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In the case of a fixed amount of currency in an expanding economy, or if the economy expands at a rate greater than the amount of currency expands, you simply h

by Kadin 17y ago

In the case of a fixed amount of currency in an expanding economy, or if the economy expands at a rate greater than the amount of currency expands, you simply have deflation. I'm not convinced this is nearly as bad a thing as some growth-uber-alles economists seem to think it is; it would encourage savings and cautious investment while preventing bubble formation. It would slow growth, but endless growth isn't sustainable anyway. (And increasing the money supply too fast, which there's always a lot of temptation to do, fuels highly unsustainable faux-growth.) Also, although the amount of gold on and in the planet is fixed, the amount usable as a currency increases over time as it's extracted. At least in the short and medium term (probably at least the next few centuries) you would be able to have mild to moderate economic growth without deflation as the gold supply increased. The best argument I've heard against gold-based currencies is that is mis-allocates resources: it creates a huge incentive to go around digging up gold, which is an activity serving no real useful purpose. When someone spends time and energy mining gold, they're not doing anything else with it; it's basically a dead-weight loss. Still, compared with currencies that can be created arbitrarily it might be an acceptable tradeoff.

grandalf 17y ago
With respect to your second paragraph, the economics profession has far from sufficient data for anyone to really hold a scientifically derived opinion on the matter. The purpose of currency in an economy is (increasingly) seeming to include imposing a tax on using money as a store of value. See Mankiw's recent remarks on negative interest rates, which are all consistent with the mainstream monetarist theories that underly our use of fiat currency, etc. A trend that I am noticing is the idea of credit as a "right" just as people consider healthcare a right and perhaps home ownership. We have already seen a bit of politicization of the Fed. I sincerely hope that this is all nonsense, but the danger is that the most powerful interests would actually stand to gain from such a regime. At present, banks (who are the biggest contributors to both parties) would gain as would various other industries who (by virtue of various other government imposed incentives) are popular ways that people attempt to purchase stored value (houses, 401Ks, etc.).
nradov 17y ago
The best argument against a gold standard is the environmental damage caused by gold mining. http://ngm.nationalgeographic.com/2009/01/gold/larmer-text http://ngm.nationalgeographic.com/2009/01/gold/larmer-text
ubernostrum 17y ago
I take issues with your qualification that it's "simply" deflation. Inflation is taken to be a bad thing since, if the price (in whatever currency we're using) of goods and services suddenly increases by, say, 1000% in a short time, people who purchase those goods and services are screwed, which also means people who sell them are eventually screwed (since they have no market in which to sell their goods and services). But deflation is at least equally bad: if I _sell_ goods or services, and the price (again in whatever currency we're using) drops 1000% in a short time, then I and everyone else who sells goods and services is screwed, which means people who would buy goods and services are screwed (since everybody who was selling them just went out of business). This is why gold can be a good investment in the modern age, but not a good currency; any time a new development results in rapid economic expansion, it would be accompanied by wild fluctuations in the (gold) currency, tending toward crippling deflation. It's also why I'm harping on the fact that money _as money_ must by definition have no intrinsic value. Its job is not to have value. Its job is to stand in for things of value so that we don't have to use insanely complex barter schemes. And since gold is, for reasons surpassing understanding, held to have value far beyond anything attributable to the actual substance (which is "valuable" in itself only as, for example, part of electrical components), gold is an absolutely terrible basis for a currency in this modern world.

by Kadin 17y ago

grandalf 17y ago

With respect to your second paragraph, the economics profession has far from sufficient data for anyone to really hold a scientifically derived opinion on the matter. The purpose of currency in an economy is (increasingly) seeming to include imposing a tax on using money as a store of value. See Mankiw's recent remarks on negative interest rates, which are all consistent with the mainstream monetarist theories that underly our use of fiat currency, etc. A trend that I am noticing is the idea of credit as a "right" just as people consider healthcare a right and perhaps home ownership. We have already seen a bit of politicization of the Fed. I sincerely hope that this is all nonsense, but the danger is that the most powerful interests would actually stand to gain from such a regime. At present, banks (who are the biggest contributors to both parties) would gain as would various other industries who (by virtue of various other government imposed incentives) are popular ways that people attempt to purchase stored value (houses, 401Ks, etc.).

nradov 17y ago

The best argument against a gold standard is the environmental damage caused by gold mining. http://ngm.nationalgeographic.com/2009/01/gold/larmer-text http://ngm.nationalgeographic.com/2009/01/gold/larmer-text

ubernostrum 17y ago

I take issues with your qualification that it's "simply" deflation. Inflation is taken to be a bad thing since, if the price (in whatever currency we're using) of goods and services suddenly increases by, say, 1000% in a short time, people who purchase those goods and services are screwed, which also means people who sell them are eventually screwed (since they have no market in which to sell their goods and services). But deflation is at least equally bad: if I _sell_ goods or services, and the price (again in whatever currency we're using) drops 1000% in a short time, then I and everyone else who sells goods and services is screwed, which means people who would buy goods and services are screwed (since everybody who was selling them just went out of business). This is why gold can be a good investment in the modern age, but not a good currency; any time a new development results in rapid economic expansion, it would be accompanied by wild fluctuations in the (gold) currency, tending toward crippling deflation. It's also why I'm harping on the fact that money _as money_ must by definition have no intrinsic value. Its job is not to have value. Its job is to stand in for things of value so that we don't have to use insanely complex barter schemes. And since gold is, for reasons surpassing understanding, held to have value far beyond anything attributable to the actual substance (which is "valuable" in itself only as, for example, part of electrical components), gold is an absolutely terrible basis for a currency in this modern world.