1.2 Desired Output
As an output, the Ampleforth protocol seeks to reflect demand changes in quantity rather than price. Let's walk through a simple example:
Demand suddenly increases, and she now has 1 Ample worth $2.
In the case above, the system will seek a price-supply equilibrium, such that Alice ends up with 2 Amples each worth $1. And the opposite is true when demand decreases. Continuing from the example above:
Demand suddenly decreases, and she now has 2 Amples each worth $0.50.
Similarly in this case, the system will seek a price-supply equilibrium such that Alice ends up with 1 Ample worth $1.
Now you may be asking, why bother? Whether Alice holds 1 Ample worth $2, or 2 Amples each worth $1, makes no difference in terms of net balance since (1 x $2) = (2 x $1). But there are two key benefits to seeking price-supply equilibrium:
- It applies countercyclical pressures
- It encourages a stable unit price
We'll talk more about the importance of these benefits in course 2, which speaks to Ampleforth in a broader economic context.
For now, remember that although commodity-monies like gold and silver are naturally fair and politically-independent, they cannot function as suitable alternatives to central-bank-money because they are unable to respond efficiently to changes in demand.