These next quotes come from: No burning of ADA coins but have gone off topic so I thought it best to start a new thread.
Yes, it is an Interesting quandary.
I agree, this is how people see crypto today.
But, we always see things through our own eyes, coloured by our personal life experiences.
I am not so sure that we can’t successfully combine store of value and medium of exchange.
One argument put up against this is that if value keeps going up then people won’t want to spend the “money” and will instead HODL. However, we already purchase things that lose value relative to the “money”. For example, if you purchase a computer today, it will be worth less money 6 months from now. But, you still buy it because you recognise the value of that computer to you personally to improve your productivity or quality of life.
Thinking in terms of a company focused on productivity: A company will be prepared to spend on a computer today if it determines that the productivity benefits will outweigh the benefits of holding the money. Even if the “money” is a scarce and appreciating asset, a company will still make this determination. If the computer provides more in productivity benefits, then the company will buy it to eventually end up with more of the appreciating “money”.
I think the problem is that we are not used to thinking this way. We are used to our “money” getting devalued over time and to prices of food items staying relatively constant despite technology making things cheaper really.
Then there is the argument that borrowing in appreciating money would not work. In other words, if a company producing widgets borrows appreciating money, then it may not be able to earn enough from the widgets it sells to pay back the loan, if the money increases in value relative to the widgets. We see this problem today in countries that borrow in $US and can’t afford to repay the loans when their home currency devalues relative to the $US.
I don’t think this argument is a fatal flaw to appreciating “money”. I think we just need to think about it differently because we are not used to thinking in terms of appreciating money. For example, it would focus the mind of the widget manufacturer more. They might need to do some further analysis to be sure that their revenue stream from widgets would be greater than their loan repayments, taking into account the price of widgets reducing over time. If the numbers stack up, they will still take the loan in an appreciating currency. They can also use insurance to hedge their future widget revenue streams so that speculators take the risk instead, for a fee.
The argument then becomes that such analysis is harder to do and companies will default more. I agree that it might make the analysis harder, but the market will adjust for this uncertainty by charging higher interest rates for higher risk projects. Again, this will focus the mind more and maybe we need more of this focus today.
Today we fund all sorts of crazy projects with high potential to fail. We throw money at things because money left in the bank loses spending power over time. We borrow more and more to build things that can never repay the money with their future revenue streams. There is a lot of wastage and capital inefficiency today.
I think we need more focus today. Maybe an appreciating money would be a good thing.
One benefit of a known fixed supply is that it allows easy calculation of relative gains. It allows someone to know how much purchasing power they have precisely and measure this over time. In other words, how much of the total purchasing power in the system they possess. This makes it easier to assess whether a project is providing a net benefit to the system or not over time.
If a company uses capital to produce a product or service that others want then it will accumulate capital. If this company accumulates more capital than it spent on developing its products the we can say that these products were more valuable to society on average than the initial capital outlay. Every company or individual is competing to produce things or create value for society. Being able to see where capital is accumulating makes it easy to see who is creating most value.
The problem with the current system is that the constant manipulation of the money supply and the unknown total supply leads to murky uncertain analysis. This also creates incentives for companies and individuals to focus on winning favour with the manipulators rather than focusing on creating and producing. All this jostling for control over the manipulation levers is not benefiting society with more goods and services.
In summary, I am not so sure that an appreciating money with a fixed supply won’t work as a medium of exchange. Maybe we just need different thinking.