Political Crossfire Forums

[LeopardPM]

Free Thinkr wrote: It seems to me it would only give to holders of capital in the form of money. A factory wont increase its value one whit via deflation; quite the opposite.
the benefit the factory owner receives is that he is a maker of goods, and goods are what money is traded for - if there are no goods available then 'money' is rather useless. So those that produce, can, in effect, 'make money' in their production capacity. Will there be overall less production, possibly, but then you would have to tell me the 'correct' or 'perfect' level of production and how that was determined.

[evil muppet]

it depends on what is causing the deflation. If the price level is falling because of a large increase in production, then there isn't much problem. THe problem arrises when deflation is a result of a contracting money supply.

[LeopardPM]

bob.appleyard wrote: LeopardPM wrote: Though deflation does indeed give a benefit to lenders, it gives equal benefit to ALL holders of capital and savers.

Who are in a minority. Most people are in debt (for example, they have a a mortgage), and this has held throughout the 20th Century.
...the current state of affairs is a result of current (and past) governmental intrusions into the money system and economy in general - people are in debt because it is promoted by government... one of the reasons I would support a commodity based money over a forced fiat one.

Quote: So deflation would negatively affect most people's finances, thus harming the economy. You're prepared to sacrifice the performance of the economy for the sake of a wealthy minority.
no, I wouldn't sacrifice anyone for the sake of anyone else. I would promote a system which is not vulnerable to the whims of government interference which has led us to the position we are today: leaving payment for goods and services which have already been consumed by past generations in the hands of future ones... it is immoral and unprincipled, not to mention sneaky, underhanded, and accomplished in a manner unseen by most participants. Sure, there will be a period of painful adjustment, an adjustment which is coming without any sort of push towards commodity money, I just advocate for a different method of indirect exchange, after the crash, to avoid such things in the future. I have no burning desire to cause the crash or to see people hurt by its effects.

Quote: Quote: By what standard do you determine that 'lenders are getting enough as it is'?
They charge interest. Wouldn't be doing it otherwise.
so? how does the fact that they receive interest a deciding factor on 'getting enough'? Perhaps, if lenders receive benefit from saving money, then they will desire LESS interest in lending... right? In this way, some of the benefit is dispersed throughout the population through a lesser natural interest rate

[Free Thinkr]

LeopardPM wrote: Free Thinkr wrote: It seems to me it would only give to holders of capital in the form of money. A factory wont increase its value one whit via deflation; quite the opposite.
the benefit the factory owner receives is that he is a maker of goods, and goods are what money is traded for - if there are no goods available then 'money' is rather useless. So those that produce, can, in effect, 'make money' in their production capacity. Will there be overall less production, possibly, but then you would have to tell me the 'correct' or 'perfect' level of production and how that was determined.
My point is that the increased value of money will in no way benefit them; it will simply be the case that the factory is worth less dollars, and the goods they sell are worth less dollars. Somone who has a briefcase of dollars, on the other hand, will find that he can buy more with those dollars than he could before. The factory owner isn't necessarily harmed, but he isn't helped, either. But one wonders, if a guy with a briefcase of money becomes more wealthy without doing anything, where his increased wealth comes from.

[bob.appleyard]

LeopardPM wrote: ...the current state of affairs is a result of current (and past) governmental intrusions into the money system and economy in general - people are in debt because it is promoted by government... one of the reasons I would support a commodity based money over a forced fiat one.

I like how you threw "forced" in there, to make fiat currency sound, like, super-baaad.

A commodity-backed currency would not suddenly make homes affordable up front. The level of personal debt today is troubling, but most debt is still in the form of mortgages, just as when commodity-backed currencies were the norm. Most people were debtors under the gold standard. People in the black have always been a minority.

[LeopardPM]

bob.appleyard wrote: LeopardPM wrote: ...the current state of affairs is a result of current (and past) governmental intrusions into the money system and economy in general - people are in debt because it is promoted by government... one of the reasons I would support a commodity based money over a forced fiat one.

I like how you threw "forced" in there, to make fiat currency sound, like, super-baaad.

A commodity-backed currency would not suddenly make homes affordable up front. The level of personal debt today is troubling, but most debt is still in the form of mortgages, just as when commodity-backed currencies were the norm. Most people were debtors under the gold standard. People in the black have always been a minority.

the reason I threw in 'forced' is because that is the ONLY way that fiat money becomes money in the first place - the government confiscated all the citizens gold, then decreed that 'fiat dollars' were legal tender, and required everyone to pay government taxes and fees in dollars... alternatives are not allowed, in fact, the US mint just started a suit against one private money company recently, the liberty dollar (1oz silver coins)... calling a rat a rat is not propoganda...

