Don’t privilege any given currency—you don’t buy or sell things, you trade commodities. Sometimes that commodity is a currency, sometimes it’s a stock, sometimes it’s an actual thing.
For the trade that is currency exchange, one currency’s hyperinflation is the other’s hyperdeflation. If you traded away USD for Zw$, your loss (as measured by the amount of Zw$ you could have had later for that USD) was near-infinite.
(note: I honestly believe this, but I am presenting it more forcefully than I believe for socratic and exploration reasons).
Interesting. What other approach makes sense? When you stop treating currency as special, all costs are opportunity costs. The only actual loss you experience from spending now is that you can’t spend it later.
your loss (as measured by the amount of Zw$ you could have had later for that USD) was near-infinite
but if everything is just a tradeable good, why do you choose to measure your loss in Z$? Your loss in McDonald’s hamburgers is zero, your loss in some now-out-of-fashion accessory is actually a gain, etc. etc. If you don’t have money, you have no baseline but just a huge matrix of barter ratios. Whether you have a gain or loss (and its magnitude) solely depends on which pair you pick and there is no pair that’s privileged, is there?
Speaking more generally, not all costs are opportunity costs, some are just actual losses. If you want to think of spending your resources (=money=commodities) in terms of consumption and investment then sure, any consumption incurs opportunity costs because it’s not investment and investment can be seen as risky delayed consumption. But that’s just Econ 101 and it works perfectly well with money as well.
Within the investment world yes, cash is just another asset. But you still need a baseline way to measure things and measuring investment returns in bananas or Swiss watches is kinda inconvenient and an excellent way to screw yourself up. What’s the point?
I see. I think you’re treating your varied anticipated future consumption as your “base currency”, which adds a fair bit of complexity over the simpler two-commodity model. (but it matches common intuitions better, I’ll admit).
I don’t see how it fits the case.
If your domestic currency is USD, you bought an asset (foreign currency) and that asset dropped in price to near zero.
If your domestic currency is Zimbabwe dollar ZB, then you had to *short the USD to suffer huge losses.
As gjm notes, you need a huge negative inflation rate (aka deflation) and I don’t think that ever happened, at least during the fiat money era.
Don’t privilege any given currency—you don’t buy or sell things, you trade commodities. Sometimes that commodity is a currency, sometimes it’s a stock, sometimes it’s an actual thing.
For the trade that is currency exchange, one currency’s hyperinflation is the other’s hyperdeflation. If you traded away USD for Zw$, your loss (as measured by the amount of Zw$ you could have had later for that USD) was near-infinite.
You are now talking, basically, opportunity costs. I don’t think your approach makes sense.
(note: I honestly believe this, but I am presenting it more forcefully than I believe for socratic and exploration reasons).
Interesting. What other approach makes sense? When you stop treating currency as special, all costs are opportunity costs. The only actual loss you experience from spending now is that you can’t spend it later.
Well, to start with the Z$ example, you say
but if everything is just a tradeable good, why do you choose to measure your loss in Z$? Your loss in McDonald’s hamburgers is zero, your loss in some now-out-of-fashion accessory is actually a gain, etc. etc. If you don’t have money, you have no baseline but just a huge matrix of barter ratios. Whether you have a gain or loss (and its magnitude) solely depends on which pair you pick and there is no pair that’s privileged, is there?
Speaking more generally, not all costs are opportunity costs, some are just actual losses. If you want to think of spending your resources (=money=commodities) in terms of consumption and investment then sure, any consumption incurs opportunity costs because it’s not investment and investment can be seen as risky delayed consumption. But that’s just Econ 101 and it works perfectly well with money as well.
Within the investment world yes, cash is just another asset. But you still need a baseline way to measure things and measuring investment returns in bananas or Swiss watches is kinda inconvenient and an excellent way to screw yourself up. What’s the point?
I see. I think you’re treating your varied anticipated future consumption as your “base currency”, which adds a fair bit of complexity over the simpler two-commodity model. (but it matches common intuitions better, I’ll admit).