Bitcoin, if considered as a currency, has highly deflationary properties. Many celebrate the deflationary property as a feature. I show here, based on a painstaking data collection, that it is bug. Deflation is a bug for poor countries. Deflation is a bug for poor people. Deflation, at the end of it, is a feature for rich industrialists.
I use data from India during great depression (1929-1939).
Let us first look at prices and wages in the table below
Table 1: Broad Picture of Real Wages in British India during Great Depression
Above, I have taken price index for Calcutta and wages of field workers in Bombay and I have computed the real wages in India for low skilled workers. Initially, the small minority of workers who were able to keep their jobs during depression, saw their real wages climb. However, competition from fellow laborers saw that as the depression started to come to an end, the real wages collapsed, as new workers were introduced at lower prices since they did not have bargaining position.
That is, when money supply is tightened, first the workers lost their jobs & income and then when they got back their jobs, they got jobs at low real wages.
Now, let us look at industrial profits in British India for about 300 odd industrial companies operating at that time in India
Table 2: Index of Industrial Profits in British India during Great Depression
The industrial profits in nominal terms suffered a great deal during 1928-1939 period. However, in real terms, the profits were back to pre-depression levels within five years. This shows the net pricing power of surviving corporates during depression.
Finally, let us look at relative power of capital vs unskilled labor during a period of deflation in British India.
Table 3: Relative Power of Capital vs Labour
In the initial years of deflation, the surviving labor’s loss is less than the loss of surviving capitalist. However, quickly, the corporates get their act together, and within a decade capital reasserts and even surpasses its strength over labor even during deflation.
Final message to bitcoin maximalists. Look at history. You are running fool’s errant. Deflation is not the way out of the problems that you want to solve. Deflationary currency like bitcoin will make the problems worse.
