What does it mean to say that there is “not enough money to drive all the buying of real goods and labor that could be exchanged if your economy had more money”?
How do you know how much money is enough?
Why would anyone expect more goods and labor to be exchanged if there was “more money”?
When you say that there is not enough money, then where is there too little money? Who has too little money? And consequently who has too much money? After all, it doesn’t make any sense to say that everyone has too little money—if you give someone money through printing it, you’re taking it away from everyone else, right?
Would you expect more goods and labor to be exchanged if everyone’s bank account was doubled?
Would you expect more goods and labor to be exchanged if money was simply taken away from certain people and given to other people?
If your answer is no to both those questions, how can you expect more goods and labor to be exchanged if just certain people get new money?
Would you apply the deflationary spiral argument to gold and bitcoin and argue that those must become more and more valuable because no one is going to sell them in the hope they become even more valuable in the future?
The important thing is not the value of money but the rate of inflation; not f(t) but f’(t)/f(t). It’s mentioned in the text that people suffer from money illusion in an asymmetric way, and adapt to slight inflation better than to slight deflation. Thus if the value of money goes up, prices are weirdly rigid and trades start not to happen. Consequently it makes sense to say that everyone has too little money.
“Everyone has too little money” is so simple you can crank it out of Say’s law. Take one guy on an island; he cannot have too much stuff. Take a couple guys on an island, bartering (I know, I know) and as a group they cannot have too much stuff. However, if they specialize and one of them falls ill, then there will be a shortage of what he used to produce and a surplus of what he used to consume. Now, take even more guys on an island who use some commodity as money. There cannot be too much of everything including money, but there can be a shortage of money and a corresponding surplus of everything-except-money, i.e. deflation.
I get the impression you think of money as purchasing power, which is a great way to think about it, but you can’t really make sense of some phenomena like money illusion, because you need to assume e.g. infinite price flexibility for this point of view. You get the (partial) equilibrium, rather than the actual trajectory. This was good enough for the entirety of classical econ, but starting from Keynes, macro focuses on the short-run trajectory. Try to think of money as liquidity as well as purchasing power.
*coin: the extremely limited transaction rate (astronomical transaction fees) means they won’t be money. They make very-high-quality ponzi schemes, though, because no operator can run away with the “invested” money, no central node to be shut down, etc., perhaps “digital gold” really is the best analogy. Because they aren’t liquid enough to be money (and to become the numeraire) in the first place, deflation is not a concern.
What does it mean to say that there is “not enough money to drive all the buying of real goods and labor that could be exchanged if your economy had more money”?
How do you know how much money is enough?
Why would anyone expect more goods and labor to be exchanged if there was “more money”?
When you say that there is not enough money, then where is there too little money? Who has too little money? And consequently who has too much money? After all, it doesn’t make any sense to say that everyone has too little money—if you give someone money through printing it, you’re taking it away from everyone else, right?
Would you expect more goods and labor to be exchanged if everyone’s bank account was doubled?
Would you expect more goods and labor to be exchanged if money was simply taken away from certain people and given to other people?
If your answer is no to both those questions, how can you expect more goods and labor to be exchanged if just certain people get new money?
Would you apply the deflationary spiral argument to gold and bitcoin and argue that those must become more and more valuable because no one is going to sell them in the hope they become even more valuable in the future?
The important thing is not the value of money but the rate of inflation; not f(t) but f’(t)/f(t). It’s mentioned in the text that people suffer from money illusion in an asymmetric way, and adapt to slight inflation better than to slight deflation. Thus if the value of money goes up, prices are weirdly rigid and trades start not to happen. Consequently it makes sense to say that everyone has too little money.
“Everyone has too little money” is so simple you can crank it out of Say’s law. Take one guy on an island; he cannot have too much stuff. Take a couple guys on an island, bartering (I know, I know) and as a group they cannot have too much stuff. However, if they specialize and one of them falls ill, then there will be a shortage of what he used to produce and a surplus of what he used to consume. Now, take even more guys on an island who use some commodity as money. There cannot be too much of everything including money, but there can be a shortage of money and a corresponding surplus of everything-except-money, i.e. deflation.
I get the impression you think of money as purchasing power, which is a great way to think about it, but you can’t really make sense of some phenomena like money illusion, because you need to assume e.g. infinite price flexibility for this point of view. You get the (partial) equilibrium, rather than the actual trajectory. This was good enough for the entirety of classical econ, but starting from Keynes, macro focuses on the short-run trajectory. Try to think of money as liquidity as well as purchasing power.
*coin: the extremely limited transaction rate (astronomical transaction fees) means they won’t be money. They make very-high-quality ponzi schemes, though, because no operator can run away with the “invested” money, no central node to be shut down, etc., perhaps “digital gold” really is the best analogy. Because they aren’t liquid enough to be money (and to become the numeraire) in the first place, deflation is not a concern.