Inflation Principle

A money is often presumed to change in purchasing power in proportion to the goods that it represents. In other words, with twice the amount of money each unit of the money will trade for half its previous amount of goods. This is a proportional relationship between monetary inflation and price inflation (or deflation).

Rising supply market money, such as Gold and early Bitcoin, consumes the same value in goods as it creates in new units - including the opportunity cost of the capital invested in doing so. As such it produces no change in proportionality and therefore no price inflation.

Monopoly money is not subject to competitive production, allowing its producer to obtain a monopoly premium in the pricing of new units. As such it increases the proportion of money to goods, resulting in price inflation.

Falling supply market money, such as late Bitcoin, consumes no goods in the destruction of existing units. As such it decreases the proportion of money to goods, resulting in price deflation.

The presumption of proportionality refers to the goods “represented” by a money. If there was only one money, this would be a straightforward relation to all goods. However the relation must be addressed in the case of multiple monies. The goods represented by a money are those that are traded for it. In other words, the relation assumes constant demand for the money.

Yet demand does not remain constant in the case of a decision to mine. New demand for the money is created by the fact of mining. The miner trades (consumes in production) additional “representation” capital for the money. The new money is entirely offset by the demand increase, represented by the consumed goods.