I should say, I didn't realize Bitcoin even
has a "manifesto." The only things I know about Bitcoin come from studying it as part of my job: I'm developing an MMO, so I'm interested in the economics of virtual currencies. MMOs by-and-large have fiat,
non-scarce virtual currencies (money just gets "spawned" from the aether in response to certain things, with no matching debt on any balance sheet) which is a bit of a mess. Bitcoin is a scarce (eventually-fixed) "natural resource" virtual currency, which provides interesting contrasts.
Now, anyway:
I think we fundamentally agree here--we're just using different words. You're saying you put money in a bank to "secure" it--secure it from what? Losing value. Cash under your mattress loses value from inflation. Stocks lose value from investors losing confidence in them. Your wallet loses value when you get mugged and the dollars are taken out of it. (An encrypted digital wallet is somewhat resistant to this.)
And how do banks secure you from loss, compared to all those other things? Besides being big thick concrete buildings with guards, they mainly lend your money out to other "safe bets" to earn "enough" interest to offset your inflationary losses. Note, I didn't say they put you in the black; they just offset your loss compared to what it would be under your mattress, while not notably increasing your risk.
During the 2007 banking crisis, people were buying US treasury bills that offered negative interest. Why? Because a small known loss was considered to be less risky than the possible loss from anything the rest of the market was offering. People using Japanese banks are currently operating under the same principle: they would rather put their money in the place it will lose the least value.
Another way to say this is: savings investment is a minimax algorithm ("minimize maximum loss.") In a thriving economy, you can minimize maximum loss with a positive net return. In a bad economy, it will sometimes require a negative net return. Either way, integrating over the probability distribution will put you in a future where you end up with the most money, compared to all your other selves who made riskier bets with higher returns, or less risky bets with lower returns.
Now, in turn, the whole economic theory on the necessity of inflation is that it moves the minimax risk-optimum for perfectly-rational actors from "hoard" to "invest in very slightly risky ventures"; and the whole reason deflation is so scary is that it moves the minimax risk-optimum for perfectly-rational actors from "invest even when it's a sure thing" to "sit on it and let it appreciate."
Now, of course, humans on average aren't anywhere near "perfectly rational"--and in some cases we may create artificial situations where the risk-optimum is shifted this way or that. For example, corporations seek short-term (usually single-quarter) gains, to encourage stock growth. Short-term gains are more found in risky investments than stable ones; and being paid in bonuses rather than equity encourages "smart-looking-for-now" behavior that will let one earn their bonus and cash out, even as the company hits the risk head-on and sinks.
> People play a large role, you can print infinite money but if people are afraid to spend it, you still won't experience inflation.
Blah blah Keynes blah government stimulus blah blah. Not getting into that. :)
> Under your assumption we shouldn't worry about price volatility, except we experienced worse shocks while under the gold standard than without it.
No, quite the opposite--"much worse price volatility" is exactly the sort of thing I meant by "a global Bitcoin economy would be strange." No monetary policy means no quantitative easing, which is specifically deployed to decrease volatility.
Inflation and deflation, of course, would still occur--"money" is nothing more than the value of an liability on a balance sheet, measured in the unit of a particular currency; as we leverage the money we have as investments into other things, the economy has more IOUs and therefore more money, whether more physical currency is getting printed/minted or not. And when things get de-leveraged, that money goes away.
The thing that makes Bitcoin interesting is simply that, as a "natural resource" currency, the "base supply" of unleveraged money can't grow to meet demand. If everyone wanted to withdraw their leveraged BTC-united wealth at the same time into "actual Bitcoins", they simply wouldn't be able to.
If we still operated mostly with physical currency, this would indeed be similar to the horrors of the Gold-standard era, where if a country 'ran out of money', it couldn't just write down a deficit--it literally would have no tokens of currency to send abroad to receive goods in trade, and its people would starve simply for want of some gold in a drawer in a bank somewhere.
As far as I can tell, Bitcoin proponents just counter this by saying that we don't operate mostly in physical currency--so we could indeed transfer a trillion BTC to Cyprus, or so forth, even though a trillion BTC don't "exist." It would simply be a new asset on our balance sheet, and a new liability on theirs. The only thing that would change is that the unit was BTC instead of USD.
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Still, that's a bit silly. Every day, we have more people using more USD for more things (this is what a growing GDP means, basically.) Having a fixed supply of USD, even as we have a growing number of people wanting to use it as a token of trade, would be very annoying. There's nothing that would make BTC different in that regard. (The proponents will say that "well, you can subdivide BTC to eight decimal places"--but even then, if I have an IOU saying "1 trillion BTC", subdividing physical BTCs won't get me any closer to being able to "instantiate" that trillion BTC in the real world. And if I can't do that, I can't take the BTC IOU your government sent my government and actually spend it on anything. So we're back to the starving-for-want-of-gold-in-a-drawer problem.)
If you can't tell, I don't actually think running the global economy in BTC is a particularly good idea. In fact, I don't think using Bitcoin as a currency is a particularly good idea. Bitcoin's ideal place in the economy, in my view, would be as a permanent, synthetic "commodity" to be traded on the commodities market--basically, a replacement for what people currently use gold for, but with an absolutely fixed supply.
In that role, Bitcoin-the-traded-commodity would still be able to serve its current function--basically, something you turn money in one currency into, to give to someone else in complete anonymity, who then turns the BTC back into money in their preferred currency. (You can also do this with gold, obviously. Bitcoin, then, is just "a strange precious metal that weighs next to nothing, takes up next to no space, and is easy to send to someone by typing it into a computer through a keyboard.")
But commodity-traded Bitcoin could also serve as a good unit to normalize prices against, rather than just measuring them in USD as we do now. You could value currencies in BTC, value stocks, value stock markets--even value products at the supermarket. It would basically be a global version of the Brazilian Real concept--setting prices stable with respect to the inflation or deflation of any given currency. (The store shelf would say "3.00 BTC", and then they'd have a "current exchange rate of BTC to USD" posted--or it'd all be figured out by our ubiquitous smartphone gizmos. Admittedly, going this far is a bit of a hassle if your country isn't experiencing hyperinflation, but it does work everywhere, and that feels sort of elegant to me in the same way a nice, concise algorithm does.)
This "absolute measure" could also make people take notice of the competitive devaluation spiral that the USD and the RMB have gotten into recently. :)
I might try this in my MMO, actually. Set up a fiat "fixed-supply" commodity and then normalize prices in units of it, even though you're paying for things with non-fixed-supply currencies.