> Anyone with a short enough time horizon would prefer the depreciating currency, because they can get it at a discount from those with a longer time horizon.
Exactly, the inflationary currency would be sold at a discount. And the amount of the discount would increase over time until the value of the currency fell to zero.
I think you are confusing the real and the nominative. The currency would be sold at a real discount, which means a real premium on my labor if I am exchanging it for dollars instead of DeflataDollars, so that's what I'd prefer to accept if I will be holding it for a short time.
"And the amount of the discount would increase over time until the value of the currency fell to zero."
The exchange rate would change over time; that's unsurprising. I'm not sure the discount (in real terms) would change if the rate of inflation was constant. It is apparent that the value of the currency would fall toward zero - that's basically our premise; it is not apparent that it would fall to zero. You'll have to support that if you want to stand by the claim.
I agree that the rate of the discount would likely be constant over time if the rate of the increase in money supply was also constant. If you sold your labor for InfltaDollar's, you'd likely get paid a premium. However, when you go to the grocery store to buy stuff with your InflataDollars, the grocer will also expect the same discount for the InflataDollars they buy.
> It is apparent that the value of the currency would fall toward zero
I'm glad we agree on this.
> it is not apparent that it would fall to zero. You'll have to support that if you want to stand by the claim.
Fair enough. If graphed out, the value of the InflataDollar would only approach zero asymptotically. However, we're not just dealing with an abstract math equation. At a certain point, the market would lose confidence in the currency with a consistently falling value, and no one would be willing to accept it unless forced to.
I do admit that I could be wrong - predicting the behavior of humans is always imperfect. However, I am excited to see these experiments playing out in the cryptocurrency space. We have Bitcoin, which has a fixed supply of currency, and we also have Freicoin, a cryptocurrenty with demurrage (a form of currency devaluation) built into it. It will be interesting to see the futures these currencies have.
Given the existence of a choice between deflating and a hypothetical alternative of a universally accepted stable risk-free store of value, it would be rational to prefer to receive the latter. It is still however, in my rational interest to prefer the latter to not exist at all. Being one of the large majority of people who aren't the unproductive uber-rich, I prefer that those that have far more dollars than me are more inclined to circulate them, creating far more opportunity for me to grow my share of national wealth (and absolute national wealth) than would exist if dollars were to be spent only when absolutely necessary. The corollary of your argument is that if we frame it the other way round, with StableDollar and other non-depreciating capital holders tending to hold more bargaining power than the general labour supply, they will be able to get away with paying only InflataDollars to the point where the level of StableDollars actually circulating in the economy will tend towards zero asymptotically...
In our actual system the ability to deposit InflataDollars into accounts with fixed risk-free positive returns (backed by expected and potential supplies of InflataDollars), the government keeping inflation low, and the government requiring you to pay tax on 30-40% of your income solely in InflataDollars ensures the demand for InflataDollars will never approach zero. In fact, it's much less likely to reach zero than the demand for Bitcoins, Freicoins or tulip bulbs, none of which anybody is obliged to use in any circumstances (at least not until Bitcoin-denominated debts become widespread and readily enforceable. If I wanted to design a cryptocurrency I'd focus on that aspect)
You are obliged to use bitcoins if you want to put something in the blockchain (and no one will do it without a transaction fee). If you aren't using bitcoins otherwise, there is not presently any reason to put something in the blockchain. That could potentially change.
I'm not sure whether or not that is meaningfully different from "you are obliged to use tulip bulbs if you want to grow. tulips." I am inclined to think that it could be.
"However, when you go to the grocery store to buy stuff with your InflataDollars, the grocer will also expect the same discount for the InflataDollars they buy."
Hm. Partly true, but only if their time horizon is the same as your boss. It definitely gets complicated here - we probably need rigorous models and/or simulation.
Exactly, the inflationary currency would be sold at a discount. And the amount of the discount would increase over time until the value of the currency fell to zero.