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That's one of the crazier political rabbit holes to go down. There are reasonable and/or reasonable-sounding arguments for pretty much every position and those

by api 3y ago

That's one of the crazier political rabbit holes to go down. There are reasonable and/or reasonable-sounding arguments for pretty much every position and those arguments have been rehashed in every imaginable way for decades and decades. Online there's probably tens of gigabytes of debate between "hard money" advocates and "fiat" or inflationary currency advocates. After seeing endless debates between various schools of economics for decades, in the end I've come to the conclusion that nobody really knows what they're talking about. A big problem is that history is an experiment with no replications, no controls, and no good way to tie complex causes to complex effects. "What would the past 100 years have looked like had we kept the dollar pegged to gold?" We don't know and we'll never know. All you can do is tell just-so stories. Did having an inflationary currency help us achieve the remarkable growth of the past hundred years? We can't know that either. For all we know all that growth was due to demographics and technology and would have happened regardless of the monetary system. I wonder if maybe it doesn't matter that much, and so in that sense both sides are wrong. Maybe the real basis of the economy is the real economy (people, capital, resources, technology) and what you use to price it is secondary. So as long as your monetary system avoids extreme failure modes like hyperinflation or extreme deflationary collapse, the system will just adapt to whatever monetary base it's given and price signals will do their job.

TheOtherHobbes 3y ago
All money is fiat money, in the sense that value is based entirely on social negotiation and agreement, not inherent use value. Anyone who doesn't understand this should try eating gold. Or an ETF. Or a dollar bill. Of course gold does have some use value, but so do plenty of other metals. The only special thing about it is that it has a history of being valuable - already a social agreement - and it gives a very clear agreed social signal when used in jewellery.
qwytw 3y ago
> We don't know and we'll never know. All you can do is tell just-so stories You can compare the permanent boom and bust cycle the global economy was in prior to the Great Depression to the relatively stable inflationary environment of the last several decades. Just look at: https://www.officialdata.org/us/inflation/1800?amount=1#:~:text=Value%20of%20%241%20from%201800,cumulative%20price%20increase%20of%202%2C295.52%25 https://www.officialdata.org/us/inflation/1800?amount=1#:~:t.... Specie based money (with not meaningful monetary policy) is not stable, in fact it's less stable than Fiat money it's just that periods of high inflation are followed by periods of very high deflation. And unpredictability is clearly an obvious downside... (to be fair I almost thoroughly disagree with your reasoning).
- throw0101b 3y ago
  See also Gold Standard CPI and post-2008 CPI (when there was much rending of garments over QE): * https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.is/FWKcL https://archive.is/FWKcL
- api 3y ago
  Here's the problem: https://tylervigen.com/spurious-correlations https://tylervigen.com/spurious-correlations We can't run an experiment to determine causation. A lot of things happened since WWII. The whole way our government works shifted more toward centralization as a result of the war. Better information and communication technology could have allowed markets to operate more efficiently. Loads of European and Asian productivity was smashed in the war, distorting global trade toward America. A generation received a collective military experience. Women entered the workforce in large numbers. On and on and on...
  - qwytw 3y ago
    > We can't run an experiment to determine causation. Just like with most/almost all complex systems. I don't see this as a good reason to handwave all the arguments or reasoning somebody happens to disagree with. There are two issues (and there is plenty of empirical evidence for them, since we've actually observed this): - Ensuring price/currency stability in a globalized market is almost impossible without very strict capital controls. You get long-term price stability at a cost of very high short term volatility that's a core feature of the gold standard in basically any non stagnant economy. High short term volatility leads to financial instability due to higher uncertainty etc. which again puts the economy in a permanent boom and bust cycle. - The ability of central banks to respond to economic crises is severely limited. Can't really use monetary policy to to stabilize the economy, stimulate growth or decrease unemployment are severely limited. Between the 1830s and 1930s there were three events which were called the 'Great depression' (well that is unless the next one when the previous one was renamed to something like the 'long' depression for instance...). How many 'economic depression' were there in the last 90 years?
throw0101b 3y ago
> Did having an inflationary currency help us achieve the remarkable growth of the past hundred years? We can't know that either. Well leaving the gold standard certainly helped countries start recovering from the Great Depression: > In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%. * https://delong.typepad.com/sdj/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/sdj/2013/10/the-great-depression-... Ideally having neither too much nor too little money circulating is best, but it's impossible to do that, so it's better to have a little too much, as having too little hampers your economy: * https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine

