Re: [tlug] Finance regulators to recognize Bitcoin as "money"

["Stephen J. Turnbull" <turnbull.stephen.fw@example.com>]

Jason Frisch writes:
 > Benjamin Kowarsch writes:

 > >>Not only is it wrong to assume that having a fixed limit for the
 > >>money supply will solve any of the problems in our financial
 > >>system. As an economy grows and shrinks, money supply should grow
 > >>and shrink with it. Fixing the money supply will lead to assets
 > >>becoming overvalued when the economy grows and they become
 > >>undervalued when the economy shrinks. This is not different from
 > >>the problems we already face in our current system.
 > 
 > This is what prices should do, not the currency supply.

No, you need both.  If people were as rational as the rational
expectations hypothesis presumes[1], it wouldn't much matter what the
money supply[2] does, as long as the supply policy is (at least
stochastically) deterministic.  Unfortunately, not only is nobody in
the economy rational in that strong sense, 99.44% of those on the
supply side of the single most important price in the economy aren't
rational enough to accept that marginal-productivity-based pricing
applies to them, too.[3]  So it's politically very useful to have 2-3%
inflation in the economy to provide a downward bias to the wage bill
(assuming that you don't have contracts pegging future wages to
inflation, in which case you are stuck with a slightly miniaturized
version of Class War, the new PSP4 VR game from Marx-Engels LLC).  As
the Japanese are finding, that's not necessarily as easy to accomplish
as Uncle Milton's k% rule, though.

Footnotes: 
[1]  Ie, they can actually compute the probability law for the future
of the economy's stochastic process.

[2]  Not currency supply, currency isn't really relevant any more,
except as a minority component of the monetary base.

[3]  The wage, in case you hadn't guessed.