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Comment by rjsamson | Hacker News Reader

The biggest problem I have with bitcoin is that the fixed bitcoin supply and decreased rate at which coins can be mined rewards hoarding behaviors. If you know that the bitcoins you have in your account today will be worth more in the future, you have a powerful disincentive to spend.

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If you know that the bitcoins you have in your account today will be worth more in the future, you have a powerful disincentive to spend.

That's only if you're a scrooge and don't like spending anything. Since bitcoin started, I spent bitcoin on hosting and domain, t-shirt, musics, development bounties, writers, and other things that I forgot to mention.

I never spent a bitcent on mining hardware, though.

You have to remember that humanity is a not a paper wealth maximizing function. We don't exists to horde money, but to spend it doing things that we like.

"We don't exists to horde money, but to spend it doing things that we like."

Deflation increases the incentive to hoard cash. People respond to incentives. Economies based on deflationary currencies end up suffering from problems caused by this. You may not agree, but pretty much every economist does.

I don't dispute the incentive, I only dispute the preference and the outcome.

So you're saying that people won't respond to the incentive to hoard cash? An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency. Hoarding in itself causes deflation, so deflationary currencies risk causing a deflationary spiral.

Do you have an example of a vibrant economy based on a deflationary currency? I have several historical counterexamples.

So you're saying that people won't respond to the incentive to hoard cash?

I'm hungry... really f%!#ng hungry, right now. I have $10.00, which - today - buys me 2 hotdogs and a soda. But, if I wait a year, that same $10.00 will buy me a nice steak, some corn chowder, a side of sweet potato fries and a margarita. What do I do? Hmmm....

That's not how economics works. Sure, some decisions won't be affected by the increased incentive to hoard. However, there are some decisions where the marginal incentive to hoard pushes people over the edge to decide to hoard. Instead of focusing on the sentence of my argument you chose, try disproving the one that followed: "An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency."

Sure, some decisions won't be affected by the increased incentive to hoard. However, there are some decisions where the marginal incentive to hoard pushes people over the edge to decide to hoard. Instead of focusing on the sentence of my argument you chose, try disproving the one that followed: "An economy based on a currency with low, predictable inflation will have less hoarding than a deflationary currency."

No doubt... just emphasizing the point that we aren't dealing with absolutes here. People do spend money, even with deflationary currency. I'm not saying deflationary currencies are a good thing, or that there aren't some ramifications. But I think some bitcoin critics overstate the importance of the deflationary aspect, that's all.

Let's say I own a business importing widgets. If there's inflation of 2%, the stock I hold just became 2% more valuable. If there's deflation of 2%, the stock I hold just became 2% less valuable.

In other words, in a deflationary economy there's less incentive to invest in productive activity and more incentive to stash cash under the mattress.

And it's not just held stock that works this way - it's also capital investments like that new more efficient widget-making machine.

How do you respond to incentive to not buy a new smart phone, because it will probably be cheaper a year from now?

Some people do respond to that incentive. Perhaps a clearer way for me to have made that point was to say, "Incentives affect the decisions that people make."

You're making a subjective and emotional argument ("a scrooge") when it's well-established across societies that deflationary currencies have this effect (of discouraging spending and investment). Bitcoin, with its very tight supply, is inherently deflationary-- so long as it continues to gain traction.

A scrooge is someone who is reluctant to spend money. There's nothing emotional about it.

I also happens to disagree with the idea of deflation being necessarily bad for society or actually discouraging spending and investment. I contend it that it only shift the timeframe longer into the future, and saving enabling people to buy higher quality lasting goods.

With inflation, it encourages short term thinking and shorter term investment.

The Bitcoin money supply is currently inflating at a rate of 33.3% a year.

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