Iâd like to counter with the following narrative;
Assuming that there are only 10 people on the planet. All 10 people need enough âcurrencyâ to be able to trade in and among themselves. That amount is dependent upon a determined given level of lifestyle choices. In other words there is a minimum level. We should all be able to agree on that. Now, add 100 more people (110 in total) and try to use the same quantity of currency. Itâs obvious that there will be a shortage of currency for the 100 people added to the scene. What does a shortage of currency do? Prices go down. Why? Because some of the 100 will decide to lower the asking price of their services or goods in order to accumulate currency for themselves. In that situation, there just isnât enough currency to go around for the level of the population.
Now some people would say that prices would rise because, like Bitcoin, a shortage of currency means people would pay more to buy (dollars-currency)
Which force is more powerful? Someone that wants to pay more for their dollars by giving more services for any given currency, or the shortage of currency raising the price of services and goods?(note Iâve written these in reverse order, as one wonât have goods without currency, but will have services to offer)
Itâs imperative that there be enough currency for a âstable economyâ where prices arenât fluctuating wildly. In other words, governments will, rightly so, print more currency to ensure that people donât starve. (Which is exactly what would happen if there wasnât enough currency to go around) With only enough currency in circulation for 10 people, 100 people would need to go without. Starvation is not an option. Therefore, a currency needs to be expandable to a level appropriate to the level of the population.
It is conceivable that the prices of services will go down but the price of goods will go up.
So one can see why a currency NEEDS to be expandable to the correct amount for a given society and its level of population. This point is hard to debate.
The problem arises when governments expand the level of currency higher than the needs of the population and do so to âinvestâ in war, social services, or to inflate away the resulting debts that accumulate.
However, Bitcoin, as a currency is just plain not expandable, therefore it isnât suitable as a currency, because there isnât enough of it to be usable by the global population. As more people want to accumulate Bitcoin, its price will rise. The same can be said for the USD, unless the U.S. government continues to print.
So, in conclusion, the debate over whether the ânatural state of the economy is deflationâ isnât 100% determinable.