I never said that all the sudden mortgages would be affordable, just that under a commodity standard, the fluctuations and permutations would be more isolated and not in huge asset 'bubbles' which cause great harm overall. Homes would be priced at there 'natural' level, in regard to all other things.

[LeopardPM]

bob.appleyard wrote:
I like how you threw "forced" in there, to make fiat currency sound, like, super-baaad.

it is super-baaad, just as theft, cheating, and fraud are super-baaad. The fact that it is done under the threat of force makes it all the more so b-aaaaaad.

[RueTheDay]

LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth. That is why monetarists supported a monetary growth rule that allowed the money supply to increase more or less at the same rate as GDP growth.

There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.

Krugman has a good story that illustrates this point:

http://web.mit.edu/krugman/www/babysit.html

And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future, which has a negative feedback loop effect on the economy.

So deflation is never a good thing.

[LeopardPM]

RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.

Quote: That is why monetarists supported a monetary growth rule that allowed the money supply to increase more or less at the same rate as GDP growth.
what monetarists? Only those ones who have fallen for this weird 'lubricant' argument without a second glance.

Quote: There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.
why is this an issue? So what if people value money more during times of uncertainty? I bet they value a commodity money more than fiat money during such uncertain times, never can tell just when hyper-inflation may kick in with the good ol' fiat, something that a commodity money just can't do, right?

Quote: Krugman has a good story that illustrates this point:

http://web.mit.edu/krugman/www/babysit.html
LOL! I know you can spot the difference and fallacy in comparing the co-op to actual money or commodity, right? Here it is, black and white, the value of the script was held at a constant level: 1 hour. What happens with money is that if money becomes more valuable to people on the market, and so they start to hold more of it, then its purchase power rises! To translate into baby-sitter Money terms... instead of each coupon being worth 1 hour, if people started 'hoarding' it, and valuing it more, then each coupon would become worth more, like 1.5 hours. This would continue until people valued the goods (babysitting services) more than having a stinky coupon around which actually does nothing for them in their process of enjoying life.

What is telling about the story, and in particular Mr. Krugman, is the last part about 'Eventually, of course, the co-op issued too much scrip, leading to different problems ... ' which is what happens EVERYTIME fiat money has been tried and has failed.... the currency devalues, massive inflation or hyperinflation, and a broken system which implodes violently, leaving many folks without their wealth and wondering what the heck happened.


Quote: And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future, which has a negative feedback loop effect on the economy.
people cannot eat money, it doesn't provide very good shelter, and really isn't fashionable to wear so, in short, people do not want money for money itself, but rather for what they can buy with it. This 'negative' feedback has a definite limit, the point which people decide that a pile of money is rather worthless without buying needed or desired goods, and then they start spending. Yes, everyone will tend to hold an increased amount of money, called savings, which will in turn be used as investment/capital thus promoting production, but whatever level people generally decide to be comfortable with is no better or worse than any other level, except that the people have chosen this particular level, and so in that vein, it is the 'best' because people are 'happiest' and most comfortable at that level.


Quote: So deflation is never a good thing.
ha! just another example of a stinted thought process - try really working it through, you are way smarter than this. Deflation caused by an increase in goods vs a money supply which is not increasing at the same rate is a great thing. Inflation never is.

[gavnook]

RueTheDay wrote: And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future...

Is this better than when people blow their whole paycheck every payday because their affraid some things will cost more tomorrow?

RueTheDay wrote: ...which has a negative feedback loop effect on the economy.

Come on Rue, you're smarter than that. I defer as much as I can stand purchases on certain goods, the prices of which I expect to fall. I don't think I'm alone on this and yet I don't think producers of high-tech consumer goods are experiencing negative feedback, whatever that is in this context.

[LeopardPM]

gavnook wrote: RueTheDay wrote: ...which has a negative feedback loop effect on the economy.

Come on Rue, you're smarter than that. I defer as much as I can stand purchases on certain goods, the prices of which I expect to fall. I don't think I'm alone on this and yet I don't think producers of high-tech consumer goods are experiencing negative feedback, whatever that is in this context.

good point! I missed that angle - I forget we currently have goods in which productivity increases are so great that price deflation occurs at an even greater rate than the general inflation.

