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I think one of the major points of the article is that you can only actually have inflation if you disconnect money from the gold standard. Life would be much

I think one of the major points of the article is that you can only actually have inflation if you disconnect money from the gold standard. Life would be much better if we had a gold standard, no doubt.

krakensden 17y ago
I don't know why you would believe that. The supply of gold in the world is not fixed, you can always dig up more (for a pathological case, see aluminum), and occasionally large chunks disappear (the Hunt brothers). At least with paper money, its value is usually your own fault.
- gibsonf1 17y ago
  Producing (that is, discovering and bringing to market) new gold is incredibly time consuming and hard. Printing trillions of dollar bills on high speed presses with no value to back them up is very easy. So the difficulty of getting gold makes inflationary policies impossible by central governments. There is no way to magically come up with 2 trillion dollars of new gold in a few months. You can, however, with the printing presses. This is why gold provides a reality link to the value of our money. The value of the actual paper that money is printed on is virtually nothing.
  - Retric 17y ago
    The value of the paper money is related to the economic harm that devaluing it would cause the government which issues it. This is why it the USD has been as stable as it has over such a long time. The other problems with gold is you often have deflationary pressure as when it's value increases (which is unbelievably bad) and inflation whenever large new supply's come on line. Also once you start using gold as a currency it becomes far more expensive to use it for other things like a non corrosive conductor.
    - gibsonf1 17y ago
      The problem is that you are comparing inflation/deflation in amazingly small amounts with gold (given the reality connection to actually having to have gold in your hands mined from the ground) to the radical change you get with paper which is happening right now as the printing presses are running 24/7 at amazing speeds. Watch the hyper inflation we get next year and tell me how that could have happened with gold?
      - Retric 17y ago
        I would, bet you 1000$ (or an ounce of gold) that we will not see hyper inflation or even significant inflation (15%+/year) next year. Also, due to the increase in global weath every year we need a currency that increase in supply to keep up. Otherwise you get deflation which can happen with gold and distroyes the ability to lend and borrow. Not to mention the fact that their is not enough gold in the world to replace the USD without dramaticly increasing it's value. PS: You can also see significant inflation with gold for a long term historical example look at spain after the new world.
Xichekolas 17y ago
Actually it's quite easy to have inflation with a gold standard. As soon as you dig up a single ounce of new gold, you have inflated the money supply a little. So instead of having the central bank control your inflation rate, it is controlled by the gold mining companies of the world. That may not necessarily be worse depending on how much you trust the central bank, but it's hardly better. Of course, if we didn't want our money supply to be determined by gold miners, we could pick another arbitrary commodity like oil or coal. I'd go with coal, since we have a lot of that. But then again, once you have the power to dig up more, you have the power to inflate your own currency again. Might as well skip the digging (and all the environmental abuse that entails) and just adjust the supply on paper like we currently do. This is treated really well here: http://www.optimist123.com/optimist/2007/05/sound_money_ver.html http://www.optimist123.com/optimist/2007/05/sound_money_ver.... This article points out (rather obliquely) that ideally you'd want to grow money at the same rate that GDP grows (assuming constant velocity of money). That is really hard to do obviously. If you rely on the gold standard, you have to attempt to add gold to the world supply at a specific rate. I'm no miner, but I'd imagine production levels are hardly constant from year to year. (Not to mention that, due to geology, we'd have to rely on other countries to do so, notably Russia and South Africa.) If you rely on fiat money, you thankfully don't have to actually produce anything to increase the supply, but you do have to spend a lot of time deliberating over how much to do so. Deflation would be really bad in a debt driven economy like we have, since it increases the burden of debt-holders, so central banks err on the side of moderate inflation. If they could get it perfect, that would be awesome, but so far they can't so they choose the lesser of two evils.
- gibsonf1 17y ago
  Hmm, you may want to compare the total amount of known gold to the potential new gold brought in by miners. You may find that new gold accounts for a fantastically small percentage of the total. Compare this, on the other hand, with paper. How easy is it to double the money supply or more in a very short period. There simply is no way to underestimate the stability you get with a gold standard. Please refer to the money supply stability during the period of the gold standard in the US - history speaks for itself. http://en.wikipedia.org/wiki/Gold_standard http://en.wikipedia.org/wiki/Gold_standard

krakensden 17y ago

I don't know why you would believe that. The supply of gold in the world is not fixed, you can always dig up more (for a pathological case, see aluminum), and occasionally large chunks disappear (the Hunt brothers). At least with paper money, its value is usually your own fault.

