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Chitranjan Baghi

lets build a Case for deflationary Money supply

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Qualities of Deflationary Money supply

Money > Goods and services = inflation
Money < Goods and services = deflation

In deflation people hoard money because there are many products competing for their money, so value of their money keep rising, but it can't rise indefinitely.

At some point the producers of goods and services will stop or lower their production and the number of products and services will starts to get low, which will lead to a point where Money will be more than products which will cause the inflation.

Now that we know both these things will happen, we can also be assure that any movement towards inflation will lead people to buy and producers to produce and any deflation will remove products which are least wanted in the economy.

In deflationary Money supply this action of moving from inflation to deflation and back should happen fast and balance should be restored very efficiently, because it's working on free market basis which is efficient.

Now with fiat or elastic currency the cycles of moving towards deflation and inflation gets so big that when they crash they get brutal.

Think of this way, small tides in ocean are enjoyable for surfing, but big tides which are in 10 to 12 meters can destruct coastal region.

In the same way business cycles in economy which are small and tight are pleasurable they remove any inefficient businesses.

Important quality of deflationary currency

In the long run it makes things affordable for people, won't you be happy that cost of medical treatment goes down as you grow old,
As you save your money, it's value increase so that you can afford good housing and living standard.
such things are only possible in deflationary money supply.

What is the limitations which can come to mind regarding deflationary money?

Can we just have 1 coin for the whole economy, what needs to happen for this 1 unit money supply to work? This 1 unit has to travel at a speed of light means the velocity of this 1 unit coin has to be super high to support the economy.

Now simple logic come, we are not stupid we know how much money we need for economy to work well, so let's set the money supply to that level. Sure we can do that but we have to assume that demand for money won't increase in the economy after that, which is not the case, we are yet to reach that level where all new endeavors are meaning less which is not possible because we haven't reached efficiency in every regard of life.

Hence inflationary currency look viable, but again we know the consequences of fiat money and how it distorts the market signals and make business cycles inefficient and brutal.

What new types of deflationary money supply do we need?

There are few things we can do, we can have a concurrency with a hard limit and after some time interval shift to a new concurrency with high supply. (Is it any different from currency system, I don't think so.)

What else? How about a money supply which changes according to a algorithm which can look at some matrices of economy and set money supply.

Or we can have different types of currency one which is meant to inflate to support economic activities and one which is just used as a store of value. This is only scenario I see happening where some crypto currency become store of value just like gold and Fiat is used in regular economic activities.

Supply of money change to make sure that every human, get's enough money to live a ok standard of living, but if we set it that way then, market will also react with increasing it's prices, because of the demand.

Not the end, now comes your turn to add value way we can have benefits of deflationary currency without it's limitations.

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What do you mean by “money supply”, and what does building a case for it entail? What is the relationship between having a deflationary money supply and building a case for one. From the perspective of agricultural production, having appropriately timed rains in appropriate amounts is a good thing. Should we then build a case for appropriate rainfall, and how do we assure it? I propose that instead we should build a case for a particular form of government, which might have a certain economic consequence. That model of government does not see manipulating the economy as its primary purpose. For instance, it would not be good to confiscate money in order to increase the ratio of goods over money, as a way of incresing deflation.

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