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100 sats \ 12 replies \ @Undisciplined 24 Oct \ parent \ on: MONEY CLASS OF THE DAY: Money Illusion and Unit Bias, Bitcoiner style econ
I think the point of this post is that even an inflating currency can still be functional as a medium of exchange. It's not more expensive in real terms to eat out than it used to be, it just takes more pieces of paper that are also easier to earn than they used to be.
I doubt you'll get any disagreement about fiat failing as a store of value.
But the paper being spent wasn't necessarily earned in the same year. If I produce a nice meal and get paid 62 kr for it, but fifty years later I can't trade that same 62 kr for a nice meal, then the exchange is incomplete because it only functions either in one direction or within a limited span of time. That's why I don't believe MoE is separable from SoV. If a currency is only transferrable across space but not across time, then it can't fulfill the role that God intends for currency to play in an economy.
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They aren't fully separable, but no one is claiming they are.
Ultimately, a currency that fails to be a SoV will fail to function as a medium of exchange, because of the point you make: we accept something as MoE because it's value stores long enough to exchange it for something else of similar value.
As you say, it only functions within a limited span of time, but money tends to be spent if it isn't worth saving.
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we accept something as MoE because it's value stores long enough to exchange it for something else of similar value. hm... I don't actually think it matters. Both equilibria work:
- produce for money, hold money the PP of which appreciates (like bitcoin) or stays the same (like gold), exchange money for other goods/services.
- produce for money, pay bills and consume in same time period, shove surplus into gold/bitcoin/stocks, exchange gold/bitcoin/stocks for other goods/services in the future.
I can see pros and cons of both those scenarios, but it's not obvious that, like @CliffBadger claims, either of them "fail" as money. They're both facilitating trade, doing money's role.
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I count scenario 2 as a failure because it's using gold/bitcoin/stocks to compensate for a role of money that fiat can't play.
Fiat works as money in the sense that it's a liquid asset that the general public accepts for payment, and it works very well for particular aims and strategies. But it's not doing what money is supposed to do in the ideal capitalist sense. The depreciation in purchasing power is essentially a manufactured obstacle to free trade.
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That's sort of your value judgement.
You look up the definition of money, what you outlined as fiat fits that.
So, I disagree with your method/component but agree with your conclusion that it's a manufactured obstacle
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shove surplus into gold/bitcoin/stocks
That's just one version of the subsequent exchange that I'm talking about though. If the value were falling so quickly that you couldn't get a sufficient amount of gold/bitcoin/stocks, then people would stop using the currency as a MoE.
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Yes-ish... Historical record doesn't bear that out. We keep using money weeeeelll into hyperinflation. It certainly fulfils this role in the Western world, covid inflation aside
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They continue to use the same type of money, but they do assign a lower and lower value to the currency. So in a sense they do stop accepting it as a valid form of money, because they're not willing to trade it except by multiplying the volume by extremes.
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No, they continue to trade it but faster and faster ā hot potato style. Velocity up, etc, cuz on the margin it's more costly for you to hold cash
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I can't argue that people don't give up on their failing fiat as quickly as one might expect
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exactly.
also: THERE ARE REAL EFFECTS. Thank you for your attention on this matter
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Thank you for your attention on this matter
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