6 ms·

One difference is that gold is in limited supply, and cannot be instantly materialized by the State. Its scarcity, beauty and durability make it a natural store

One difference is that gold is in limited supply, and cannot be instantly materialized by the State. Its scarcity, beauty and durability make it a natural store of value when the printing presses are running overtime. Of course the State knows this too. In April 1933, less than one month after taking office, FDR signed an executive order confiscating all the private gold in the country. I wouldn't be surprised to see that happen again some day.

philwelch 17y ago
A mineral is only in limited supply when there isn't a rush. (See: 19th century American silver rush and bimetallism). Gold isn't that scarce or that beautiful after all, it's mostly a convention. The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows.
- dantheman 17y ago
  Deflation isn't bad.
  - bff 17y ago
    I've heard arguments to the contrary, for example that deflation encourages people to invest their money under their mattresses. If money you hoard loses value then you feel a stronger need to invest it, which is better for the economy as a whole. Without that incentive once a person reached some level of wealth they would sit on their money instead of putting it into a nice retirement fund that puts it into the stock market.
    - dantheman 17y ago
      It could perhaps be restated that deflation causes people to invest their money wisely and weigh the risks and rewards, whereas inflation causes people to chase rewards just to maintain their current wealth or underestimate risk to try and grow their investments. Inflation fundamentally is just stealing from people by devaluing their earnings, and it hurts the poor and the middle class the most. It encourages people to take on debts, since they will pay back less in the future. It also hurts anyone who gets paid by the hour or salary when they're not tied to inflation.
- mhartl 17y ago
  The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-supply currency (well-approximated by gold), the demand for money increases as an economy grows, so (for fixed supply) its price increases as well. Hence, no deflation. Intuitively, the money supply must increase as an economy grows. Intuitively, clocks tick just as fast at sea level as they do on top of Everest. Intuition is often wrong. Einstein can help you re-tune your clock-ticking intuition (http://en.wikipedia.org/wiki/Gravitational_time_dilation http://en.wikipedia.org/wiki/Gravitational_time_dilation). Rothbard can help you with money (http://mises.org/money.asp http://mises.org/money.asp).
  - philwelch 17y ago
    Rothbard isn't the end-all and be-all of monetary economists, and there is historical precedent that contractions in the money supply have caused deflation. Also, economies which have gone back on the gold standard have usually deflated as well.
    - mhartl 17y ago
      Rothbard has gaps, but he's light-years past most. Never trust "historical evidence" when it comes to economics. There are no controlled experiments, and the winners write the books. In this case, there are four concepts masquerading as two. See http://news.ycombinator.com/item?id=1058639 http://news.ycombinator.com/item?id=1058639.
      - philwelch 17y ago
        What "evidence" is there to trust, other than Rothbard's amateur philosophizing?
        mhartl 17y ago
        Evidence in economics is messy---and political. Trust logic instead. Of course monetary contraction causes deflation; you don't need evidence to tell you that when people have less money, ceteris paribus prices will fall. As far as the "gold standard" goes, beware: most so-called historical "gold standards" are not gold-as-money, but rather some weird bastardized version, such as "paper currency (partially) backed by gold". As I said: messy. This conflation serves the interests of those who benefit from manipulating the money supply. Messy, and political. I take it you mean Rothbard is "amateur" in the pejorative sense. Have you read Rothbard? He is many things; "amateur" is not one of them.
ubernostrum 17y ago
One of these days, people who believe fairy tales about gold will have to wake up and smell the basic economics: http://news.ycombinator.com/item?id=629390 http://news.ycombinator.com/item?id=629390
- mhartl 17y ago
  From your comment: This represents a problem: if the total amount of currency available for use in transactions does not maintain rough parity with the total amount of goods and services available to be exchanged in those transactions, then the imbalance will lead to wild price fluctuations. I strongly recommend reading "What Has Government Done to Our Money?" by Murray N. Rothbard (http://mises.org/money.asp http://mises.org/money.asp). It's short---easily read in one sitting. It's also lucid---easily understood in one sitting. You are clearly smart enough to get it, and you obviously care. Reserve the right to change your mind---you just might surprise yourself.
  - ubernostrum 17y ago
    What is there to change my mind about? On one side we have a certain amount of goods and services. On the other we have a certain amount of currency which we use as a stand-in. If goods and services outpace currency, you get price swings tending toward deflation. If currency outpaces goods and services, you get price swings tending toward inflation. Gold is advocated because the supply of it is relatively stable, thus decreasing the chance of serious inflation. The problem with gold is that it creates additional vulnerability of serious deflation. All of this is so basic that I have a hard time believing anyone could argue with it.
    - Daniel_Newby 17y ago
      Gold is irrelevant. An emergent property of human psychology is that the bulk of the money supply usually comes from leverage: humans are very willing to treat promise of future payment as assets. Catastrophic changes in the money supply generally result from trust fads, not from production/destruction of the basis asset.
    - 17y ago

philwelch 17y ago

A mineral is only in limited supply when there isn't a rush. (See: 19th century American silver rush and bimetallism). Gold isn't that scarce or that beautiful after all, it's mostly a convention. The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows.