[Free Thinkr]

LeopardPM wrote: RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.
I'd guess he's referring to liquidity.

[LeopardPM]

Free Thinkr wrote: LeopardPM wrote: RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.
I'd guess he's referring to liquidity.

ok, then, who is to say that one level of liquidity is better than another? If I am some wierdo paranoid guy that thinks the sky is falling then I might choose to remain very liquid, goody for me and no one is harmed as 'society' has no claim on my property be it commodities that are 'used' or commodities that are 'used as currency'. Whatever aggregate market liquidity happens to be, based on everyones desires of liquidity, simply cannot be 'wrong' (or 'right' for that matter) as there is no outside standard to evaluate it - there is only your standard and my standard (relativity). But, if the liquidity desires of folks are left unmanipulated and unforced, then that is the 'best' in that people are determining for themselves what is best for them. It makes me happiest to be very liquid, happier than having healthcare or driving a fancy car - who is to say that this is 'wrong'? Others can only say that such a choice might be 'wrong' for them, but have no idea of my own preferences and values.

[RueTheDay]

LeopardPM wrote: RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.

There's nothing "fancy" about it; it happens to be a good analogy. Contrast a monetary economy with a barter economy. Having to carry around physical goods with which to trade for other goods with other people is not a mere inconvenience; it severely impedes trade. Likewise, a company that has to barter produced goods for machines and plants will find production to be nearly impossible. And let's not forget the fact that goods deteriorate over time and require resources to simply store them. This is what I mean when I say that money is the lubricant for the economy. It allows production, exchange, and distribution to take place far more efficiently than would be the case without it.

I'm pretty sure that we've had this discussion before and that you are of the opinion that money is no different than any other commodity. So long as you believe such obviously false things, every conclusion that you come up with will likewise be faulty.


Quote:
Quote: That is why monetarists supported a monetary growth rule that allowed the money supply to increase more or less at the same rate as GDP growth.
what monetarists? Only those ones who have fallen for this weird 'lubricant' argument without a second glance.

Milton Friedman. Pretty much every other monetarist as well. I'm not aware of any monetarist proposal that has ever called for the money supply to be held constant or to decrease. They pretty much all call for the money supply to increase based upon some rule which is usually tied to the growth of the real economy.

Quote:
Quote: There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.
why is this an issue? So what if people value money more during times of uncertainty? I bet they value a commodity money more than fiat money during such uncertain times, never can tell just when hyper-inflation may kick in with the good ol' fiat, something that a commodity money just can't do, right?

When people suddenly increase their desire to hold money rather than goods, this causes a chain of events to unfold - consumption drops which causes business investment to drop which causes employment to drop, which then reinforces the circle by causing consumption to drop further.

Quote:
Quote: Krugman has a good story that illustrates this point:

http://web.mit.edu/krugman/www/babysit.html
LOL! I know you can spot the difference and fallacy in comparing the co-op to actual money or commodity, right? Here it is, black and white, the value of the script was held at a constant level: 1 hour. What happens with money is that if money becomes more valuable to people on the market, and so they start to hold more of it, then its purchase power rises! To translate into baby-sitter Money terms... instead of each coupon being worth 1 hour, if people started 'hoarding' it, and valuing it more, then each coupon would become worth more, like 1.5 hours. This would continue until people valued the goods (babysitting services) more than having a stinky coupon around which actually does nothing for them in their process of enjoying life.

What is telling about the story, and in particular Mr. Krugman, is the last part about 'Eventually, of course, the co-op issued too much scrip, leading to different problems ... ' which is what happens EVERYTIME fiat money has been tried and has failed.... the currency devalues, massive inflation or hyperinflation, and a broken system which implodes violently, leaving many folks without their wealth and wondering what the heck happened.

You seem to have the misconception that price levels automatically and instantaneously adjust to reflect changes in the ratio of the money supply to real goods. They do not.

This is somewhat ironic since Austrians often (correctly) point out that increases in the money supply do not affect everyone equally or at the same time, because the government gets the money first, then the big banks, then businesses, then finally the consumer, and that the price level generally does not fully adjust until towards the end of that process, so that those who get the money earlier win out and those who get it later lose out. This is one of their key arguments against inflation. Yet when the discussion turns to decreases in the money supply, we are supposed to ignore this chain of events for some reason.

Quote:
Quote: And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future, which has a negative feedback loop effect on the economy.
people cannot eat money, it doesn't provide very good shelter, and really isn't fashionable to wear so, in short, people do not want money for money itself, but rather for what they can buy with it. This 'negative' feedback has a definite limit, the point which people decide that a pile of money is rather worthless without buying needed or desired goods, and then they start spending.

