[AznHisoka]

"Continuing the thought experiment, consider what goods and services people would continue to spend money on, in spite of the expected increase in the value of money."

I love this comment. Everyone just blindly says "People will put money in their mattress. Economy will go down" and then it's case closed.. but then what happens next? They just won't buy food? water? won't go to the mall? They just stay at home and hunker down? They won't even be watching entertainment since they won't be paying for a Netflix subscription too, apparently.

[lmkg]

The proposition is not that people won't spend money. The proposition is that they won't invest the money that they're not spending. Keeping money under the mattress is not competing against groceries and Netflix, it's competing against government bonds and/or interest-bearing bank accounts.

[logicchains]

If people sudddenly hoard money, they're essentially reducing the supply of money, which means the value of money will go up (as there's less of it), effectively acting as a transfer of purchasing power to the people who are actually spending it at that time. Imagine for instance I do something that generates a lot of value (money), then burn that money (or hide it under my mattress 'til I die of old age). This essentially means I gave "value" to society for free, as I created "value" but did not consume any "value" in return, leaving that "value" I could have consumed with my money to be consumed by others.

[ucaetano]

Nope, the problem isn't people hoarding money, the problem is doing so outside of a banking system, where such money is put to work in investments.

If the economy is growing in the long term and the supply of money is constant, the value of money (vs. goods) will always increase, and everyone has an incentive to hold currency instead of investing in the economy.

The result is that you can't raise capital for a startup or for an infrastructure project.

[throwawaylolx]

This is not responding to GP's argument: the point is that "hoarders" implicitly provide capital for others by reducing the circulating supply.

[ucaetano]

Driving deflation isn't providing value.

The claim isn't even wrong, it doesn't make sense.

[logicchains]

To earn money, somebody has to have created value (people are paid for creating value). Spending money is consuming value. Imagine there is $100 worth of total value in existence. Somebody creates $5 of value, they're paid $5, and total value existing is now $105. They could immediately consume or invest this $5 of value, leaving society with $100 of value, and if they invested some productively then they'd have increased the rate at which society's able to generate value in future. Or, they could do nothing with that $5, leaving society with $105 of value. How does society access this extra $5 of value? The person who choose to hoard the $5 effectively removes that money from circulation, which decreases the supply of money and hence increases its value. This means the purchasing power of other currency holders is increased. Those who then decide to spend money can consume or invest the $5 of value that was left unused.

[luckydata]

It's not like it never happened before. Just read up on the great depression and you'll get an idea.

[ucaetano]

Deflation and deflationary episodes aren't the same as a deflationary currency.

[luckydata]

read up on the gold standard then.

[ucaetano]

Sight...seriously?

Gold wasn't a deflationary currency, not only that, the supply of gold increases over time, and some times suddenly such as when the Spanish empire started extracting gold and silver from the new world resulting in the Spanish Price Revolution.

Seriously, please go take some economics classes...

[kristjansson]

The deflationary argument is about a difference in degree, not in kind. A deflationary monetary regime does not stop all commerce, it just creates incentives to defer or forgo discretionary spending and investment. That, by traditional economic measures, is Bad.

[ucaetano]

I'm not talking about spending, I'm talking about savings, capital accumulation and re-investment. Your entire point (and your parent's) isn't even wrong.

And no, the federal reserve doesn't control the supply of money by any means.

It influences it, sure, but it doesn't control.