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Comment by notacoward | Hacker News Reader

That's all well and good, but it's also a complete diversion from the original "not much goods or services that you can store for more than a year" point. If I wanted to get into a more general discussion of the efficient market hypothesis, I wouldn't do it on HN.

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I am talking about that exact point - "not much goods or services that you can store for more than a year" and elaborating why that is an important thing to understand. The point of the GP was that the goods and services consumed by those that don't work have to be provided by those that do. A lot of people don't understand this because individuals can save through money and other financial instruments almost as though they are storing goods and services that can be consumed in the future.

But this analogy fails at a larger scale - an entire generation can't just save up enough while they work and expect to be provided for in retirement because what they saved up are just claims on future production - their consumption still has to come from the production provided by future generations. Their claims cannot and will not automatically cause the excess production to occur.

Now this is a purely hypothetical problem and we're arguably in a world with the opposite problem (too much productive capacity, too many people trying to save and not enough demand). Though arguably even this problem is due to too many people to save up to prepare for the other scenario, decades before it happens.

Farmer A produces 10 tons of grains and sells them for $100 each. One year later Farmer A buys a new tractor and produces 20 tons of grains and sells them for $50 because of fierce competition. People decide to save $50 instead and the farmer still sells only 10 tons. 10 ton grains have spoiled because no one bought them. 10 years later people have grown old and use their savings to buy grains. The population is growing so demand is growing as well. Farmer A says I only have 10 tons of grains but 20 buyers are coming to my farm. If I raise my prices to $100 then I can still sell all 10 tons because a lot of people have saved up money. The end result? Some people have no grains and others have to pay through the nose because 100 tons of perfectly good grains that could have been sold have spoiled instead.

How can we model the spoilage of goods and therefore of the loss of value of money that represents a claim to these goods? With inflation. How can we encourage manufacturers to maintain production capacity even in the future? With inflation.

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