Any way the entire discussion about debasement is irrelevant, because there will be competing crypto-currencies and the one that wins will be the one that the most users want to use as a currency and/or store-of-value.

I believe the winner be the one that most users want to use as a currency, because I believe even Bitcoin is a not a store-of-value, rather it is a speculation and also will be any altcoin that aspires to be more used as a currency.

So I think the 0% debasement debate is really delusional noise.

So that shows how having a delusional goldbug demographic causes Bitcoin to pitch features which are really irrelevant. Thus it shows that if you want to do something big with an altcoin, you need to change the demographic you are targeting.

And thus I think I will stop this discussion and focus on things which really matter.

I meant "because otherwise no loans means the economy dies" is the political justification for bailing the banks out. I wasn't saying it is the truth. Politics is almost never about the truth.

Agreed it varies for each individual. That does not mean an overall aggregate does not exist. I do not see why it would be impossible to estimate said aggregate.


So we must ask what level of debasement best serves society as a whole. Lets look at this from the prospective of the individual who wants to own apples. Assume an economy is growing at 5% and by random chance the efficiency of apple production also happens to exactly match that 5% growth.  

Examine the game theory behind an individual's decision to buy an apple now or later if debasement is equal to growth:

If he chooses to buy an apple now he gets 1 apple.

If he waits and chooses to buy an apple next year he still gets 1 apple.
(The individual does not lose his apple for failing to consume immediately. This limits the incentive for sub-optimal and indiscriminate consumption. Money maintains its purchasing power relative to the time it was saved and thus functions as an acceptable store of value.)

If he invests the money for a year and manages to match the rate of economic growth he gets 1.05 apples.
(The individual gets to partake in the efficiency gain in the overall economy which is fair because he participated in said growth).

In a real economy things are obviously more complex and an investor who chooses to defer claims on real capital now will likely lose purchasing power in some areas and gain it in others. However, if the debasement of the currency matches the overall aggregate economic growth then purchasing power will be protected relative to the time it was earned. By this I mean that a saver will be able to purchase a basket of goods and services that is comparable in quality and quantity to what he could have purchased when he deferred his initial claim. Money serves both as an acceptable store of value and the incentive remains to invest and not horde.

I am presenting logic for why currency debasement greater than the average aggregate growth rate is not optimal for it encourages excess spending/investment. Above I presented logic for why currency debasement less then the average aggregate growth rate is not optimal for it encourages excess savings/divestiture.

I maintain my claim that the equilibrium point between the competing inefficiencies is a debasement rate that equals the rate of aggregate economic growth. This is the level that provides the optimal incentives for society.

Actually rather then being utopian I believe that something like this is the only way to optimize long term adaptability and growth. A basic social safety net smooths the fitness curve and thus facilitates long term long term optimization and adaptation. Such a safety net helps ensure trailblazers survive long enough to eliminate economic frictions.

https://bt.irlbtc.com/view/365141.msg4916516#msg4916516

The challenges is how to fund it and most critically how to ensure the curve is only smoothed never inverted.

Yes savings is power law distributed but that does not alter the game theory. All investors must include the debasement of the currency into their calculations even those targeting high ROI investments.

This becomes more clear with an example. Lets examine an economy that is growing at 5%.
In this environment compare two investors 1) a manual laborer capable of obtaining a 1% ROI on his investment, and 2) an IT worker who is capable of a 20% ROI.

If the currency is debased at 5% per year both the laborer and the IT worker have a positive incentive to invest as they will achieve a return that is better than immediate consumption. However, if the debasement is raised to 10% the laborer no longer has an incentive to invest nor does he have any incentive to defer immediate consumption/spending as each day his purchasing power declines.

You can make the case that the wealthy in a knowledge age are capable of higher ROI investments and we should push debasement up in this way because it will cause wealth to further accumulate in the hands of those who can achieve a higher ROI with it. However, this is a very dangerous argument because you are essentially arguing that we should create an economic system that does not provide optimal incentives for the majority of humanity in the hopes that the gains created by the upper crust will offset whatever damage is done to the lower classes. To do so implies a great social debt to those on the tail end of the pareto distribution as they are essentially being thrown under the bus in the name of growth. That is the path to socialism and redistribution.
 
