35 billion supply of money, and 75 billion in...market value? I'm not sure it can be used that way; I don't know about using it for static values like net worth. The usage in your picture would be calculating activity if the 75 billion column was the business transactions. Wish I knew more on it.

The simplification suggested by the wiki is in my opinion misleading. The wiki states that _IF_ V/Q doesn't change then P=M*(constant), the average price per transaction is directly connected to the money supply. But that's a pretty big if.

PQ = 10 dollars/transaction * 3 transactions = 30 dollars of activity.
MV = 20 dollars money supply * 1.5 activity/dollar = 30 dollars activity.
PQ = MV

V/Q = 1.5 activity/dollar / 3 transactions = 0.5 in our example.

Suppose we doubled the money supply to 40 dollars and no one cared. IF we did exactly the same three transactions with 40 dollars available, then the activity/dollar would change:

V' = 30 activity / 40 dollars supply = 3/4 = 0.75 activity/dollar.

So too the new V'/Q' would change:
V'/Q' = 3/4 / 3 = 1/4 = 0.25
V'/Q'!= V/Q

So it is possible that V/Q will not remain the same after a change in the money supply. There doesn't seem to be any mathematical reason to think it will remain constant. This is why I'de say steer clear of the simplification, and keep the V.

[Edited by - AngleWyrm on September 12, 2009 10:11:04 PM]

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[Edited by - Awoken on September 15, 2009 7:25:04 PM]

Quote:

...the quantity theory of money is only used to show the connection between money supply and prices;

Yes, and I'm adding that it relies on stating ahead of time that this is so.

The average dollars spent/buck in circulation cannot remain stationary if 'bucks in circulation' is altered, unless there is an change in the 'dollars spent'. So all it's saying is that 'If the people change their spending after we change the money supply, then spending is proportional to money supply.' Wow, gosh that's fascinating, professor I-bought-my-doctorate. You sure you're not jumping to any hasty conclusions there?

Lemme ask you something: If they raise the price of gas, does it change the number of barrels of crude oil shipped into your country each day? It seems measurable, and with some research a correlation might be established. We could even make a mathematical model that estimates changes.

Quite a different thing isn't it?

[Edited by - AngleWyrm on September 13, 2009 2:38:51 AM]

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[Edited by - Awoken on September 15, 2009 7:39:20 PM]

@Awoken, I was besmirching and tarnishing the reputations of to the authors of the Quantity Theory of Money, because I believe they led someone astray. I didn't mean to get any on you. Hankie?

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[Edited by - Awoken on September 15, 2009 7:36:38 PM]

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[Edited by - Awoken on September 15, 2009 6:37:44 PM]

Thank you very much, you two! :)

So my formula for calculating the price niveau is totally nonsense? You know, I want to reach self-regulation of my economy with this formula ... I thought I could automatically lower/raise the prices if the price niveau changes.

Do you have any ideas how I can reach the self-regulation in other ways?

So far I did the following:
1) Replace several fixed-price buys by auctions (against gold inflation)
2) Add lots of possible drains
3) Add the possibility to sell goods for money to the computer (against item inflation)
4) Replace a improve-by-doing system by a pay-to-improve system (what does that mean?)

My economy is faucet and drain I think. I create goods "out of thin air" (faucet) and money flows out of the system where it simply disappears (drain). Is this correct? Can a faucet&drain economy be self-regulating?

And: Is it correct that you can stop hoarding of money if you do this?
1) Don't display the account balances of the players anywhere. So players can't use money as a secondary goal or a status symbol
2) Ensure that there are enough goods to buy

Any form of self regulation needs to ahve a feedback loop. A simple Source/Sink model has no feedback loops in it so would not really be self regulating.

If you when for a more complex source/drain model where the amount of good/money/resources coming in is dependent on the amount going out (and the number of agents/players in it), then you could get self regulation.

The type of feedback loop you want is a "Negative Feedback Loop". This is where increasing value X in the loop will cause a subsequent drop in the value Y elsewhere in the loop. And, where decreasing that same value X will cause an increase in the value Y.

Take a simple feedback loop of Rabbits and Foxes. The more Rabbits there are, the more Foxes they can support, but the more Foxes there are the more Rabbits they eat and thus reducing the number of Rabbits.

In this loop there are 2 "nodes", Foxes and Rabbits. The Rabbits have a positive effect on Foxes (increase the number of rabbits and you increase the number of foxes). But the Foxes have a negative effect on Rabbits (increase the number of foxes and you decrease the number of rabbits). So if the rabbit number increase, then the fox number will also increase and this will bring the number of rabbits down (which will also bring the number of foxes down too). The loop is self regulating.

Now to make sure that a give loop is a negative feedback loop you need to count the number of Negative links between nodes in the loop. It turns out that the negative links in a loop can cancel out other negative links. This means that if you have a positive number of negative links (or zero negative links) then they cancel out and the loop is not a negative feedback loop. However, if you have an odd number of negative links, then you will get a negative feedback loop.

Mathematically speaking, you multiply the links together and if you have a positive number you have a positive feedback loop and if you have a negative number you have a negative feedback loop.

If you look again at the Fox/Rabbit example, you can play around with it and see that if you make all the links positive (now the more foxes you have the more rabbits you have - yes I know it is not like this in real life but this is just an example :D), the you will see that the number of Foxes and Rabbit quickly sky-rocket and you have an "inflation" of Rabbit/Foxes.

If you instead make all the links negative (as there are two links you now have an even number) by making the number of Rabbits have a negative effect on the foxes (maybe the rabbits are poisonous to foxes, but really tasty anyway :P ), then you can see that by increasing the number of rabbits the number of foxes decreases, but if you decrease the number of foxes, then the number of rabbits increases. Foxes go extinct and rabbit numbers explode (again you have an inflation, but of Rabbits only - but it could have just as likely been foxes instead of rabbits).

You can even try this with more than 2 nodes in the loop (not all nodes have to have a direct influence on each other, remember it is a loop, not a web) and you will get the same effects. IF the number of Negative links between nodes in the loop is an odd number, then you will get a negative feedback loop that is self regulating, however, if you have an even number (or zero) negative links they will cancel out and create a positive feedback loop with a runaway "inflation" effect.