phone and computers. It took effort to put them there, but it just contributed to a larger product.
For a more physical good example. Lets say for instance, it was no longer profitable to sell shoes because they were so easy and cheap to make, that there was an over supply and prices fell dramatically. Well people still need shoes. So maybe instead of buying shoes, theyre just available for free at the grocery store, with stores providing this as a service to attract customers. Something like that. Why would i go to a store without free shoes when i could go to a store that offers me free shoes.
Not likely to happen with shoes considering the premium people put in brands but i think it gets the point across.
There would no longer be much investment opportunity in shoes, but this is because there is no extra capital needed.
Would this lack of capital investment be bad for the economy? Not necessarily, because that capital can now be invested somewhere it is more needed, while everyone still gets free shoes and a better living standard.
Bitcoin is going to teach us that our hurdle rate for investing has been artificially low for almost a century.
Many investments that look as if they are NPV positive when viewed through the lens of an inflating currency are, in reality, value-destroying.
Discouraging bad investments is not a bad thing.
I agree about the hurdle rate and its understandable after decades of irresponsible debasement everybody is excited for deflation.
but to just set the hurdle rate as high as we fucking can is PTSD and not good economic thinking.
Not an economist. IMHO: This seems correct - a money with bitcoin's properties could not have been concieved by early Austrians. Also, the most *salable good* = best money is always relative - what is the best money available to humans? always a choice between different ones. Had they witnessed bitcoin it could have altered their theses.