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Comment by andrewla | Hacker News Reader

Why do we have to jump to infinity? Why can't the velocity of money vary based on market forces, including economic growth? Credit markets are the closest thing we have to visibility into monetary velocity.

This is all assuming that we're talking about modern Chicago-school monetary theory. In Keynsian (i.e. most mainstream economics) there's not even a universally accepted connection between money supply and price inflation/deflation. Most Keynsian theorists (and practitioners) agree that directly manipulating credit markets through artificial price floors on future money is a much more sane way to affect price inflation and deflation, while also having the secondary effect of manipulating the employment market.

The idea of an asset that always increases in value (or a "free lunch", let's call it) is explicitly disowned by every theory of economics, from the Austrians & monetarists to the Keynsians & the Marxists.

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> Why do we have to jump to infinity? Why can't the velocity of money vary based on market forces, including economic growth?

Because the velocity of money isn't determined by market forces, it is determined by how easy it is for money to flow.

If bitcoin was the dream it aspires to be (instant, easy, transparent money transfers anywhere in the world), velocity of money tends to infinity, and the value of bitcoin goes to zero.

> The idea of an asset that always increases in value (or a "free lunch", let's call it) is explicitly disowned by every theory of economics, from the Austrians & monetarists to the Keynsians & the Marxists.

I'm not talking about an asset that always increases in value. I'm talking about a fixed supply of money, which would on average always represent more value (since the economy is growing on average) year after year.

As the supply of bitcoin will never increase, but there demand will (on average) always increase, a single bitcoin will represent a larger amount of value each year after year.

Therefore, it is a deflationary currency.

> Because the velocity of money isn't determined by market forces, it is determined by how easy it is for money to flow.

I mean... that's not what that means [1]. Monetarists use the "Equation of Exchange" [2] to determine/define inflation.

> I'm not talking about an asset that always increases in value. I'm talking about a fixed supply of money, which would on average always represent more value (since the economy is growing on average) year after year.

Bitcoin is an asset -- "always represent more value" is another way of saying "increase in value". What's the thesis here -- Bitcoin will decrease in value because it will increase in value? I think you'd do well to take a moment to digest what your argument is.

You're far from alone here; many people are under the impression that Bitcoin is a deflationary currency. This is a very common trope, made more annoying by the fact that Bitcoin proponents have a lean towards the Austrian school of economics, which defines "deflation" and "inflation" to mean a decrease (and increase) in the money supply, independent of prices. But that's not the mainstream definition of inflation; mainstream economics uses "debasement" to refer to the direct increase in the money supply, but it is used rarely since most economic schools feel that the money supply is only very weakly coupled to price inflation.

[1] https://en.wikipedia.org/wiki/Velocity_of_money

[2] https://en.wikipedia.org/wiki/Equation_of_exchange

> Bitcoin is an asset -- "always represent more value" is another way of saying "increase in value". What's the thesis here -- Bitcoin will decrease in value because it will increase in value? I think you'd do well to take a moment to digest what your argument is.

Where am I saying that bitcoin will decrease in value? Bitcoin is a deflationary currency, not an inflationary one.

If bitcoin was the only game in town, it would always (disregarding short-term cycles) increase in value, because the economy is growing.

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