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> The whole point of money was to last longer than the expiring and perishable things it was used to pay for. The purchasing power of a dollar in the last centu

by mo_42 3y ago

> The whole point of money was to last longer than the expiring and perishable things it was used to pay for. The purchasing power of a dollar in the last century is about 1/500th of what it was when it was paid for the value someone created back then. I agree that store of value is an important property of money. Although, I think money wasn't explicitly designed as you suggest. Modern money is a complex cultural phenomenon that evolved over several stages. I think there's so much confusion about money because people refer to different stages. If we wanted to have really stable money, we could fix prices of goods. But I guess this doesn't make much sense in a dynamic economy (how do we compare a basket of goods from 1920 with one in 2020 which includes iPhones). > The real estate bubble created by low interest rates is exactly what happens to everything else in an inflationary environment. I wouldn't be so sure whether there's a real estate bubble. I think our current situation is different from the years before 2008 where people where actually buying houses in expectation to sell them at higher prices one year later. I would rather explain the real estate prices as adaptations of net present values to changes of the interest rate. > Hedges include gold and metals, land, art and alternative assets, or like Wiemar [0], people just spend devalued money on gambling and prostitution. I don't see how a reference to prostitution in Berlin in the 1920ies supports your economic argument. I guess the situation in the Weimar Republic is more complex than simply explaining inflation with printing of money. (As far as I know, monetarism was abandoned by major central banks long ago. The German Bundesbank tried it quite long though, not surprisingly.) Germany lost WWI and had to pay for reparations. So it had to produce goods for which they didn't get foreign currency. Before the inflation really kicked in, the Reichsmark devalued already. Basically, the central bank didn't have any currency reserves to counter this. So everything imported became much more expensive. It probably also didn't help that Germany had to take care of wounded soldiers that weren't fully part of the workforce. In sum, the production capacity was hindered but there was excess demand.

deleted 3y ago
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motohagiography 3y ago
The vice angle is that when inflation increases faster than wage work, people switch from a longer term wage, to selling what they can negotiate spot prices for to keep up with inflation - like the value of a bet in gambling, or client prices in prostitution. Wiemar was the complete destruction of a social fabric under reparations and inflation, and the vice businesses that sprung up as people switched from regular wages to survive caused the social reaction that produced the second world war. Unmitigated inflation reduces people to animals. Inflation destroys stability in the labour market and incentivises piece work to stay afloat. Fixing the price of goods does not create stable money, it just creates huge black markets in foreign and alternative currency. Ask Argentina, Cuba, and the former USSR. If you are interested in the history of money and banking, I highly recommend the book The Ascent of Money by Niall Ferguson as a basis for what most interested people outside of finance understand about how money works.
- mo_42 3y ago
  > The vice angle is that when inflation increases faster than wage work, people switch from a longer term wage, to selling what they can negotiate spot prices for to keep up with inflation This sounds a bit confusing. Does an increase of inflation mean the rate of price changes goes from 2% to 4% p.a. or is it an increase of prices? Then, what does it mean that inflation increases faster than wage work? I can only imagine that it means that prices increase faster than productivity. But even this doesn't necessarily imply inflation. For economists, inflation has a specific meaning that's slightly different than what people usually think (e.g. [0]). > Wiemar was the complete destruction of a social fabric under reparations and inflation, and the vice businesses that sprung up as people switched from regular wages to survive caused the social reaction that produced the second world war. Hyperinflation of the Weimar Repulic did not directly cause WWII. Hyperinflation was in the early 1920ies. The final rise of the NSDAP and the election of Hitler as chancellor is attributed more to the misery of the Great Depression beginning at the end of the end of the 1920ies. Although, one can also argue that the overall instability of the Weimar Republic helped this party in gaining votes. [0] https://www.clevelandfed.org/publications/economic-commentary/2008/ec-20080601-rising-relative-prices-or-inflation-why-knowing-the-difference-matters https://www.clevelandfed.org/publications/economic-commentar...

by mo_42 3y ago

deleted 3y ago

[deleted]

motohagiography 3y ago

The vice angle is that when inflation increases faster than wage work, people switch from a longer term wage, to selling what they can negotiate spot prices for to keep up with inflation - like the value of a bet in gambling, or client prices in prostitution. Wiemar was the complete destruction of a social fabric under reparations and inflation, and the vice businesses that sprung up as people switched from regular wages to survive caused the social reaction that produced the second world war. Unmitigated inflation reduces people to animals. Inflation destroys stability in the labour market and incentivises piece work to stay afloat. Fixing the price of goods does not create stable money, it just creates huge black markets in foreign and alternative currency. Ask Argentina, Cuba, and the former USSR. If you are interested in the history of money and banking, I highly recommend the book The Ascent of Money by Niall Ferguson as a basis for what most interested people outside of finance understand about how money works.

mo_42 3y ago
> The vice angle is that when inflation increases faster than wage work, people switch from a longer term wage, to selling what they can negotiate spot prices for to keep up with inflation This sounds a bit confusing. Does an increase of inflation mean the rate of price changes goes from 2% to 4% p.a. or is it an increase of prices? Then, what does it mean that inflation increases faster than wage work? I can only imagine that it means that prices increase faster than productivity. But even this doesn't necessarily imply inflation. For economists, inflation has a specific meaning that's slightly different than what people usually think (e.g. [0]). > Wiemar was the complete destruction of a social fabric under reparations and inflation, and the vice businesses that sprung up as people switched from regular wages to survive caused the social reaction that produced the second world war. Hyperinflation of the Weimar Repulic did not directly cause WWII. Hyperinflation was in the early 1920ies. The final rise of the NSDAP and the election of Hitler as chancellor is attributed more to the misery of the Great Depression beginning at the end of the end of the 1920ies. Although, one can also argue that the overall instability of the Weimar Republic helped this party in gaining votes. [0] https://www.clevelandfed.org/publications/economic-commentary/2008/ec-20080601-rising-relative-prices-or-inflation-why-knowing-the-difference-matters https://www.clevelandfed.org/publications/economic-commentar...