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A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without

A contrived example ignoring the inheritance taxes on whoever digs it up, but an interesting point to address. Consider: 1. The money supply can grow without inflation, as GDP grows (via fractional reserve banking). 2. The number of years (400) is irrelevant -- the question is, does an heir deserve anything? I would argue that a value creator has the right to pass on wealth, and the government has a right to tax it (inheritance tax). 3. You are ignoring how someone came to acquire 1% of the money supply in the first place. They must have created a tremendous amount of value. How much further into the future did they push forward society in acquiring that wealth? Years? Decades? Finally: I am not advocating for a deflationary currency. I think 1% inflation is a reasonable concept. The Fed aims for 2%, but measures it with a CPI that is broken, and so the true inflation rate ends up being something like 3.5% or more, which causes all sorts of problems, most notably wealth inequality and asset inflation. Not hyperinflation, but not a picnic, either.

notahacker 5y ago
1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.
- lend000 5y ago
  If we are assuming nothing changes, comparing now to 400 years ago is unproductive, and there is no point hypothesizing if this person was Napoleon-esque. In a more realistic, modern interpretation, Rockefeller sold his assets and buried his wealth circa 1900. Rockefeller did, undoubtedly, push forward industry a huge amount. While he is considered a monopolist, it was never the detriment of consumers. Kerosene prices fell dramatically over Standard Oil's tenure. If he hid 1% of the money supply in a trust after paying all inheritance taxes and fees, to be opened today (let's say 1% of real GDP in his time), his wealth today would be about 0.02% of real GDP. His heir experienced tremendous inflation, in terms of their influence on the economy, whereas their buying power stayed roughly the same, in this hypothetical non-inflationary world.
  - notahacker 5y ago
    Sure, in this different hypothetical world with no deflation or inflation the Rockefeller heirs preserve rather than increase the buying power of their capital by refusing to allow it contribute to growth for several decades. That doesn't necessarily sound deserved either. Especially when we consider that zero inflation is achieved by higher interest rates, generating higher compounding returns for the wealthy who do invest, imposing higher borrowing costs on everyone else, and leading to slightly lower growth compared with a modest, predictable rate of inflation. Probably more recessions too, since struggling companies can't cancel pay rises they never award and probably go straight for redundancies. These aren't upsides for people who don't have piles of cash they're uninterested in doing anything with
    - lend000 5y ago
      They buried it, remember, they didn't invest it into CD's with high interest rates. If they did put it in a bank, then your whole point is moot, because any bank that pays interest is actually lending your money to generate that interest, so the capital was actively involved in the economy the whole time. An aside: pre-central banking, that isn't how interest rates really worked. Inherently, interest rates increase with inflation. The opposite exists only at far below-market interest rates as an artificial byproduct of the way central banks typically inject money into the economy (by buying cheap/low interest government bonds), which paradoxically contributes to inflation.

notahacker 5y ago

1) I'm glad you agree that the money supply should still grow and that fractional reserve banking has its uses (many critics of inflation do not). Of course it is also fractional reserve banking that generates the inflation, and whilst it is in theory possible for the Fed to force inflation down to zero with higher interest rates, that actually benefits the rich who lend the money more than the poor who borrow it, even before we get into deflation threats. 2) I agree with both your points on inheritance, but subtracting six or seven generations of inheritance tax from the original example still leaves our inheritor with the economic output of multiple modern cities their capital was not used to build, as opposed to a few plantations, villages and exploration parties (and it's not too difficult to envisage scenarios where the inheritance tax is skipped: if the gold bars are simply found under treasure trove laws, for instance) As for 3: have you looked at the sort of people that held enormous wealth in the 1600s? Most of them inherited it from the feudal system. If anything, their concentrations on wealth held society back rather than pushed it forward, especially when they were disincentivised from doing anything with it. (and the less said about how some of the actual self-made millionaires of the era plundered their wealth, the better...) I'm sure other people have pushed society on and been suitably rewarded for it, but that doesn't mean that choosing to hold it back in future by preventing access to the capital accumulated should be cost free. Investment isn't risk free; noninvestment shouldn't be either.

lend000 5y ago
If we are assuming nothing changes, comparing now to 400 years ago is unproductive, and there is no point hypothesizing if this person was Napoleon-esque. In a more realistic, modern interpretation, Rockefeller sold his assets and buried his wealth circa 1900. Rockefeller did, undoubtedly, push forward industry a huge amount. While he is considered a monopolist, it was never the detriment of consumers. Kerosene prices fell dramatically over Standard Oil's tenure. If he hid 1% of the money supply in a trust after paying all inheritance taxes and fees, to be opened today (let's say 1% of real GDP in his time), his wealth today would be about 0.02% of real GDP. His heir experienced tremendous inflation, in terms of their influence on the economy, whereas their buying power stayed roughly the same, in this hypothetical non-inflationary world.
- notahacker 5y ago
  Sure, in this different hypothetical world with no deflation or inflation the Rockefeller heirs preserve rather than increase the buying power of their capital by refusing to allow it contribute to growth for several decades. That doesn't necessarily sound deserved either. Especially when we consider that zero inflation is achieved by higher interest rates, generating higher compounding returns for the wealthy who do invest, imposing higher borrowing costs on everyone else, and leading to slightly lower growth compared with a modest, predictable rate of inflation. Probably more recessions too, since struggling companies can't cancel pay rises they never award and probably go straight for redundancies. These aren't upsides for people who don't have piles of cash they're uninterested in doing anything with
  - lend000 5y ago
    They buried it, remember, they didn't invest it into CD's with high interest rates. If they did put it in a bank, then your whole point is moot, because any bank that pays interest is actually lending your money to generate that interest, so the capital was actively involved in the economy the whole time. An aside: pre-central banking, that isn't how interest rates really worked. Inherently, interest rates increase with inflation. The opposite exists only at far below-market interest rates as an artificial byproduct of the way central banks typically inject money into the economy (by buying cheap/low interest government bonds), which paradoxically contributes to inflation.