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You're wrong on the fiat-money/gold standard point. You're forgetting about the price level. Any given economy can be run on any given supply of money, the pric

You're wrong on the fiat-money/gold standard point. You're forgetting about the price level. Any given economy can be run on any given supply of money, the prices and currency denominations just need to adjust. A gold standard doesn't transform an economy into a zero-sum game. Pure fiat money has been functioning in the West since only 1971 when Nixon suspended the dollar's conversion to gold as a prelude to a rather shitty decade in terms of economic performance. Fiat currency has been tried plenty of times over the last few centuries; it was never a stable monetary regime. Our experiment with fiat is new and bold, and as yet unproven. If it turns out to be successful, it would be the first time.

biohacker42 18y ago
What happens if new value is added to the economy? Perhaps I've just discovered a cure for the common cold. The same amount of money is now chasing a bigger pot. Suppose lots of people pay me for my cure, and I just save all the money, what happens to the restaurant down the road? Also fiat currencies predate Nixon, the paper contracts between members of the Hanseatic League can be thought of as a form of fiat currency.
- jacoblyles 18y ago
  The same amount of money chasing fewer goods leads to deflation - each unit of currency can buy more goods. When this occurs due to an increase in productivity, such as in the example you describe, deflation can accompany economic growth. Deflation was paired with economic growth in the United States under the gold standard for about 30 years at the end of the 19th century. This was a good recent article on a related topic. Selgin is a well-known monetary economist: http://www.amconmag.com/article/2009/feb/09/00014/ http://www.amconmag.com/article/2009/feb/09/00014/
  - biohacker42 18y ago
    From the article: After all, technology was improving, so goods cost less to produce. Why shouldn’t prices reflect that reality? When it's cheaper and easier to pull MORE gold out of the ground, that's not strictly speaking a fixed money supply. When Rome (the empire) dumped a whole bunch of new found (stolen) gold on Rome (the city) that caused inflation too. If your money supply is growing - it's growing. Now if you have far too lose a monetary policy and you're inflating the money supply way too much and way too fast, that can be disastrous. But if Alan Greenspan had found a way to convert led into gold, we would have gotten the real estate bubble even with a gold standard.
    - corentin 18y ago
      Except he hasn't. Under the gold standard, there is a feedback loop allowing the market to control inflation (that is, people can invest more or less in mining technologies/companies). To some extent, this feedback loop also exists in a central banking system; it's far from being as efficient.
      - gravitycop 18y ago
        Under the gold standard, there is a feedback loop allowing the market to control inflation Why would one want to control inflation? Inflation does not have anything to do with economic health, does it? http://www.globalpolicy.org/socecon/bwi-wto/jubi2000.htm http://www.globalpolicy.org/socecon/bwi-wto/jubi2000.htm below 40% inflation per year, 'there is no evidence that inflation is costly'. Furthermore, there is no evidence of a 'slippery slope' there is no evidence that one increase in inflation causes further increases. Thus 'the focus on inflation ... has led to macroeconomic policies which may not be the most conducive for long-term economic growth.'
    - jacoblyles 18y ago
      Yes. The sudden discovery of an easily-mined gold supply has the same function under a gold standard economy as the central bank expanding the monetary base in a fiat economy. In practice, gold supplies tend to be more predictable than central banks.
      - forgottenpswrd 18y ago
        How are the random deposits of a heavy metal in the earth's crust more predictable then central banks?
        kragen 18y ago
        The last major expansion of the Eurasian gold supply was in the 1500s and 1600s, due to the looting of the Americas, and I think it roughly tripled the amount of gold in circulation. There has never been an event since the advent of gold-as-currency that multiplied by ten the amount of gold in circulation within a century, but that happens to almost every fiat currency almost every century. Predicting which decade it happens in is tricky, though. I think using a fiat currency is probably a good idea, though.

biohacker42 18y ago

What happens if new value is added to the economy? Perhaps I've just discovered a cure for the common cold. The same amount of money is now chasing a bigger pot. Suppose lots of people pay me for my cure, and I just save all the money, what happens to the restaurant down the road? Also fiat currencies predate Nixon, the paper contracts between members of the Hanseatic League can be thought of as a form of fiat currency.

jacoblyles 18y ago
The same amount of money chasing fewer goods leads to deflation - each unit of currency can buy more goods. When this occurs due to an increase in productivity, such as in the example you describe, deflation can accompany economic growth. Deflation was paired with economic growth in the United States under the gold standard for about 30 years at the end of the 19th century. This was a good recent article on a related topic. Selgin is a well-known monetary economist: http://www.amconmag.com/article/2009/feb/09/00014/ http://www.amconmag.com/article/2009/feb/09/00014/
- biohacker42 18y ago
  From the article: After all, technology was improving, so goods cost less to produce. Why shouldn’t prices reflect that reality? When it's cheaper and easier to pull MORE gold out of the ground, that's not strictly speaking a fixed money supply. When Rome (the empire) dumped a whole bunch of new found (stolen) gold on Rome (the city) that caused inflation too. If your money supply is growing - it's growing. Now if you have far too lose a monetary policy and you're inflating the money supply way too much and way too fast, that can be disastrous. But if Alan Greenspan had found a way to convert led into gold, we would have gotten the real estate bubble even with a gold standard.
  - corentin 18y ago
    Except he hasn't. Under the gold standard, there is a feedback loop allowing the market to control inflation (that is, people can invest more or less in mining technologies/companies). To some extent, this feedback loop also exists in a central banking system; it's far from being as efficient.
    - gravitycop 18y ago
      Under the gold standard, there is a feedback loop allowing the market to control inflation Why would one want to control inflation? Inflation does not have anything to do with economic health, does it? http://www.globalpolicy.org/socecon/bwi-wto/jubi2000.htm http://www.globalpolicy.org/socecon/bwi-wto/jubi2000.htm below 40% inflation per year, 'there is no evidence that inflation is costly'. Furthermore, there is no evidence of a 'slippery slope' there is no evidence that one increase in inflation causes further increases. Thus 'the focus on inflation ... has led to macroeconomic policies which may not be the most conducive for long-term economic growth.'
  - jacoblyles 18y ago
    Yes. The sudden discovery of an easily-mined gold supply has the same function under a gold standard economy as the central bank expanding the monetary base in a fiat economy. In practice, gold supplies tend to be more predictable than central banks.
    - forgottenpswrd 18y ago
      How are the random deposits of a heavy metal in the earth's crust more predictable then central banks?
      - kragen 18y ago
        The last major expansion of the Eurasian gold supply was in the 1500s and 1600s, due to the looting of the Americas, and I think it roughly tripled the amount of gold in circulation. There has never been an event since the advent of gold-as-currency that multiplied by ten the amount of gold in circulation within a century, but that happens to almost every fiat currency almost every century. Predicting which decade it happens in is tricky, though. I think using a fiat currency is probably a good idea, though.