Edit: By growth of 5% above I mean the aggregate growth in the value of the goods, services, and knowledge produced by the economy.

Reminder for readers to digest the entire thread and the essays in the OP.

Particularly remember to go back to the following point in the thread and re-read:

https://bt.irlbtc.com/view/355212.msg10017628#msg10017628

Good points all around!

I wonder if a decentralized fiat system can serve as a complementary form of money in the future.
In current fiat system money is created out of thin air, but only a few have the right to do it. What would be the decentralized version of it? Well, I guess, "likes" on popular social networks is a good example. People create their "likes" out of thin air, but you can only "like" a particular thing once from a verified account. I wonder if this would help to coordinate knowledge creation in the future. There is no debt involved, and there is no repercussions in case of failure.

^ haha

I was thinking of money in terms of "permission" to act.

From that perspective the developing countries have a lot of infrastructure to build, thus they need a system where money are easily created out of thin air, because there is so much to do. Once infrastructure is built and major supply chains are established, using the money system which requires further growth is counter-productive, thus migration to a rigidly programmed crypto is currently underway.

But my point is the following.
Once society is able to fulfill its basic survival needs in a sustainable way, and is ready to move to the Knowledge Age, then the incentive structure changes quite drastically. The idea of scarce money might no longer apply, because failure to produce knowledge or fun is no longer punishable, as it's not part of the survival anymore. I mean if someone screws up with the infrastructure or supply chain, then society will suffer from inefficiencies and hunger, but if I've created some IP that isn't of much interest or otherwise funny, then nobody cares. I also do not need the "permission" (aka money) to create knowledge, as long as food and shelter are provided.

That's why I was thinking about some sort of social network capital in a form of "likes" or "dislikes" for knowledge creation and evaluation. The deeper question might then be - do we really need money as we know it in the Knowledge Age if the basic needs (food and shelter) are provided unconditionally? Do we really need the "permission" to create knowledge?

The game theory involves what investors think is important. I assure you there are no investors (except bond and savings deposits) who are targeting 1% ROI. That doesn't even cover the variance in the business. No investor would target an ROI with that low of a margin for error. Note that the lack of guarantee on the ROI (unlike bonds and savings deposits), means that the margin of error needs to be much higher. This is yet another mathematical reason that usury (banks and bankster) guaranteed ROI crap is guaranteed failure.

You entirely missed my point. When an investor makes a decision whether to invest now or delay, he is not entertaining any investments with a projected 1% ROI, because that low ROI would not even counteract the risk of variance nor risk of failure for an investment, the latter of which is typically at least 33%. It has nothing to do with the Knowledge Age. This is just the reality of investment.

Sorry you really need to think more holistically on the game theory.


See the bolded and underlined quote. I did not declare anything as optimum.

Ok let’s say for the moment that you are correct and that there are no low risk/low reward investment opportunities in a future knowledge age. To the degree that this is true it only strengthens my overall argument that a debasement rate greater than the rate of aggregate economic growth is detrimental.

In a world without low risk investment options both low productivity individuals and the elderly are excluded from the investment market. Add in a large debasement and these individuals lose the realistic option to ever defer an immediate claim on real capital. Excess consumption results.

A debasement rate that matches the overall aggregate economic growth is the maximum debasement rate at which purchasing power is maintained relative to the time it was earned. At this rate a saver deferring a purchase will still be able to purchase a like basket of goods and services of comparable quality later. If you debase the currency faster than this you are stealing purchasing power from the elderly and the low productivity workers and transferring it to the high productivity workers in the name of growth. You create a system that does not provide optimal incentives for the majority of humanity in the hopes that the economic gains created by the new elite will offset the damage done. That sounds an awful lot like a more robust version of the system we already have.


Ok in my zeal to copy your prior logic word for word I inadvertently strengthened your statement. You stated that 5%+ debasement was probably correct and admitted uncertainty.

Nevertheless you have presented no logic to support that number that you believe to be probably correct. Whereas, I am presenting logic for why a debasement rate greater then the aggregate economic growth is not optimum.

Thus I maintain that the equilibrium point between the competing inefficiencies is a debasement rate that equals the rate of economic growth.

I am not certain we are moving towards consensus on this issue. Should we agree to disagree?