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> [...] All the land is owned by old people and established families. [...]

> Who can take a look at the deflationary nature of land, and think "gee, I'd like everything to be like this!"

People that got in early on the designed-to-be-deflationary thing they are promoting, and thus see themselves as the "old and established families".

"""Who can take a look at the deflationary nature of land, and think "gee, I'd like everything to be like this!""""

People who think they're going to come out on the long end of the stick.

Interesting point on deflation... the 2008 economic collapse was marked by a brief moment of deflation. Just little deflation nearly destroyed the world economy.

A preference for deflationary models is one of the reasons I don't take libertarian economics seriously.

     Just little deflation nearly destroyed the world economy

I don't think you can interpret the causation as going that direction.

In simpler English it wasn't the deflation that nearly destroyed the world economy, it was the near-destruction of the world economy that triggered the deflation.

Something else caused the deflation (basically the collapse of CDOs). But the deflation caused the damage.

It's like the difference between "his car slammed into that other car" and "he was drunk". Drunk caused the accident. Accident caused the damage.

> Something else caused the deflation (basically the collapse of CDOs). But the deflation caused the damage.

You talk about that deflation as if it just appeared out of thin air, but it was the market's natural reaction against over 25 years of Fed policy of papering over asset price corrections with massive credit injections. 1987, the Latin American debt crisis, LTCM, the tech bubble bust ... every single time, the Fed's solution to the "problem" of falling asset prices is to bail out the speculators with easy credit.

It will be much harder for similar credit bubbles to form in Bitcoin in the absence of a central bank (or even, as far as I can tell, a means of fractional reserve banking). Of course, we are witnessing periodic non-credit driven bubbles right now, but I think these will become fewer and far between if the BTC market becomes more liquid, and particularly if a means of shorting BTC comes into existence.

> Of course, we are witnessing periodic non-credit driven bubbles right now, but I think these will become fewer and far between if the BTC market becomes more liquid, and particularly if a means of shorting BTC comes into existence.

I don't understand this logic at all. BTC is primed for speculation, bubbles, and deflation, because it has a fixed or slow-growing supply and no automated procedure for fighting deflation by printing money. In other words, it has no central bank. There's no way it can prevent deflation and speculative bubbles. And yet as the BTC population grows, you think that speculation bubbles will reduce? That's a pretty out-there argument.

> ... and no automated procedure for fighting deflation by printing money.

Depending on how you measure it, the share of credit which comprises the USD money supply dwarfs the amount of actual cash by something like 100:1. The cause of the deflation in the 2008 crisis was a sharp contraction in the amount of that credit, and the crisis only ended when that contraction stopped, not because of the Fed's relatively much less significant cash injections.

The sorts of sharp, catastrophic deflations that took hold in 2008 (or 1929 for that matter) are always caused by the bursting of a preceding credit bubble, usually created by central bank policy. I don't see how that kind of bubble can happen in Bitcoin. So the argument that "Bitcoin is deflationary" is true as far as it goes, but that doesn't mean that a Bitcoin-based economy would necessarily look exactly like, say, the Depression-era U.S. They're two very different kinds of deflation.

In the absence of major inflows & outflows of credit, the addition of liquidity to a market usually reduces the severity and frequency of big price swings. The very difficulty of issuing credit in BTC may very well prevent it from becoming a viable currency, but I think it's also an important brake on speculation.

> The sorts of sharp, catastrophic deflations that took hold in 2008 (or 1929 for that matter) are always caused by the bursting of a preceding credit bubble, usually created by central bank policy. I don't see how that kind of bubble can happen in Bitcoin. So the argument that "Bitcoin is deflationary" is true as far as it goes, but that doesn't mean that a Bitcoin-based economy would necessarily look exactly like, say, the Depression-era U.S.

Bitcoin has already had catastrophic deflations: factors of two in less than a week and factors of three in less than a month. And equally spectacular speculative crashes. The reason for this is really very simple: there's no one at the tiller, printing money to tamp down the speculation.

The kind of deflation I'm talking about -- and I think everyone on HN is talking about -- is the kind associated with speculation. If Bitcoin can't discourage speculation, and it appears by design it cannot, it is dead in the water.

> The reason for this is really very simple: there's no one at the tiller, printing money to tamp down the speculation

So who's printing gold to temp down the speculation in that? Or what makes gold different so that it doesn't need a "central bank"?

Gold isn't different. Bitcoin is actually behaving a whole lot like gold.

But, here's the thing: few people have ever suggested that we actually do our regular, day-to-day finances in market-value bullion gold. Instead, it's just considered a good way to back or hedge against actual, managed currencies.

Bitcoin stands a chance, IMHO, if people get off their ridiculous Austrian Economics shtick and start treating it similarly to gold: Bitcoins as hedge against financial shenanigans in other currencies rather than Bitcoins as a way of paying your bar tab.

I don't disagree with your interpretation of the central banks using easy credit to patch over popping bubbles, but I don't think your logic on bitcoins is right at all.

