Reply To: Economic calculation and Bitcoin


Price deflation would not cause a special problem for gold production. In an economy of capital accumulation, which is what causes rising productivity, the prices of inputs decline. Falling input prices generate more profit from production of output and therefore, entrepreneurs produce more output which pushes down output prices. Prices of inputs in gold production, too, would be falling which would make gold production more profitable and it’s production would be increased. Thus, there is no special problem of production of gold during price deflation.

If gold production is inadequate to prevent price deflation at rates sufficient to impair credit transactions, then (as you say) entrepreneurs would simply switch to silver or some other commodity that is more readily produced.

In a growing economy, people’s wealth is increasing and they desire to hold a larger stock of goods, including money. Even if the demand for money didn’t increase, production of money would be stimulated by falling costs of production as described above. This is a general phenomenon for all goods: their production is stimulated by larger profit which can occur from a rising prices for their outputs or falling prices for their inputs.