4 ms·

This is such a wildly unpopular notion, and yet I've never heard a reasonably articulated counterargument. It's like people who understand supply and demand sh

This is such a wildly unpopular notion, and yet I've never heard a reasonably articulated counterargument. It's like people who understand supply and demand short-circuit when they think that the same laws don't apply to money too.

X86BSD 10y ago
Usually people don't understand the dangers of private banks owning a fiat paper currency they can print at will. Until I pull out a silver quarter or silver dollar and prove to them how much the private federal reserve has devalued their money. Then it's like, "Oh. Wow. You're right."
- Laforet 10y ago
  A Morgan dollar is worth $15 for its material and possibly more for its collectible value, what is the problem here? Every dollar invested in 1900 would still have yielded a better return than $15, i.e. burying silver in the ground. The real issue with a currency based on precious metal is that the reverse grows at such a rate much slower (<1% annually for gold IIRC) than economic growth. In a deflationary market, rational actors would simply remove money from circulation because it will just increase in value on its own, whilst the economy collapses.
- colanderman 10y ago
  …except people don't keep fiat currency underneath mattresses. They invest it, and better their economy for doing so. So your old coin isn't competing against some ratty old dollar bill, it's competing against the real value of my index fund shares. Which, by the way, are winning: http://ritholtz.com/wp-content/uploads/2013/04/fda.jpg http://ritholtz.com/wp-content/uploads/2013/04/fda.jpg
  - icantdrive55 10y ago
    Keep an eye on your Index fund (real value) when the free money stops. Sorry guys, I think we are in for some rough times ahead. There's got to be a price to pay? The people, I see getting loans, are practically gambling with the money. But what do I know? I'm a nobody. I did read that jobs report the other day. What jumped out was the amount of people who just stopped looking for work.
  - chillwaves 10y ago
    Just wait until he pulls that silver dollar out of his pocket. Then you will see.
- tehwebguy 10y ago
  "It's just like bitcoin in practice, except you have to use fire and steel to break it into smaller increments!"
  - R_haterade 10y ago
    Interestingly, a good pair of tinsnips is enough. It was a serious problem until Isaac Newton (of all people) came along. Apologies that I can't find a better source right now: http://www.lsned.com/newton-invented-ridges-coins/ http://www.lsned.com/newton-invented-ridges-coins/
- Spooky23 10y ago
  People don't understand the risk of commodity investments until I show them a coin collectors red book from 1986, when that same Morgan dollar was worth $3-4. Gold and silver is high because asians with money in places like China and India don't trust their governments. Period. Reliance on gold and the resulting starvation of capital caused a lot of economic and social devastation 100-130 years ago.
jblow 10y ago
I think such people just aren't paying attention. Everyone who understands American economic policy knows that the currency is being slowly devalued on purpose. This is not a conspiracy theory, it is common knowledge. The inflation target is always greater than 0. This is in part because of the perceived risks of deflation -- better to be on one side of the line than the other -- but also, generally, the point is to encourage people to spend or invest rather than passively save, because spending and investment grow the economy. To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense. (But I say "in a sense" because if the economy were at a much less active level as "normal" maybe everyone would have lower quality of life. I don't know.) If you ever wondered why Ron Paul dislikes the Fed so much, well, it's because of reasons like this.
- amluto 10y ago
  > To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense. This part I don't get. It is generally straightforward to invest one's fiat currency in a very secure (and privately run in a nicely capitalist way!) instrument that has positive real interest rate.
  - logicchains 10y ago
    The worst thing for me is that inflation is an implicit wealth tax, because governments don't account for inflation when charging capital gains tax. So if inflation is 3%, you have $10000 which increases in value to $10300, then you pay capital gains tax on that $300, reducing the real value of your holdings.
    - jdavis703 10y ago
      Why are you investing in things with a 0℅ return then? If you're part of society you're ideally using labor and resources from other specialists such as farmers and miners who need some reason to move dirt around to make your life better. If you have money then you put that to work helping those people be more efficient, and maybe spawn other kinds of specialists like web developers. If however you'd rather not be a part of this society, then you're free to opt out. But then you don't get the benefits of "being on the team" and now either your standard of living goes down (I.e. homelessness) or you have to work super hard (I.e. living off grid in some remote area).
maxerickson 10y ago
The demand for money is greater than the supply of precious metals so we don't use precious metals as our only money.
abakker 10y ago
There's limited evidence that demand for currency is really related to the underlying material it is printed on. In fact, that has been a staple of our economy since we adopted fiat currency. It is not perfect to have fiat currency, but currency value is more about aggregate demand for goods and the functional circulation of the existing money. (See velocity theory of money). Remember also that the laws of supply and demand are not necessarily rational, and they effect the value of gold just as much as the value of paper money. (Gold is not inherently valuable)
MarkMc 10y ago
Does this wildly unpopular notion have any predictive power? For example, can you make a prediction about US inflation over the next 50 years?