And what is happening in the meantime? See above.

Quote:
Yes, everyone will tend to hold an increased amount of money, called savings, which will in turn be used as investment/capital thus promoting production, but whatever level people generally decide to be comfortable with is no better or worse than any other level, except that the people have chosen this particular level, and so in that vein, it is the 'best' because people are 'happiest' and most comfortable at that level.

You have it backwards. Savings does not drive investment. Investment drives savings.

Quote:
Quote: So deflation is never a good thing.
ha! just another example of a stinted thought process - try really working it through, you are way smarter than this. Deflation caused by an increase in goods vs a money supply which is not increasing at the same rate is a great thing. Inflation never is.

See a few lines above where I identify the logical contradiction in your faulty "deflation good, inflation bad" reasoning.

[LeopardPM]

BTW, just read a good article on the effects of deflation (just like we are talking about, of course, its through lewrockwell:
http://www.lewrockwell.com/chernikov/chernikov43.html

[LeopardPM]

RueTheDay wrote: LeopardPM wrote: RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.
Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.

Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.
There's nothing "fancy" about it; it happens to be a good analogy. Contrast a monetary economy with a barter economy. Having to carry around physical goods with which to trade for other goods with other people is not a mere inconvenience; it severely impedes trade. Likewise, a company that has to barter produced goods for machines and plants will find production to be nearly impossible. And let's not forget the fact that goods deteriorate over time and require resources to simply store them. This is what I mean when I say that money is the lubricant for the economy. It allows production, exchange, and distribution to take place far more efficiently than would be the case without it.
I never implied that indirect exchange (the use of money) wasn't a good thing - yes, of course it makes trade much more efficient - but equating it with lubricant along with the implication the the 'more' of it means the better 'lubricated' and thereby efficient the economy will run - THAT is the fallacy and why using 'lubricant' as a term referring to money, and NOT its function, is.

Quote: I'm pretty sure that we've had this discussion before and that you are of the opinion that money is no different than any other commodity. So long as you believe such obviously false things, every conclusion that you come up with will likewise be faulty.
first of all - money IS no different from any other commodity, witness the fact that other commodities have all functioned as money. The use of a commodity as money confers added value to such commodity, the value of the ability to take advantage of indirect exchange and all the benefits thereof. This added value is true for commodity-based money as well as fiat money - and BOTH function just as well as the other in this function depending upon the physical characteristics of the commodity used. For instance, using gold, not gold certificates, but only the actual metal, as a money has the same indirect exchange benefits as fiat, but fiat has an added benefit (as seen from the users of it) of being easier to carry around and divide. So, if all other things were equal between the two, fiat would be more desirable. The problem is that the MAIN characteristic, and the entire reason fiat exists at all, is that fiat money confers special benefit so those who control its production since production costs are so low and the quantity of production is also arbitrary.

Quote: Quote: Quote: That is why monetarists supported a monetary growth rule that allowed the money supply to increase more or less at the same rate as GDP growth.
what monetarists? Only those ones who have fallen for this weird 'lubricant' argument without a second glance.
Milton Friedman. Pretty much every other monetarist as well. I'm not aware of any monetarist proposal that has ever called for the money supply to be held constant or to decrease. They pretty much all call for the money supply to increase based upon some rule which is usually tied to the growth of the real economy.
no one would ever call for some nominal decrease in the money supply, that would be impossible because who would want to be destroying their own wealth? Though the effect on all the remaining money would be the desirable 'deflation', those who actually did destroy their money would be the ones 'taking it in the shorts', so to speak. This is why I do not advocate any sort of planned decrease in the money supply, instead, I say let people choose their money of choice (which would probably be some sort of precious metal, or, my personal favorite, a basket of commodities) and since one of the traits historically (and logically) desired in a money is small or no quantity increase (stablility), then the positive effects of deflation would be spread evenly to all who hold money. (remember, the deflation effect I am talking about stems from the natural increase in the quantity of total goods and services, which is usually and historically far greater than the desired increase in money supply).

Quote: When people suddenly increase their desire to hold money rather than goods, this causes a chain of events to unfold - consumption drops which causes business investment to drop which causes employment to drop, which then reinforces the circle by causing consumption to drop further.
but there is no such thing as a 'deflationary spiral' or 'hyper-deflation' which means that there is found a level of which ALL of these things you seem to hold so important (level of consumption, level of business investment, etc) will fluctuate around which is as the market finally desires and settles on.

