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Odds and Ends
It's important to know what you like
21 5, 6:51pm
1) First of all, I am not completely sure that that equation: M*V=P*Q is valid.
But let us try to examine it.
If we switch to a gold standard and full reserve banking as I said, then M, money supply, will more or less be determined by Q, or the output produced, as gold mines requires a lot of work, gold sells near its production cost, and mines already work near top efficiency.
So the production of money (gold) will closely follow the general economic output.
Velocity, V are dependent on the general mood in the economy, so it is largely unpredictable, (and totally uncontrollable).
Regarding P, then history shows that the price of goods as measured in gold have been relatively stable over 5000 years. The changing moods will make the velocity osculate but stay in the same general area.
I am not a monetarist and neither am I a communist, (someone that believes in central planning) We need a money supply that is bound to the natural base, and to the energy output that drives the economy.
I believe that the invention of the SI system in the late 18th hundred was one of the greatest inventions of all time. As it allowed accurate measurement everywhere for everyone. It was like a single scientific language.
Like the archive meter we need achieve money, something that are based on a natural constant and not susceptible to human manipulation.
I am not saying that we shouldn’t have lending. People that have money should be allowed to lend them out, but they shouldn’t be allowed to lend them out twice.
I imagine that the role of banks change to something closer to that of a real estate broker. Let me come with an example.
Abe needs to build a new garage and don’t have the money for it. He goes to a bank, present his assets and annual income. The bank then gives their professional risk assessment and suggest an interest rate and repayment plan.
It is then put in their display.
Berth sees the display, she have money to invest, and based on the information given thinks she can trust Abe. So she provides him with the loan.
The bank never invest any of its own money into Abe’s garage, it only facilitates the contact and takes a fee as payment for its services. If Abe defaults anyway, then Berth loses her money, that is also why she is paid an interest, as she is taking a risk, and she bears the full risk, the bank is completely neutral.
2) Now regarding thy two scenarios
“a) what are you going to do when you're faced with deflation?”
Deflation is a good thing, it means we can get more for less, it is a sign of a growing economy, and it is temporary as it slows down growth, preventing it from becoming overheated.
“b) imagine that some firm captured and successfully mined asteroid that contains large amounts of precious metals. Over the course of one year, amount of available gold increased by 20%. How are you going to avoid inflation?”
That is basically what happened when Spain discovered the silver mountains in Argentina. The massive influx of silver and gold caused the Spanish economy to overheat. But that is a rare occurrence, the alternative that some monetarist kingpin sits on top of the economy to determine the supply of currency as have happened for the last 100 years and especially since the last restraint was lifted in 1971 have been disastrous.
A discovery of such an asteroid would only happen thanks to a massive real investment, and the gold rush it will create will bring people out to the final frontier, driving the colonization of space.
Besides thou think 20% would be bad? What about 200% That is what the monetarist expanded the US base currency with in the last financial crisis
How can we even compare that with the rare occurrence of a prospector discovering gold as a result of his own hard work? Nobody worked for these fred money, it was just created out of thin air.
3) Intrinsic value
Okay the thing about thy desert and forest example is that both gold and water have intrinsic value.
Water is just more immediately useful.
What I am going to do in both scenarios are that I am going to bury the gold next to a prominent landmark so I can find it later when I am not desperate and then take the water.
This is especially true for the desert example, for the forest example where I am close to a river. I don’t need to carry water with me, I am staying with the river and follow it downstream.
I have little reason to dump the gold, but if it is too much for me to comfortably carry I would bury some of it, again near a prominent landmark.
Nothing of what I said about it was wrong. And while it is true that it have scarcity, I got news for thee: SCARCITY IS BAD.
The purpose of all economic activity is to overcome it, it doesn’t give things value.
For thy two examples before where I was stranded in the wilderness, I was in a much better position in the forest, as the presence of the river ensured that water, (a resource of high intrinsic value that I need) was not scarce. So I wouldn’t have to worry about it.
Beyond that, bitcoins scarcity is arbitrary, it is not natural like gold and there is an unlimited supply of potential cryptocurrencies.
I am sorry if thou hast fallen for it, but it is very obviously a scam.
5) Stocks and bonds
I looked at it from the savers perspective, people that have capital, needs a place to put it. But if thou want to make industrial investment thou also need capital. If thou cannot raise it theeself thou can sell part of thy company to others or borrow money in the form of a bond. But one should be very careful about doing that.
I have seen so many cased of failed companies, that focused too much on growth. The life blood of any business is the profit. It is only too easy to overextend ones resources by focusing too much on growth, and all debt have to be repaid with interest, so one would need a 10% growth just to break even on a 5% loan when we take in the opportunity cost. And borrowing also always comes with increased risk, which we ought to minimize.