X86BSD 10y ago

Usually people don't understand the dangers of private banks owning a fiat paper currency they can print at will. Until I pull out a silver quarter or silver dollar and prove to them how much the private federal reserve has devalued their money. Then it's like, "Oh. Wow. You're right."

Laforet 10y ago
A Morgan dollar is worth $15 for its material and possibly more for its collectible value, what is the problem here? Every dollar invested in 1900 would still have yielded a better return than $15, i.e. burying silver in the ground. The real issue with a currency based on precious metal is that the reverse grows at such a rate much slower (<1% annually for gold IIRC) than economic growth. In a deflationary market, rational actors would simply remove money from circulation because it will just increase in value on its own, whilst the economy collapses.
colanderman 10y ago
…except people don't keep fiat currency underneath mattresses. They invest it, and better their economy for doing so. So your old coin isn't competing against some ratty old dollar bill, it's competing against the real value of my index fund shares. Which, by the way, are winning: http://ritholtz.com/wp-content/uploads/2013/04/fda.jpg http://ritholtz.com/wp-content/uploads/2013/04/fda.jpg
- icantdrive55 10y ago
  Keep an eye on your Index fund (real value) when the free money stops. Sorry guys, I think we are in for some rough times ahead. There's got to be a price to pay? The people, I see getting loans, are practically gambling with the money. But what do I know? I'm a nobody. I did read that jobs report the other day. What jumped out was the amount of people who just stopped looking for work.
- chillwaves 10y ago
  Just wait until he pulls that silver dollar out of his pocket. Then you will see.
tehwebguy 10y ago
"It's just like bitcoin in practice, except you have to use fire and steel to break it into smaller increments!"
- R_haterade 10y ago
  Interestingly, a good pair of tinsnips is enough. It was a serious problem until Isaac Newton (of all people) came along. Apologies that I can't find a better source right now: http://www.lsned.com/newton-invented-ridges-coins/ http://www.lsned.com/newton-invented-ridges-coins/
Spooky23 10y ago
People don't understand the risk of commodity investments until I show them a coin collectors red book from 1986, when that same Morgan dollar was worth $3-4. Gold and silver is high because asians with money in places like China and India don't trust their governments. Period. Reliance on gold and the resulting starvation of capital caused a lot of economic and social devastation 100-130 years ago.

jblow 10y ago

I think such people just aren't paying attention. Everyone who understands American economic policy knows that the currency is being slowly devalued on purpose. This is not a conspiracy theory, it is common knowledge. The inflation target is always greater than 0. This is in part because of the perceived risks of deflation -- better to be on one side of the line than the other -- but also, generally, the point is to encourage people to spend or invest rather than passively save, because spending and investment grow the economy. To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense. (But I say "in a sense" because if the economy were at a much less active level as "normal" maybe everyone would have lower quality of life. I don't know.) If you ever wondered why Ron Paul dislikes the Fed so much, well, it's because of reasons like this.

amluto 10y ago
> To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense. This part I don't get. It is generally straightforward to invest one's fiat currency in a very secure (and privately run in a nicely capitalist way!) instrument that has positive real interest rate.
- logicchains 10y ago
  The worst thing for me is that inflation is an implicit wealth tax, because governments don't account for inflation when charging capital gains tax. So if inflation is 3%, you have $10000 which increases in value to $10300, then you pay capital gains tax on that $300, reducing the real value of your holdings.
  - jdavis703 10y ago
    Why are you investing in things with a 0℅ return then? If you're part of society you're ideally using labor and resources from other specialists such as farmers and miners who need some reason to move dirt around to make your life better. If you have money then you put that to work helping those people be more efficient, and maybe spawn other kinds of specialists like web developers. If however you'd rather not be a part of this society, then you're free to opt out. But then you don't get the benefits of "being on the team" and now either your standard of living goes down (I.e. homelessness) or you have to work super hard (I.e. living off grid in some remote area).

maxerickson 10y ago

The demand for money is greater than the supply of precious metals so we don't use precious metals as our only money.

abakker 10y ago

There's limited evidence that demand for currency is really related to the underlying material it is printed on. In fact, that has been a staple of our economy since we adopted fiat currency. It is not perfect to have fiat currency, but currency value is more about aggregate demand for goods and the functional circulation of the existing money. (See velocity theory of money). Remember also that the laws of supply and demand are not necessarily rational, and they effect the value of gold just as much as the value of paper money. (Gold is not inherently valuable)

MarkMc 10y ago

Does this wildly unpopular notion have any predictive power? For example, can you make a prediction about US inflation over the next 50 years?