dantheman 17y ago
Deflation isn't bad.
- bff 17y ago
  I've heard arguments to the contrary, for example that deflation encourages people to invest their money under their mattresses. If money you hoard loses value then you feel a stronger need to invest it, which is better for the economy as a whole. Without that incentive once a person reached some level of wealth they would sit on their money instead of putting it into a nice retirement fund that puts it into the stock market.
  - dantheman 17y ago
    It could perhaps be restated that deflation causes people to invest their money wisely and weigh the risks and rewards, whereas inflation causes people to chase rewards just to maintain their current wealth or underestimate risk to try and grow their investments. Inflation fundamentally is just stealing from people by devaluing their earnings, and it hurts the poor and the middle class the most. It encourages people to take on debts, since they will pay back less in the future. It also hurts anyone who gets paid by the hour or salary when they're not tied to inflation.
mhartl 17y ago
The limited supply of gold can also be a hindrance, causing systemic deflation as an economy grows. Nope. The initial supply isn't what matters. With a fixed-supply currency (well-approximated by gold), the demand for money increases as an economy grows, so (for fixed supply) its price increases as well. Hence, no deflation. Intuitively, the money supply must increase as an economy grows. Intuitively, clocks tick just as fast at sea level as they do on top of Everest. Intuition is often wrong. Einstein can help you re-tune your clock-ticking intuition (http://en.wikipedia.org/wiki/Gravitational_time_dilation http://en.wikipedia.org/wiki/Gravitational_time_dilation). Rothbard can help you with money (http://mises.org/money.asp http://mises.org/money.asp).
- philwelch 17y ago
  Rothbard isn't the end-all and be-all of monetary economists, and there is historical precedent that contractions in the money supply have caused deflation. Also, economies which have gone back on the gold standard have usually deflated as well.
  - mhartl 17y ago
    Rothbard has gaps, but he's light-years past most. Never trust "historical evidence" when it comes to economics. There are no controlled experiments, and the winners write the books. In this case, there are four concepts masquerading as two. See http://news.ycombinator.com/item?id=1058639 http://news.ycombinator.com/item?id=1058639.
    - philwelch 17y ago
      What "evidence" is there to trust, other than Rothbard's amateur philosophizing?
      - mhartl 17y ago
        Evidence in economics is messy---and political. Trust logic instead. Of course monetary contraction causes deflation; you don't need evidence to tell you that when people have less money, ceteris paribus prices will fall. As far as the "gold standard" goes, beware: most so-called historical "gold standards" are not gold-as-money, but rather some weird bastardized version, such as "paper currency (partially) backed by gold". As I said: messy. This conflation serves the interests of those who benefit from manipulating the money supply. Messy, and political. I take it you mean Rothbard is "amateur" in the pejorative sense. Have you read Rothbard? He is many things; "amateur" is not one of them.

ubernostrum 17y ago

One of these days, people who believe fairy tales about gold will have to wake up and smell the basic economics: http://news.ycombinator.com/item?id=629390 http://news.ycombinator.com/item?id=629390

mhartl 17y ago
From your comment: This represents a problem: if the total amount of currency available for use in transactions does not maintain rough parity with the total amount of goods and services available to be exchanged in those transactions, then the imbalance will lead to wild price fluctuations. I strongly recommend reading "What Has Government Done to Our Money?" by Murray N. Rothbard (http://mises.org/money.asp http://mises.org/money.asp). It's short---easily read in one sitting. It's also lucid---easily understood in one sitting. You are clearly smart enough to get it, and you obviously care. Reserve the right to change your mind---you just might surprise yourself.
- ubernostrum 17y ago
  What is there to change my mind about? On one side we have a certain amount of goods and services. On the other we have a certain amount of currency which we use as a stand-in. If goods and services outpace currency, you get price swings tending toward deflation. If currency outpaces goods and services, you get price swings tending toward inflation. Gold is advocated because the supply of it is relatively stable, thus decreasing the chance of serious inflation. The problem with gold is that it creates additional vulnerability of serious deflation. All of this is so basic that I have a hard time believing anyone could argue with it.
  - Daniel_Newby 17y ago
    Gold is irrelevant. An emergent property of human psychology is that the bulk of the money supply usually comes from leverage: humans are very willing to treat promise of future payment as assets. Catastrophic changes in the money supply generally result from trust fads, not from production/destruction of the basis asset.
  - 17y ago