by api 3y ago

TheOtherHobbes 3y ago

All money is fiat money, in the sense that value is based entirely on social negotiation and agreement, not inherent use value. Anyone who doesn't understand this should try eating gold. Or an ETF. Or a dollar bill. Of course gold does have some use value, but so do plenty of other metals. The only special thing about it is that it has a history of being valuable - already a social agreement - and it gives a very clear agreed social signal when used in jewellery.

qwytw 3y ago

> We don't know and we'll never know. All you can do is tell just-so stories You can compare the permanent boom and bust cycle the global economy was in prior to the Great Depression to the relatively stable inflationary environment of the last several decades. Just look at: https://www.officialdata.org/us/inflation/1800?amount=1#:~:text=Value%20of%20%241%20from%201800,cumulative%20price%20increase%20of%202%2C295.52%25 https://www.officialdata.org/us/inflation/1800?amount=1#:~:t.... Specie based money (with not meaningful monetary policy) is not stable, in fact it's less stable than Fiat money it's just that periods of high inflation are followed by periods of very high deflation. And unpredictability is clearly an obvious downside... (to be fair I almost thoroughly disagree with your reasoning).

throw0101b 3y ago
See also Gold Standard CPI and post-2008 CPI (when there was much rending of garments over QE): * https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://www.theatlantic.com/business/archive/2012/08/why-the... * https://archive.is/FWKcL https://archive.is/FWKcL
api 3y ago
Here's the problem: https://tylervigen.com/spurious-correlations https://tylervigen.com/spurious-correlations We can't run an experiment to determine causation. A lot of things happened since WWII. The whole way our government works shifted more toward centralization as a result of the war. Better information and communication technology could have allowed markets to operate more efficiently. Loads of European and Asian productivity was smashed in the war, distorting global trade toward America. A generation received a collective military experience. Women entered the workforce in large numbers. On and on and on...
- qwytw 3y ago
  > We can't run an experiment to determine causation. Just like with most/almost all complex systems. I don't see this as a good reason to handwave all the arguments or reasoning somebody happens to disagree with. There are two issues (and there is plenty of empirical evidence for them, since we've actually observed this): - Ensuring price/currency stability in a globalized market is almost impossible without very strict capital controls. You get long-term price stability at a cost of very high short term volatility that's a core feature of the gold standard in basically any non stagnant economy. High short term volatility leads to financial instability due to higher uncertainty etc. which again puts the economy in a permanent boom and bust cycle. - The ability of central banks to respond to economic crises is severely limited. Can't really use monetary policy to to stabilize the economy, stimulate growth or decrease unemployment are severely limited. Between the 1830s and 1930s there were three events which were called the 'Great depression' (well that is unless the next one when the previous one was renamed to something like the 'long' depression for instance...). How many 'economic depression' were there in the last 90 years?

throw0101b 3y ago

> Did having an inflationary currency help us achieve the remarkable growth of the past hundred years? We can't know that either. Well leaving the gold standard certainly helped countries start recovering from the Great Depression: > In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%. * https://delong.typepad.com/sdj/2013/10/the-great-depression-from-the-perspective-of-today-and-today-from-the-perspective-of-the-great-depression.html https://delong.typepad.com/sdj/2013/10/the-great-depression-... Ideally having neither too much nor too little money circulating is best, but it's impossible to do that, so it's better to have a little too much, as having too little hampers your economy: * https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine