Reply To: Economic calculation and Bitcoin


In the unhampered market economy, people are free to select whatever particular goods they think will best satisfy their preference and entrepreneurs are free to offer for sale whatever goods they anticipate will do so and thereby, render profit.

There are several desirable properties of money that narrow the range of goods that people would select. Widespread salability is the most fundamental since money, by definition, is the general medium of exchange. And, as you point out, it’s usefulness in performing economic calculation is another. Excessive price inflation or deflation is a detriment for something to be used as money. The volatility of bitcoin’s price, or the price of gold or that of silver, is always in terms of the dollar and so doesn’t imply volatility of overall prices in bitcoin, or gold or silver, if it were money. The fixed upper limit on bitcoin production, however, renders it much less desirable as money (as long as economic growth continues) compared to other goods, like gold or silver. In the 19th century, when the U.S. was under a gold standard prices fell mildly (even though gold production continued). But the decline was not large enough to interfere with credit transactions. With a fixed money stock, as under bitcoin, it might have been. For example, if an interest rate in the absence of price inflation or price deflation was 2% and price deflation under bitcoin was 6%, then there would be no loans. Lenders would hold money instead of lending it at a -4% rate of interest. Entrepreneurs would offer gold money or silver money instead of bitcoin to eliminate the potential problem of negative interest rates.

Here’s a wiki on bitcoin: