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One of the comments on the article: “ Banks create money out of nothing. Where does the real wealth in the economy lie? It’s easiest to see when people get i

One of the comments on the article: “ Banks create money out of nothing. Where does the real wealth in the economy lie? It’s easiest to see when people get it badly wrong Weimar Germany and Zimbabwe had created far too much money compared to the goods and services available within the economy causing hyper-inflation. States can just create money, and the last thing you want is too much of the damn stuff in your economy. They had made so much money it lost nearly all its value, and they needed wheelbarrows of the stuff to buy anything. States can create money out of nothing as well. You need the right amount of money in the economy for the goods and services available within that economy. The real wealth lies in the good and services available with the economy and is measured by GDP. Central bankers actually look at the money supply, and expect it to rise in line with the new goods and services in the economy, as it grows. More goods and services in the economy require more money in the economy. This is the problem with gold and Bitcoin, they are not really flexible enough.”

Aerroon 6y ago
Gold and Bitcoin might not be flexible enough, but you could consider them to be more just. When somebody can determine the value of money for everyone else, then that leaves the door open for corruption. It can erode people's faith in money. Fiat money requires that people have faith in the money for it to be worth much. Look at currencies from poor countries with rampant corruption. You can frequently pay in dollars/euros for goods and services, because people trust those currencies above the local one.
- abernard1 6y ago
  > Gold and Bitcoin might not be flexible enough I won't agree or disagree with this as it pertains to today. That said, I would like to point out that the American industrial revolution happened during a period without central banks and their "flexibility." That particular economic revolution makes anything in the 20th century or beyond look quaint in comparison. >4% a year real GDP growth for a century, CPI deflation. A dollar in 1900 bought more than it did in 1800.
  - africanboy 6y ago
    The institutional arrangements of the American System were initially formulated by first Secretary of the Treasury, Alexander Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to encourage industrial development https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_Sta... Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812 proved the need for a national bank and Madison reversed positions. The Second Bank of the United States was established in 1816, with a 20-year charter. https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_St...
    - abernard1 6y ago
      > with a 20-year charter. ...which expired. And then we had the greatest boom in global history. I'm aware of the intermittent nature of the banks (as well as all the central banks that failed under the Articles of Confederation). The point is we had a situation where the money supply was basically fixed under a very imperfect gold standard. People say "deflation is bad", but can't explain basically a century under the most amazing economic growth of history.
  - perl4ever 6y ago
    >the American industrial revolution happened during a period without central banks and their "flexibility. Before the great depression and the federal reserve, weren't there financial crises/panics over and over? I'm not real familiar with 19th century history, but obviously there was a reason we set up all those institutions and laws in the 30s, because the way things worked had become untenable. Edit: "Between 1863 and 1913, eight banking panics occurred in the money center of Manhattan. The panics in 1884, 1890, 1899, 1901, and 1908 were confined to New York and nearby cities and states. The panics in 1873, 1893, and 1907 spread throughout the nation. Regional panics also struck the midwestern states of Illinois, Minnesota, and Wisconsin in 1896; the mid-Atlantic states of Pennsylvania and Maryland in 1903; and Chicago in 1905." https://www.federalreservehistory.org/essays/banking-panics-of-the-gilded-age https://www.federalreservehistory.org/essays/banking-panics-...
- UncleMeat 6y ago
  > but you could consider them to be more just The mining curve obviously makes BTC not just, as it enormously promotes early adopters. BTC has made a lot of people tremendously wealthy by doing nothing other than early adopting BTC. This is even worse than capitalism, IMO. Wealth isn't tied to productivity in general , but a very very specifically time boxed productivity that doesn't lead to any improvement in the state of the world except that BTC is promoted. If you live in a democracy, you've got some say in the financial policy and the nature of the financial system. With BTC, it is controlled 100% by the core devs and the miners. Mining is "democratic" in the sense that anybody can do it but it takes money to mine. This is worse than what we see in many democratic nations where wealth creates political power. At least I have a tiny amount of political power rather than literally zero.
  - Aerroon 6y ago
    >The mining curve obviously makes BTC not just, as it enormously promotes early adopters. You know the rules beforehand though. Nobody comes in later and changes them, whereas with fiat money this happens all the time. >If you live in a democracy, you've got some say in the financial policy and the nature of the financial system. With BTC, it is controlled 100% by the core devs and the miners. Mining is "democratic" in the sense that anybody can do it but it takes money to mine. This is worse than what we see in many democratic nations where wealth creates political power. At least I have a tiny amount of political power rather than literally zero. But it's not literally zero. The same political power that you have over your country's government is the same political power you would have (or perhaps slightly less) over BTC or some equivalent. The government can always regulate something like BTC. It would make the situation more like fiat money, but the possibility is there.
    - UncleMeat 6y ago
      The rules being unchanged don't make something just. If BTC had granted 99% of all coins ever to be mined to Satoshi would that be just?
jfengel 6y ago
People learn the wrong lesson from Germany and Zimbabwe. In both cases economic disruption was the problem -- war reparations in the case of Germany, agricultural collapse in the case of Zimbabwe. Hyperinflation was the response of the government, trying to inflate its way out of debts. It didn't work, but it wouldn't have helped to end the policy, either. The fundamental cause of the economic collapse would still have meant that the supply was weak and demand was inelastic. The zeroes in the currency are just there to make it look scary, but the real problem was much scarier. The amount of money is largely immaterial. You can go out and add three zeroes to every dollar in every pocket and nothing changes. Governments can do it selectively to nudge the economy one way or the other, and it works pretty well. That's really just the same as borrowing money, and nobody blinks an eye at fractional reserve banking, even though it also causes inflation in exactly the same way. Hyper-inflation is a permanent boogeyman, but it's not the real problem and people keep taking the wrong lessons. The lesson is to keep people producing, which governments can help by selectively boosting parts of the economy with monetary policy. Learning the right kind of policy is far more involved, but far more useful, than just repeating "Oh no Weimar and Zimbabwe".

Aerroon 6y ago

Gold and Bitcoin might not be flexible enough, but you could consider them to be more just. When somebody can determine the value of money for everyone else, then that leaves the door open for corruption. It can erode people's faith in money. Fiat money requires that people have faith in the money for it to be worth much. Look at currencies from poor countries with rampant corruption. You can frequently pay in dollars/euros for goods and services, because people trust those currencies above the local one.

abernard1 6y ago
> Gold and Bitcoin might not be flexible enough I won't agree or disagree with this as it pertains to today. That said, I would like to point out that the American industrial revolution happened during a period without central banks and their "flexibility." That particular economic revolution makes anything in the 20th century or beyond look quaint in comparison. >4% a year real GDP growth for a century, CPI deflation. A dollar in 1900 bought more than it did in 1800.
- africanboy 6y ago
  The institutional arrangements of the American System were initially formulated by first Secretary of the Treasury, Alexander Hamilton, who proposed the creation of a government-sponsored bank and increased tariffs to encourage industrial development https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/First_Bank_of_the_United_Sta... Jefferson did not change Hamilton's basic policies. As president in 1811 Madison let the bank charter expire, but the War of 1812 proved the need for a national bank and Madison reversed positions. The Second Bank of the United States was established in 1816, with a 20-year charter. https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_States https://en.m.wikipedia.org/wiki/Second_Bank_of_the_United_St...
  - abernard1 6y ago
    > with a 20-year charter. ...which expired. And then we had the greatest boom in global history. I'm aware of the intermittent nature of the banks (as well as all the central banks that failed under the Articles of Confederation). The point is we had a situation where the money supply was basically fixed under a very imperfect gold standard. People say "deflation is bad", but can't explain basically a century under the most amazing economic growth of history.
- perl4ever 6y ago
  >the American industrial revolution happened during a period without central banks and their "flexibility. Before the great depression and the federal reserve, weren't there financial crises/panics over and over? I'm not real familiar with 19th century history, but obviously there was a reason we set up all those institutions and laws in the 30s, because the way things worked had become untenable. Edit: "Between 1863 and 1913, eight banking panics occurred in the money center of Manhattan. The panics in 1884, 1890, 1899, 1901, and 1908 were confined to New York and nearby cities and states. The panics in 1873, 1893, and 1907 spread throughout the nation. Regional panics also struck the midwestern states of Illinois, Minnesota, and Wisconsin in 1896; the mid-Atlantic states of Pennsylvania and Maryland in 1903; and Chicago in 1905." https://www.federalreservehistory.org/essays/banking-panics-of-the-gilded-age https://www.federalreservehistory.org/essays/banking-panics-...
UncleMeat 6y ago
> but you could consider them to be more just The mining curve obviously makes BTC not just, as it enormously promotes early adopters. BTC has made a lot of people tremendously wealthy by doing nothing other than early adopting BTC. This is even worse than capitalism, IMO. Wealth isn't tied to productivity in general , but a very very specifically time boxed productivity that doesn't lead to any improvement in the state of the world except that BTC is promoted. If you live in a democracy, you've got some say in the financial policy and the nature of the financial system. With BTC, it is controlled 100% by the core devs and the miners. Mining is "democratic" in the sense that anybody can do it but it takes money to mine. This is worse than what we see in many democratic nations where wealth creates political power. At least I have a tiny amount of political power rather than literally zero.
- Aerroon 6y ago
  >The mining curve obviously makes BTC not just, as it enormously promotes early adopters. You know the rules beforehand though. Nobody comes in later and changes them, whereas with fiat money this happens all the time. >If you live in a democracy, you've got some say in the financial policy and the nature of the financial system. With BTC, it is controlled 100% by the core devs and the miners. Mining is "democratic" in the sense that anybody can do it but it takes money to mine. This is worse than what we see in many democratic nations where wealth creates political power. At least I have a tiny amount of political power rather than literally zero. But it's not literally zero. The same political power that you have over your country's government is the same political power you would have (or perhaps slightly less) over BTC or some equivalent. The government can always regulate something like BTC. It would make the situation more like fiat money, but the possibility is there.
  - UncleMeat 6y ago
    The rules being unchanged don't make something just. If BTC had granted 99% of all coins ever to be mined to Satoshi would that be just?

jfengel 6y ago

People learn the wrong lesson from Germany and Zimbabwe. In both cases economic disruption was the problem -- war reparations in the case of Germany, agricultural collapse in the case of Zimbabwe. Hyperinflation was the response of the government, trying to inflate its way out of debts. It didn't work, but it wouldn't have helped to end the policy, either. The fundamental cause of the economic collapse would still have meant that the supply was weak and demand was inelastic. The zeroes in the currency are just there to make it look scary, but the real problem was much scarier. The amount of money is largely immaterial. You can go out and add three zeroes to every dollar in every pocket and nothing changes. Governments can do it selectively to nudge the economy one way or the other, and it works pretty well. That's really just the same as borrowing money, and nobody blinks an eye at fractional reserve banking, even though it also causes inflation in exactly the same way. Hyper-inflation is a permanent boogeyman, but it's not the real problem and people keep taking the wrong lessons. The lesson is to keep people producing, which governments can help by selectively boosting parts of the economy with monetary policy. Learning the right kind of policy is far more involved, but far more useful, than just repeating "Oh no Weimar and Zimbabwe".