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But money has some transaction value that makes it more valuable than zero interest bonds, so this situation could not be an equilibrium.

The equilibrium price would be set by the demand for money-as-currency. But in the limit of instantaneous (electronic) settling of payments, this demand premium converges on zero, with the only residual demand being for money-as-store-of-value.

The purchasing power of hard money increases with time only to the extent that reality changes, i.e., for the same reason that each year you can buy more CPU cycles per inflation-adjusted dollar. And it's exactly as "deflationary" as the falling price of CPU cycles. This is perceived to be a problem only because of a double meaning of the word deflation: a contraction in the money supply causes a potentially harmful general drop in prices, whereas increased productivity causes a beneficial increase in the purchasing power of money. Those who fear the latter need to explain why it's bad that, e.g., smartphones keep getting better and cheaper every year.

Unfortunately, the usual strategy is to describe both kinds of price decreases as "deflationary", point out that deflation has historically been harmful, and then conclude that hard money must be harmful as well. That this logic is applied to hard money and not to smartphones is most parsimoniously explained by the political incentives that led to the abandonment of hard money in the first place, together with the associated displacement of descriptive "political economy" by prescriptive economics.

The equilibrium price would be set by the demand for money-as-currency. But in the limit of instantaneous (electronic) settling of payments, this demand premium converges on zero, with the only residual demand being for money-as-store-of-value.

Let's start with the empirical evidence. Velocity of money has not grown much at all, over the last 50 years[0]. Surely if the issue was mainly technological, then technological changes up till now would have resulted in a bigger change in velocity.

The alternate explanation is that the transaction value of money is driven by other kinds of economic frictions, in particular agency problems. Although it's not very popular, Holmstrom and Tirole have some theoretical work on the relationship between collateral, liquidity and agency problems. But the general idea is quite intuitive: any contract, whether debt or equity, changes the incentives of the counterparty and results in moral hazard. This places a limit on how much we can rely on credit instead of money.

That this logic is applied to hard money and not to smartphones is most parsimoniously explained by the political incentives that led to the abandonment of hard money in the first place,

Given the above, do you still think that the you know the simple obvious truth and that mainstream economics has ignored it out of willful blindness? Does your parsimonious explanation apply to me?

[0] https://en.wikipedia.org/wiki/Velocity_of_money#/media/File:...

> I don't think it is possible to create an inflationary currency except through central banks.

How so? A number of alt.coins has built in inflation, either through continuous mining, or via staking (such as ReddCoin) or a mix. There may certainly still be plenty of issues, such as lack of ability to adjust the rates without widespread consensus that might make it hard to respond to various situations, but making the currencies inflationary doesn't seem to be a problem.

I think the assumtion that within the next one or two centures the world wide economy comes to stand still and to not grow at all is nothing odd. If you extrapolate the current (last centureis ) energy usage, within that timeframe we are boiling this planet if we go on.

"I don't think it is possible to create an inflationary currency except through central banks."

I don't see why that would be the case. Would not "Bitcoin, but the mining rewards don't decrease" be an inflationary currency?

No that you mention it, I think that would be possible.

The main problem is that by its competitive nature, mining rewards are actually deadweight loss. Every dollar value of bitcoin that is given to a miner is value that is destroyed. To see this, imagine that a Chinese bitcoin mining farm is making a profit mining bitcoins, gaining $10 of bitcoins for every $8 of operating expenses. Then another farm could start up with an even lower profit margin. This would continue until the economic profit was zero, i.e. every dollar's worth of bitcoin mined cost a dollar in operating expenses, which are deadweight loss to the economy.

However, none of this implies that a constant inflation rate is not possible. As long as a dollar's worth of bitcoin generates more than $1 of value to the economy, the system should be stable, and the higher this number, the less wasteful bitcoin would be. Given the various figures for velocity[0][1] I've seen, it's not clear whether this system would be prohibitively wasteful or not.

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

[1] Note that velocity is the ratio of total money to nominal GDP but since one is a stock and the other is a flow, this doesn't measure how much economic activity a single dollar generates/supports.

Constant rewards would mean the inflation tends to zero in the long term. But that's easy to fix by making the rewards increase over time in proportion to how many coins exist.

The harder problem is that without a central bank you can't track changes in the size of the economy. The more you want to avoid deflationary periods, the more you have to inflate "just in case". And high constant inflation has its own problems.

So it's better to say that it's extremely hard to create a mildly-inflationary currency without a central authority.

The harder problem is that without a central bank you can't track changes in the size of the economy.

Why not, if you have the total list of transactions being made - ie., the blockchain? Seems to me like it wouldn't be hard to measure the "Bitcoin GDP" and adjust accordingly.

You can, quite trivially, measure the total amount of BTC that moved from wallet to wallet. You can't tell what actually moved from entity to entity (at least, not without a lot of work, and probably not without some non-blockchain information). I'm not sure how good the former would serve as a proxy for the latter in your envisioned use case.

Really, if we wanted to stabilize a coin, I think we'd want to be measuring how it's moving relative to other things, which is definitely external info. It would be a challenge to come up with a means of folding these observations into the system in a secure (and ideally trustless) way.

That makes sense. Sounds like it could be amenable to some control theory, but certainly it's not a solved problem.