I personally think economists don't have that good models on deflatory currencies. Since pretty much all currencies are designed to be inflationary, it's easy to fall into the trap of thinking only inflation can make currencies work. The best thing is to wait and see the empirical data.
My bet is that some people will hoarde money, but it doesn't really matter. There will always be people who will use bitcoins for real economic activity, and 'speculators' will keep the value inline with other currencies. Prices will be adjusted for deflation just like they're adjusted for inflation.
Saying that the rational action is to hoarde the money until it rises in value is like saying that the rational action when buying computers is to wait an infinite amount of time, since you're always going to get a better computer by waiting 6 months.
Some early adopters would be filthy rich. Not so different from other filthy rich people. Hoarding would be more profitable than investing. Would everyone stop investing, would the currency just keep on deflating? Forever?
When a really rich person doesn't have to do anything at all to keep getting richer, what will he do? If he hoards until he dies, how will that affect the economy?
Someone should call the banks and warn them their depositors' accounts are worthless then.
I think the argument is a sufficiently deflationary currency creates an investor's dream: once you get enough of it, you can spend just what you need and what you have left gains value just sitting there. You don't have to work anymore or invest in anything besides the currency itself. If that becomes the most profitable investment strategy, it's in each individual's best interest to hoard money, but if enough people do that the economy collapses.
If one person "cheats" the system by hoarding money and gets to spend less and less of it every day because it's actively gaining value, that person gets something out of the deflation. If everyone tries it, the system's in deep trouble.
That seems to be the argument, anyway.
What would actually happen? I don't know… I'm a programmer, not an economist.
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I personally think economists don't have that good models on deflatory currencies. Since pretty much all currencies are designed to be inflationary, it's easy to fall into the trap of thinking only inflation can make currencies work. The best thing is to wait and see the empirical data.
My bet is that some people will hoarde money, but it doesn't really matter. There will always be people who will use bitcoins for real economic activity, and 'speculators' will keep the value inline with other currencies. Prices will be adjusted for deflation just like they're adjusted for inflation.
Saying that the rational action is to hoarde the money until it rises in value is like saying that the rational action when buying computers is to wait an infinite amount of time, since you're always going to get a better computer by waiting 6 months.
Some early adopters would be filthy rich. Not so different from other filthy rich people. Hoarding would be more profitable than investing. Would everyone stop investing, would the currency just keep on deflating? Forever?
When a really rich person doesn't have to do anything at all to keep getting richer, what will he do? If he hoards until he dies, how will that affect the economy?
I too want to see empirical data on this.
If he hoards until he dies, his currency is effectively worhless. If he tries to spend it all at once, hyperinflation.
Money is not a store of value. It is currency, for current exchange.
Someone should call the banks and warn them their depositors' accounts are worthless then.
I think the argument is a sufficiently deflationary currency creates an investor's dream: once you get enough of it, you can spend just what you need and what you have left gains value just sitting there. You don't have to work anymore or invest in anything besides the currency itself. If that becomes the most profitable investment strategy, it's in each individual's best interest to hoard money, but if enough people do that the economy collapses.
If one person "cheats" the system by hoarding money and gets to spend less and less of it every day because it's actively gaining value, that person gets something out of the deflation. If everyone tries it, the system's in deep trouble.
That seems to be the argument, anyway.
What would actually happen? I don't know… I'm a programmer, not an economist.
As far as I can tell that should be what happens. I'm a programmer and I have friends who are economists.