gibsonf1 17y ago
Producing (that is, discovering and bringing to market) new gold is incredibly time consuming and hard. Printing trillions of dollar bills on high speed presses with no value to back them up is very easy. So the difficulty of getting gold makes inflationary policies impossible by central governments. There is no way to magically come up with 2 trillion dollars of new gold in a few months. You can, however, with the printing presses. This is why gold provides a reality link to the value of our money. The value of the actual paper that money is printed on is virtually nothing.
- Retric 17y ago
  The value of the paper money is related to the economic harm that devaluing it would cause the government which issues it. This is why it the USD has been as stable as it has over such a long time. The other problems with gold is you often have deflationary pressure as when it's value increases (which is unbelievably bad) and inflation whenever large new supply's come on line. Also once you start using gold as a currency it becomes far more expensive to use it for other things like a non corrosive conductor.
  - gibsonf1 17y ago
    The problem is that you are comparing inflation/deflation in amazingly small amounts with gold (given the reality connection to actually having to have gold in your hands mined from the ground) to the radical change you get with paper which is happening right now as the printing presses are running 24/7 at amazing speeds. Watch the hyper inflation we get next year and tell me how that could have happened with gold?
    - Retric 17y ago
      I would, bet you 1000$ (or an ounce of gold) that we will not see hyper inflation or even significant inflation (15%+/year) next year. Also, due to the increase in global weath every year we need a currency that increase in supply to keep up. Otherwise you get deflation which can happen with gold and distroyes the ability to lend and borrow. Not to mention the fact that their is not enough gold in the world to replace the USD without dramaticly increasing it's value. PS: You can also see significant inflation with gold for a long term historical example look at spain after the new world.

Xichekolas 17y ago

Actually it's quite easy to have inflation with a gold standard. As soon as you dig up a single ounce of new gold, you have inflated the money supply a little. So instead of having the central bank control your inflation rate, it is controlled by the gold mining companies of the world. That may not necessarily be worse depending on how much you trust the central bank, but it's hardly better. Of course, if we didn't want our money supply to be determined by gold miners, we could pick another arbitrary commodity like oil or coal. I'd go with coal, since we have a lot of that. But then again, once you have the power to dig up more, you have the power to inflate your own currency again. Might as well skip the digging (and all the environmental abuse that entails) and just adjust the supply on paper like we currently do. This is treated really well here: http://www.optimist123.com/optimist/2007/05/sound_money_ver.html http://www.optimist123.com/optimist/2007/05/sound_money_ver.... This article points out (rather obliquely) that ideally you'd want to grow money at the same rate that GDP grows (assuming constant velocity of money). That is really hard to do obviously. If you rely on the gold standard, you have to attempt to add gold to the world supply at a specific rate. I'm no miner, but I'd imagine production levels are hardly constant from year to year. (Not to mention that, due to geology, we'd have to rely on other countries to do so, notably Russia and South Africa.) If you rely on fiat money, you thankfully don't have to actually produce anything to increase the supply, but you do have to spend a lot of time deliberating over how much to do so. Deflation would be really bad in a debt driven economy like we have, since it increases the burden of debt-holders, so central banks err on the side of moderate inflation. If they could get it perfect, that would be awesome, but so far they can't so they choose the lesser of two evils.

gibsonf1 17y ago
Hmm, you may want to compare the total amount of known gold to the potential new gold brought in by miners. You may find that new gold accounts for a fantastically small percentage of the total. Compare this, on the other hand, with paper. How easy is it to double the money supply or more in a very short period. There simply is no way to underestimate the stability you get with a gold standard. Please refer to the money supply stability during the period of the gold standard in the US - history speaks for itself. http://en.wikipedia.org/wiki/Gold_standard http://en.wikipedia.org/wiki/Gold_standard