Net gain due to improvement: Year 1 = $0, Year 2 = $2, Year 3 = $5, Year 4 = $5
If better service required an investment (say hiring a coaching consultant) for $100.
Now compare this to a inflationary environment:
With no improvement:
Year 1 Year 2 Year 3 Year 4
Revenue $100 $105 $110 $115
Cost $100 $105 $110 $115
With improvement:
Year 1 Year 2 Year 3 Year 4
Revenue $100 $108 $116 $124
Cost $100 $105 $110 $115
Net gain due to improvement: Year 1 = $0, Year 2 = $3, Year 3 = $6, Year 4 = $9
Notice that my payback time for the deflationary environment will be a much longer. This give rise a very strong incentive to hoard and raises the hurdle to invest very significantly. All investments are risky. And the longer I have to wait to get paid back the more risky it is!
You are not succesfully confusing yourself over the loch ness monster concept of Deflation.
I asked you to provide to me an example of where people were hoarding cash and that they would not invest, and that this would cause deflation.
So you cited China, but then pointed out that they are investing their “savings” into picking up our assets. So they are INVESTING, not HOARDING. So your whole argument was refuted by yourself. But now in desperation, I guess, or confusion, your rolling around in circles of this deflationary nonesense which I can only guess is just confusing you.
Let me put it to you this way. Your statement above is entirely nonsensical, but if it were the case that China’s investment in america did cause deflation, I would hope that they would continue. I for one would like to see economic prosperity returned to me.
Maybe you should give up on economics? It seems to be all above you.
Your example proves you don’t have the first clue as to what your talking about.
First off you made up all the numbers. None of those numbers are an example of a behavior of what you would expect in a deflation OR in an inflation period.
This is how things would have been corrected.
In this example,
Cost of a jug of milk is 50 cents. So even though his revenue at 5 years is only 5 dollars, his REAL REVENUE is EXTREMELY HIGH, as he can buy MORE THINGS with that 5 dollars then he could buy with the 9 dollars from the inflationist policy.
What pay back time? Are you referring dollar for dollar? If thats the case then we can print 1000 billion new dollars into existence and that will just instantaneously create all this new wealth to support our business endevours? That printing 100 billion new dollars magically makes new steel, fuel, and other resources?
With 10% inflation if man receives 110 back after loaning 100, he has not made any new purchasing power. And with 10% deflation, if man lends 100 dollars and gets 90 back he equally has not received any more purchasing power. BUT, if man lends 100 dollars, and receives 100 back with 10% deflation, he has made a 10% profit. If man lends 100 dollars and receives 101 dollars back with 10% deflation, he’s received 11% profit.
If man wants a return on his investment he will want to go the route of deflation. As he can earn less money, but buy more things. He can now buy 5 loafs of bread rather then 1. All of his investment and savings is worth more NOW then it was before thanks to deflation.
With deflation business’s can take more risk, they know that their return can quantitatively be less but that their purchasing power can be more.
All you have demonstrated here is that you have’t a clue as to what deflation or inflation is, how it works, what causes it, and what consequences they bring.
In the example you provided above. A man does not invest 100,000 dollars in hopes of receiving 100,000 dollars back.
But he would be just as happy to invest 100,000 dollars, receive 90,000 back if he knows that the 90,000 dollars he had is worth more then his existing 100,000. That is, that his 90,000 can buy MORE things than the 100,000 used to be able to do so.
Do I really need to spell out what deflation is to you? You’ve built an entire theory on something you cannot even grasp.
No. There is no such thing as intrinsic value. It would be amazing if you can actually think critically and learn just a touch of what you are, laughably, trying to argue against.
Lets say that you had 100,000 pieces of gold (as in the example civilization of our baker in my essay) and an entrepreneur came to and said I will build a bread factory and give you 90,000 pieces of gold back to you in five years. Would you accept the deal?
[EDIT: I see you found the movie theater example…]
The problem here is that you have made up your mind that ABCT is wrong (you said so). Forum members have the perspective that ABCT is correct. The forum keeps using Austrian concepts to explain the flaws in your theory, but you reject these concepts outright.
Now, what about my questions posed to you, ie, the Shostack article and your opinion about America’s Great Depression by Rothbard?
Depends, whats my exception in deflation? If it’s 20% I’d say yes. If it’s 10% I’d say no. But reality is I’ll probably ask for a bit more then 100, to ensure that I will gain in the case of both deflation and inflation. Perhaps I am economically ignorant, I’ll simply want more in 5 years. But that doesn’t invalidate the benefits of deflation, it exacerbates the benefits of deflation for me.
Even if you were absolutely 100% sure that deflation is 20% a year. Why part with your money? Since in 5 years you will get back only 90,000 pieces if the entrepreneur does not screw up. You have 100,000 pieces in posession right now. Why not just forget about the whole factory deal? keep the 100,000 pieces in your mattress. The 100,000 pieces in five years are going to worth more than 90,000 pieces in five years. Right? 100,000 > 90,000. Math.
Because I want to increase my purchasing power, why does anyone attempt to make more money?
The risk is weighed in the amount of estimated return, interest.
Ahh you are correct, my mistake. But that still does not refute the benefits of deflation, and it doesn’t prove that there is a deflection of in the desire to invest.
If an entrepeneur wants a business endevour today, rather then tomorrow. He will sell his plan to anyone he can willing to invest.
If that means people get a 10% return, or 20% return, or whatever interest rate he must offer to secure the investment he will do. Even in deflation I am still encouraged to invest.
Lets say there is 10% deflation over 5 years.
I could hold my 100 dollars and gain 10%.
I could invest it and gain 20%, I still have incentive to invest.
So. Based on all your experiences, readings of history, your understanding of human behavior you don’t see the much reduced incentive to part with ones money in a deflationary environment?
Of course I’m not saying that! Have you read any of my replies? There is a difference between the disastrous collapse and deflation of a fiat credit expansion (the kind you are describing), and the normal deflationary effect of a commodity based monetary system without a central bank. You are mixing the two in your example about the 100,000 oz loan. You do not understand capital formation, the structure of production, subjective value scales, the relationship between (capital) investment, production, consumption, saving, the demand for money, etc. These concepts have been introduced to you, but you gloss over them with amazing dexterity.