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Colin Dean's answer to zcopley's question inspired me to ask this:

While Bitcoin supporters would hope that one would not hold on to Bitcoin as an investment, but rather spend it in order to further the economy... Can you tell me the rational behind this, according to Austrian economics? I'm a beginner enthusiast of Austrian economics but as far as I know there is no argument against hoarding real (value based) money. When the user will see he/she can get something more valuable in his value scale he/she will exchange the money for that product or service. It's that easy.

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    They should do both. The only problem with hoarding is if it's done instead of actually using the currency.
    – Meni Rosenfeld
    Jan 6, 2013 at 14:19
  • This depends upon the financial products available to the currency. The 87.2 percent of the wealth of the United States is held by the top 20 percent for example; however, we have a robust and powerful economy. This prosperity is because the top 20 reinvest their money giving the bottom 80 percent access via debt. If those who hold bitcoins simply do nothing with them, then yes hoarding will have a negative effect on the overall economy
    – Charles Hoskinson
    Apr 19, 2013 at 0:30

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Commodity money results in artificial scarcity. Take the case of Jack and Jane

Jack is a great gardener who could use more customers Jane is a great web designer who has a forest of untamed weeds growing on her front lawn. Neither Jack nor Jane have much (if any) commodity money, say, gold. And thus, neither of them engage in trade with each other though it would be beneficial to both. Gold is scarce, and its especially scarce because the people who have it, not Jack and Jane, are trying to hold on to it, and in fact amass more. The scarcity of gold, through people's perceived need thereof to engage in economic activity, results in an artificial scarcity of goods and services and declining economic activity. People who should trade with each other do not.

I actually do not think this is a problem with bitcoin because bitcoin can be divided as needed so even if Jack and Jane only have a Satoshi the current minimum unit, between them, the protocol can be modified and a whole economy can run on one Satoshi.

Most people people see this as a problem because they extend the analogy of commodity money too far. This is if fact one of the ways that bitcoin is disimilar and superior.

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  • The notion of a deflationary spiral is still apparent with the bitcoin. We simply do not have sufficient economy models to understand what impact deflation will have on the Bitcoin economy. That said, there is an incentive to save built into the system
    – Charles Hoskinson
    Apr 19, 2013 at 0:32

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