Quote: You seem to have the misconception that price levels automatically and instantaneously adjust to reflect changes in the ratio of the money supply to real goods. They do not.
I have no misconception regarding the speed at which information is distributed in the market or throughout a society - and there is no reason to need to assume that price levels MUST instantaneously adjust to derive benefits. So what if imperfect information exists - this is a part of being human, once again, and no government or central planning can make it work any better, only worse.

Quote: This is somewhat ironic since Austrians often (correctly) point out that increases in the money supply do not affect everyone equally or at the same time, because the government gets the money first, then the big banks, then businesses, then finally the consumer, and that the price level generally does not fully adjust until towards the end of that process, so that those who get the money earlier win out and those who get it later lose out. This is one of their key arguments against inflation.
exactly right - but immaterial, you are building a strawman here... lets see it in your conclusion...
Quote: Yet when the discussion turns to decreases in the money supply, we are supposed to ignore this chain of events for some reason.
...and here it is: I am not talking about DECREASING THE MONEY SUPPLY! I am talking about the money supply being tied to the natural world, and thus much less subject to human political whims and whatnot, and then benefitting from the bounty that is created through production of goods and spread out among holders of money (instantaneously, or near to) through wonderful relative deflation. My guess (as I haven't poured much mental energy into tracing the time effect as with inflation) the benefits of deflation are greater the closer to the production of goods one gets, but I am unsure of this theory.

Quote: Quote:
Quote: And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future, which has a negative feedback loop effect on the economy.
people cannot eat money, it doesn't provide very good shelter, and really isn't fashionable to wear so, in short, people do not want money for money itself, but rather for what they can buy with it. This 'negative' feedback has a definite limit, the point which people decide that a pile of money is rather worthless without buying needed or desired goods, and then they start spending.

And what is happening in the meantime? See above.
what do you mean?

Quote: Quote:
Yes, everyone will tend to hold an increased amount of money, called savings, which will in turn be used as investment/capital thus promoting production, but whatever level people generally decide to be comfortable with is no better or worse than any other level, except that the people have chosen this particular level, and so in that vein, it is the 'best' because people are 'happiest' and most comfortable at that level.

You have it backwards. Savings does not drive investment. Investment drives savings.
um, one cannot invest without first saving, right? One cannot invest more than one has savings, right?

Quote: Quote:
Quote: So deflation is never a good thing.
ha! just another example of a stinted thought process - try really working it through, you are way smarter than this. Deflation caused by an increase in goods vs a money supply which is not increasing at the same rate is a great thing. Inflation never is.

See a few lines above where I identify the logical contradiction in your faulty "deflation good, inflation bad" reasoning.
lets try it again...

[gavnook]

RueTheDay wrote: LeopardPM wrote: RueTheDay wrote: There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.
why is this an issue? So what if people value money more during times of uncertainty? I bet they value a commodity money more than fiat money during such uncertain times, never can tell just when hyper-inflation may kick in with the good ol' fiat, something that a commodity money just can't do, right?

When people suddenly increase their desire to hold money rather than goods, this causes a chain of events to unfold - consumption drops which causes business investment to drop which causes employment to drop, which then reinforces the circle by causing consumption to drop further.

Now why would people suddenly increase their desire to hold money? Large groups of people do not suddenly change their behavior in concert for no reason. Determining what would cause such a thing is where the analysis needs to begin. It sounds like people are adjusting to previous miscalculations, and when people do this, it's something that needs to be done. Dumping fiat paper into the mix only causes further miscalculations and prolongs the adjustment.

RueTheDay wrote:
You seem to have the misconception that price levels automatically and instantaneously adjust to reflect changes in the ratio of the money supply to real goods. They do not.

This is somewhat ironic since Austrians often (correctly) point out that increases in the money supply do not affect everyone equally or at the same time, because the government gets the money first, then the big banks, then businesses, then finally the consumer, and that the price level generally does not fully adjust until towards the end of that process, so that those who get the money earlier win out and those who get it later lose out. This is one of their key arguments against inflation.

I don't see LPM as being under such a misconception. And that story is interesting, but it's a flawed analogy for a fixed money supply because the purchasing power of the money was also fixed. It is a better analogy for price-fixing.

I find it interesting that you find this argument to be correct, yet still favor monetary inflation, especially considering your distaste of unfairness. I guess you probably favor a very different means of dumping cash into the economy. Does it involve the use of helicopters? I think that was actually done in Iraq.