Basically, as bad as central bank meddling is, the alternatives are far, far worse - look at the boom/bust cycles of the 19th century. For the most part, competent central banks prevent both hyperinflation and deflation through controlled expansion of the money supply.

I disagree with your reading of history in terms of the boom/bust cycles of the 19th century allegedly being "far, far worse" than central bank (mis)management of the money supply. As bad as the volatility of that period was, economic growth was still quite robust. And our system is now so dependent on massive levels of credit -- which could not exist without Fed backstops -- that when a panic hits there are legitimate fears of a total seizure in the economy and widespread social disorder (Hank Paulson's "tanks in the streets"). Maybe my reading of the history is flawed, but it seems to me that the panics of the 19th Century were at least faced with a bit more composure than that.

But more to the point, even the 19th century cycles were intimately tied to the credit cycle. It was just created by private banks operating on fractional reserves, as opposed to a central bank. There is no fractional reserve banking in Bitcoin. (Which, again, may be a reason it will never take off as a currency, I'm not sure.)

Bitcoin, if it takes off at all as something more significant than Dutch tulips, will probably be relegated to commodity rather than currency, much as gold and silver are (with a little black market currency behavior on the side, just like gold).

As you point out, there's no obvious way to do fractional reserves, so it can't be used for debt-based capitalism unless someone comes up with a clever mechanism for that, something deeper than commodity-as-collateral. Avoiding the currency hazards of modern capitalism by not being able to perform the underlying operations of modern capitalism is kind of cheating. And if you can do lending on fractional reserves, how do you know the hazards of reserve currencies aren't a function of fractional reserves rather than a scalable money supply?

>And our system is now so dependent on massive levels of credit -- which could not exist without Fed backstops -- that when a panic hits there are legitimate fears of a total seizure in the economy and widespread social disorder (Hank Paulson's "tanks in the streets"). Maybe my reading of the history is flawed, but it seems to me that the panics of the 19th Century were at least faced with a bit more composure than that.

I would argue that while the dependence on credit is real, it's not due solely to banking. The real dependence on credit is simply because wage levels are so low that most people cannot afford to pay for their lifestyle in cash, and are not even expected to do so.

When you configure the economy such that buying cars, houses, health-care, education, weddings, births, and burials almost always requires credit, then that economy will become intimately dependent on the credit cycle. If you don't like it, then you need to raise wages, reduce inequalities, and oftentimes even nationalize certain vital services, until ordinary citizens can go through life maximizing the amount of goods they pay for in cash and minimize the amount of loans they need to take out.

Otherwise, expect your society to be enslaved to the creditor class.

http://www.nber.org/papers/w10268

    Deflation and Depression: Is There and Empirical Link?

    Are deflation and depression empirically linked? No,

    concludes a broad historical study of inflation and real
 
    output growth rates. Deflation and depression do seem to 

    have been linked during the 1930s. But in the rest of 

    the data for 17 countries and more than 100 years, there 

    is virtually no evidence of such a link.

> In Britain, 0.6% of the population owns 69% of all the inhabited land in the country

> look at say Manhattan

Cherry-picking examples like this undermines your point. The value of land is non-uniform. Of course looking at the largest urban metropolises or extremely powerful island countries, land will be valuable. In the north central US for example, away from urban areas, land is much cheaper (provided it isn't sitting on large deposits of fossil fuels, of course) and I'd guess it also changes hands a lot more often.

Bitcoins OTOH are all created equal.

First, "land in the U.K." or "land in Manhattan" is an asset class you can study by itself. Land isn't a wholly fungible asset.

Second, the example you give actually undermines the point you're trying to make. Bitcoin, if adopted in a major way as a currency, would be even more "like land" than land is generally. More specifically, it's would be like "land below 96th street in Manhattan" or "land in London" as a result of uniformly high, ever-increasing value on a per unit basis, driven by ever-increasing demand for a fixed quantity of good.

I'm using the same foggy crystal ball as everybody else, but my sense of it is that holding a reserve of bitcoin is more like holding a reserve of dollar bills. You could have all the dollar bills and not still have all the wealth, because wealth is stored in a lot of kinds of assets.

That'd make BC holders more like banks which convert between BC and other currencies on a per-transaction basis, which is how we use cash now. In that case, the value shifts would not be significant for most users of BC, nor would inequitable balances result in inequitable cultures. Having BC just means you don't have to pay a conversion/transaction fee.

But again, I'm just guessing.

EDIT: elaborating after some thought. I think bitcoin makes no sense if the UX is acquire,hold,spend; but works well if it's withdraw,transact,deposit. The deflation problem only matters if you see the general use-case as wealth storage.

Land is a fixed asset. The deflationary nature of it is not destructive to an economy (even though is it questionably desirable).

Deflationary currencies are destructive.

Two completely separate forms of wealth.

Well, there are other ways of protecting one's wealth from inflation tax, like real estate and gold. BitCoin, if successful, would just be more stable and liquid.