They literally increased the purchasing power of each remaining pound by doing so.
But it's also no different than if they stuck it under a mattress for 10 years, at least until the 10 years is up. So that's also sort of a donation primarily to the rich.
Of course when the 10 years is up and they spend money, more of it will wind up in rich people's accounts than in anyone else's, if not immediately then eventually (otherwise they wouldn't stay rich.)
[laughs, in disappearing bitcoin]
Even if it were possible, the purchasing power wouldn’t change - you coffee shop wouldn’t reduce their prices but they might adjust staffing levels in an extreme case (not remotely likely to happen with £1mm diff in circulation)
But I agree this is likely unmeasurable.
By the way, being hard to measure doesn't mean it doesn't exist. And there are plenty of things easy to measure that are meaningless
>> being hard to measure doesn't mean it doesn't exist
No in this context it does. Either you can measure the increase purchasing power or you can’t. And if you can’t measure it, it doesn’t exist in this specific case.
The difference is that when BoE destroys notes they are accounted for by either the issuing of new notes and or crediting their withdrawal with a bank-entry credit thus the money in circulation does not change.
Burning notes willy nilly effectively reduces the amount of currency in circulation because the central bank thinks the money still in circulation and doesn't replace it. This is why in many countries defacing or destroying the currency is unlawful.
(Miniscule until I manage to stuff my face with enough donuts.)
Clearly, in modern times in modern democracies it's very unlikely that in any practical scenario that some entity would be capable of unofficially adding or withdrawing enough money from a currency to actually destabilize it, moreover in such an event the central bank/government would be onto it in seconds.
It's however an altogether different scenario if the citizenry somehow has the perception that the currency isn't exactly what the central bank purports it to be. Just the notion that something may be wrong with the currency could destabilize it, hence hellishly tight laws to ensure this never happens.
Did they. Notes aren't a limited resource and they can still be considered in the cashflow
If the notes were counterfeit or had otherwise managed to come into existence without being owned by anyone, then no.
Generally it's accepted that the value went up because it became more rare as the number of unit went down. Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price.
That's true.
> Or similarly because if all the money represents the price of everything in the economy, as there is less money and assuming that everything in the economy didn't change, then everything has now a slightly lower price.
That can't be true in any meaningful way, because all the money doesn't represent the price of everything in the economy. "Everything in the economy" is always worth many multiples of "all the money".
The definition you'll see in economics is MV = PY. It's defined with reference to the concept of GDP, and the variables are:
M is the amount of money (that year).
V is the "velocity of money", the average number of times that a particular dollar gets spent (that year).
P is the price level. The value of money (that year) is 1/P.
Y is the amount of non-monetary stuff that is produced (that year).
(I would be happier if Y was the amount of non-monetary stuff that existed, but that does not appear to be how economists prefer to talk about it. This set of definitions lets you say that MV is equal to NGDP.)
You can characterize the effect of destruction of money as a reduction in M or as a reduction in V. If you take the view that the money still exists, because it's listed on a balance sheet somewhere, then M has not gone down, but under that view V still has; it's impossible to spend that money. Assuming everyone's urge to spend as a function of their ability to spend stays unchanged, you'll see that the party who locked up $1 million (by destroying it) will, as a result, spend less. Everyone else in the relevant universe is unaffected and spends just as much as they would have anyway. Then, by our special analysis, the amount of total money spent has gone down, and the amount of money in existence hasn't, so the velocity of money has gone down.
Y is unaffected by the destruction of money. For PY to go down while Y stays constant, P must go down, which means that 1/P, the value of money, goes up.
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Note that the implication of this velocity-based analysis is that, if a miser with tons of money in bank accounts that he'll never use happens to one day withdraw some of that money and destroy it, there will be no effect on the value of money. This is correct; that money had already been effectively destroyed when the miser committed to not spending it.
(Over a much longer term, the effect of destruction would be visible when the miser's heirs inherited a smaller amount of money than otherwise and consequently spent less.)
If people like Musk lose wealth because of sinking stock prices, his workers don't have suddenly more buying power.
Most money is book money and the burning of 1 million doesn't change the purchasing of the people because cash isn't linked to a finite resource like gold.
Rephrasing that question, if you were holding a bunch of shares of stock, and you sell them, will that lower the price of that stock?