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Comment by bko | Hacker News Reader

> Your expectation is that the money hidden under your couch should never go down in value?

Why should it go down? If there were a fixed or slowly growing monetary base (i.e. slower than productivity), the dollar would appreciate and this would be a good thing as we would all benefit from the gains of productivity and living in a prosperous society.

I never bought the idea that we need to inflate our monetary base and have inflation. It seems too convenient as the government uses it as a backdoor form of taxation. And every few decades it gets out of control. The argument pro moderate inflation never rang true to me. The biggest one is "people wouldn't spend money if they knew everything will get cheaper", which is on its face wrong because the hottest selling goods in this economy are quickly depreciating. This year's iPhone or car model depreciates very quickly but somehow people keep buying it and the world doesn't fall apart.

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You ask why should it go down? My understanding is we tried other banking policy during the great depression and it didn't work out so well. When the economy collapses and the government lacks gold backed dollars to do counter cyclical spending because there's not enough gold reserves it doesn't go well.

So my response would be because great depressions are not desirable.

But what I really don't understand is the outrage that the money under the couch should go down- when assets like treasury inflation protected securities are available. (Yes they are not always available at profitable rates- though they currently are- and I don't think the people complaining about inflation are whining when stocks or Treasuries or bank accounts are paying more than inflation.)

> When the economy collapses and the government lacks gold backed dollars to do counter cyclical spending because there's not enough gold reserves it doesn't go well.

Probably shouldn't be using this logic when the dollar is no longer tied to gold or any other physical asset though. There's a world of difference between a dollar based on gold and a dollar based on confidence in the US government.

They were describing the 1930s situation, when the dollar was backed by gold & it didn't go well

And I was saying that the dollar is no longer backed by gold, or tied to any other limited resource, so why would we assume that the same scarcity-driven dynamics are still in play?

The fact that a certain policy doesn't work during the great depression doesn't mean that it doesn't work all the time.

> Why should it go down?

Because the people on earth have created value through work and so the money supply needs to increase to represent the additional value that has been created through that work. If you cut a tree down and, through work, turn it into a table — then you created value where there was none before.

So the money supply must increase to represent human endeavour. That’s effectively what central bank interest rate rates are.

In a perfect world, we’d have an exact balance between work/value and money creation. Unfortunately, it’s not a perfect world.

As others have noted, deflation is problematic because people hoard money with the expectation that the value of the money will be more tomorrow. This reduces the activity in the economy. So a balance between money supply and endeavour is a reasonable solution. It doesn’t make money appear to be rare.

Money is ultimately a 'claim check on society', in Buffet's words. Unspent, uninvested money is a deferred claim. Why should the value of a deferred claim go up, if you haven't invested it in some productive use? Why should you be able to defer a claim in perpetuity, and expect to exchange it for exactly the same amount of goods and services at any point in the future?

Because its a claim. A claim is not less valid if you don't claim it. That kind of defeats the purpose of a claim. You contributed to society and you have a right to something in return.

This argument assumes there is a fixed amount of wealth in the world and you're taking some share that would otherwise go to someone else.

At the time the claim is created (you're paid your salary, you have a liquidity event, ...) you can exchange it for some quantity of goods and services roughly proportional to (the market's appraisal of) the social value you've contributed. If you stash that claim under your mattress, should it be equal to the _exact same_ quantity of goods and services 10 years in the future? 100 years?

If instead you stored the value you created (the lumber you fell and milled, the clothes you manufactured, the messages your software conveyed, the student you educated, ...) under your mattress for 10-100 years we would not expect them to have exactly the same utility they did at deposit

Money should be a _more_ efficient store of value than anything we might exchange it for, but I don't think it's clear that it should be a perfect store of value. If you want to maintain a claim on a fixed quantity of goods and services, you should have to contribute to the investments required to maintain the productive capacity to deliver those goods and services.

A monetary policy targeting stable, low, but positive inflation balances savers' need for a risk-free store of value with the social need for continued investment and consumption.

> A monetary policy targeting stable, low, but positive inflation balances savers' need for a risk-free store of value with the social need for continued investment and consumption.

I think both these purposes are served with zero or deflation. As a saver, I don't like my dollars being depreciated and people on fixed income also don't like that. And as someone who wants to promote investments, a lower deflation rate reduces my minimum expected return since it doesn't have to clear some inflation hurdle rate. And for consumption, like I mentioned in my original post, the hottest selling items are rapidly depreciating, so I don't think it would negatively effect consumption. So the only one the inflationary system works for are the politicians that use money printing as a backdoor form of taxation

Deflation means that I can make money (or more precisely, value) simply by leaving what I have in cash. That doesn't promote investment; it promotes hoarding.

That's the same as investment. If a part of society's resources aren't directed towards consumption, they are directed towards enabling future consumption. It's a tautology in economics that savings equals investment.

Saving it under a mattress is not investment, as "investment" is normally understood. It's just savings.

It's the same thing in economics. It causes the government to print more money to make up for the money missing from circulation, which will be invested. If the government doesn't do that, it increases the value of all other money in circulation.

But that’s under some weird, incorrect model of how money works. Presumably if we go down this route any further you’ll start talking about IS/LM and the money multiplier. All models are wrong, but there’s a better model that involves capital constraints and the Basel accords.

In any case, one of the major failings of modern macro is to assume you can think your way around the implications of economic actions. You have no way of knowing the consequences of stashing money under a mattress unless you actually do it, and even then there’s no guarantee the effect will be the same across different economies and in different eras. The world is just too complex for that.

Are you calling the entire field of economics a pseudoscience?

A lot of the field of macroeconomics, yes. Have you ever sat down and read that stuff?

What you're arguing for is deflation, which has a long-standard track record of either slowly or quickly destroying entire economies.

care to cite some examples of deflation quickly destroying an economy? there are many such examples for inflation. Argentina, Germany, Zimbabwe, Greece

there is deflation that comes from shrinking of the monetary base and there is deflation that arises out of productivity gains

often the "deflation" observed in bad economies is a symptom rather than the cause E.g. there were a few months of official deflation in the US following the global financial crisis, but this followed from the crash rather than caused it.

Japan in the 90s 00s -- didn't destroy it but weakened it in a very major way

Yes, hyper-inflation is highly destructive, but deflation creates a negative cycle that is very difficult to get out of.

It should go down because population levels aren’t static and deflationary pressures drive people insane.

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