RueTheDay wrote:
Yet when the discussion turns to decreases in the money supply, we are supposed to ignore this chain of events for some reason.


Nobody is talking about decreases in the money supply. A fixed money supply may decrease in relative terms to all other goods, but there can be no winners or losers here as you've explained there are when there nominal sum of money is increased (or decreased). Similarly, a decrease in the purchasing power of a fixed money supply would have no such winners or losers, although it would suck.

RueTheDay wrote:
Quote:
Quote: And of course, deflation also causes consumers to defer purchases, since the goods will be cheaper in the future, which has a negative feedback loop effect on the economy.
people cannot eat money, it doesn't provide very good shelter, and really isn't fashionable to wear so, in short, people do not want money for money itself, but rather for what they can buy with it. This 'negative' feedback has a definite limit, the point which people decide that a pile of money is rather worthless without buying needed or desired goods, and then they start spending.

And what is happening in the meantime? See above.


When consumers are adjusting to economic changes, so must producers. Remembering that everyone's a consumer out of necessity, what horrible thing can happen to producers if (other) consumers aren't consuming enough? Will they starve to death? In a dramatic economic shift, it necessarily takes time for people to adjust their own values as consumers and figure out how to adjust for this changing consumer demand as producers.


RueTheDay wrote:
Quote:
Yes, everyone will tend to hold an increased amount of money, called savings, which will in turn be used as investment/capital thus promoting production, but whatever level people generally decide to be comfortable with is no better or worse than any other level, except that the people have chosen this particular level, and so in that vein, it is the 'best' because people are 'happiest' and most comfortable at that level.

You have it backwards. Savings does not drive investment. Investment drives savings.

Explain that. If nobody saved anything, there could be no investment.

[Free Thinkr]

RueTheDay wrote: LeopardPM wrote: RueTheDay wrote: LeopardPM wrote: Rue wrote: Deflation is rarely a good thing.

Deflation, as an increase in total goods vs less of an increase in total money, is a good thing for all, equally.


Not really. Money serves as a lubricant for the gears of the economy. If the money supply does not increase on par with the level of output, frictional problems will stymie economic growth.
what 'frictional' problems? The 'economy' is not a machine, and needs no 'lubricant', so why not just tell me exactly what these problems are? No need for fancy talk.

Free Thinkr wrote: I'd guess he's referring to liquidity.

There's nothing "fancy" about it; it happens to be a good analogy. Contrast a monetary economy with a barter economy. Having to carry around physical goods with which to trade for other goods with other people is not a mere inconvenience; it severely impedes trade. Likewise, a company that has to barter produced goods for machines and plants will find production to be nearly impossible. And let's not forget the fact that goods deteriorate over time and require resources to simply store them. This is what I mean when I say that money is the lubricant for the economy. It allows production, exchange, and distribution to take place far more efficiently than would be the case without it.
God I'm good. :lol:

[Free Thinkr]

gavnook wrote: RueTheDay wrote: LeopardPM wrote: RueTheDay wrote: There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.
why is this an issue? So what if people value money more during times of uncertainty? I bet they value a commodity money more than fiat money during such uncertain times, never can tell just when hyper-inflation may kick in with the good ol' fiat, something that a commodity money just can't do, right?

When people suddenly increase their desire to hold money rather than goods, this causes a chain of events to unfold - consumption drops which causes business investment to drop which causes employment to drop, which then reinforces the circle by causing consumption to drop further.

Now why would people suddenly increase their desire to hold money? Large groups of people do not suddenly change their behavior in concert for no reason.
:bang:

[LeopardPM]

Free Thinkr wrote: gavnook wrote: RueTheDay wrote: LeopardPM wrote: RueTheDay wrote: There is also the issue of liquidity preferences and the desire of people to hold money during times of uncertainty.
why is this an issue? So what if people value money more during times of uncertainty? I bet they value a commodity money more than fiat money during such uncertain times, never can tell just when hyper-inflation may kick in with the good ol' fiat, something that a commodity money just can't do, right?

When people suddenly increase their desire to hold money rather than goods, this causes a chain of events to unfold - consumption drops which causes business investment to drop which causes employment to drop, which then reinforces the circle by causing consumption to drop further.

Now why would people suddenly increase their desire to hold money? Large groups of people do not suddenly change their behavior in concert for no reason.
:bang:
care to add anything or explain - or just taking up space here?