Investment returns are indeed affected by the same forces. And you want investments to be deflationary because you want their value to increase with time.
But here’s the thing. Those are Investments. The point of currency is not to be an investment. If it was an investment it wouldn’t serve its goal as currency. The point of currency is to facilitate quick and easy exchanges of services and goods.
And a deflationary currency pretty much becomes an investment and so loses its purpose as a currency. That’s exactly what’s happening to the likes of Bitcoin. They are almost entirelt investments and not currency anymore thanks to its deflationary (and volatile) nature.
Also, “savers” are not being penalized. People who are hoarding currency, ie, the unit of exchange, are being penalized. They can very well go ahead and save their money in actual investments, as opposed to in a token of exchange.
If a country ran a deflationary currency, it would slow down the economy significantly, which would put inflationary pressure on the currency. It’s not even clear to me how you would maintain a deflationary currency without periodically taking people’s dollars and destroying them (unless we fall into a paradoxical situation where making economic activity harder helps increase the amount of economic activity...there mah actually be some areas where this works, such as Veblen goods, where a “deflationary” currency might work).
“And a deflationary currency pretty much becomes an investment and so loses its purpose as a currency. That’s exactly what’s happening to the likes of Bitcoin.”
Is it? It’s not like merchants across the economy were going to accept Bitcoin, but decided to hold onto it instead. Nor was the economy using Bitcoin to trade goods and people started hoarding Bitcoin instead.
“If a country ran a deflationary currency, it would slow down the economy significantly”
The US experienced GDP growth during many years of price deflation and a dollar backed by gold during the 1800s and after the Great Depression. The economy grew a lot through periods of volatile consumer prices (high price or inflation or deflation) for over a century. The historical record does not seem to me to support a link between deflationary prices and lack of economic growth. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580289
Also, “savers” are not being penalized. People who are hoarding currency, ie, the unit of exchange, are being penalized.”
Call it whatever you want, money losing purchasing power over time means it cannot be used as a vehicle for real savings. “Hoarding money” as you call it is a requisite for investment. Investment cannot occur without deferring consumption. All investment must come from saving wealth from consumption. When currency is inflationary it drives real savings towards other assets, like stocks, real estate, etc., and this effect strengthens the more inflationary the currency. It creates a situation like the one we have now, where investment in stocks is not about capitalizing entrepreneurial ventures, but parking savings to avoid debasement. Buying up property and stocks to preserve capital is not investment in the sense that capital is being used to increase production of things consumers want or need (real investment), but to avoid loss.
But here’s the thing. Those are Investments. The point of currency is not to be an investment. If it was an investment it wouldn’t serve its goal as currency. The point of currency is to facilitate quick and easy exchanges of services and goods.
And a deflationary currency pretty much becomes an investment and so loses its purpose as a currency. That’s exactly what’s happening to the likes of Bitcoin. They are almost entirelt investments and not currency anymore thanks to its deflationary (and volatile) nature.
Also, “savers” are not being penalized. People who are hoarding currency, ie, the unit of exchange, are being penalized. They can very well go ahead and save their money in actual investments, as opposed to in a token of exchange.
If a country ran a deflationary currency, it would slow down the economy significantly, which would put inflationary pressure on the currency. It’s not even clear to me how you would maintain a deflationary currency without periodically taking people’s dollars and destroying them (unless we fall into a paradoxical situation where making economic activity harder helps increase the amount of economic activity...there mah actually be some areas where this works, such as Veblen goods, where a “deflationary” currency might work).