Hard Currency Question: What happens to an economy based on a ‘monetary item’ whose value constantly increases due to always increasing demand in a growing population with a fixed (or slowly growing predicated) monetary base?
I was driven to ask this because I have always wondered it with gold and then I saw this post (http://www.reddit.com/r/Bitcoin/comments/xp057/til_there_are_only_enough_bitcoins_for_every/). If there are only so many bitcoins being produced and only so many in existence and these values are fixed – how does an economy deal with its currency increasing daily in value? Does this have a psychological effect of slowing the consumption patterns of people with then knowing that their money will buy more tomorrow?
Of course others will point out that slower consumption is a good thing – but that is another argument.
Which of the smart economists have talked about this? I'm not a well read economists – only the pretty names they make you read in college. What if Bitcoin become the predominant form of money with its fixed number of coins in 2032 – with a human population that grows in both productivity (ability to create x value within a set time) and count we will daily (on average) have an increasing amount of wealth being created. Knowing that a bitcoin can be chopped up near infinitely makes the argument that you'd run out of bitcoins irrelevant (as such bitcoin has a one up on a physical resource being that it is a physical energy source and in near inifinite volume versus gold or even hydrogen) – but that 1/1,000,000 of a bitcoin will be able to buy more soon as its services are needed by more people vying for more whatever.
See the original post: http://www.reddit.com/r/Bitcoin/comments/xpv26/hard_currency_question_what_happens_to_an_economy/