Why does the state control the supply of money?

The Corinthian

Valmont wrote: »

To be fair, that makes no sense.

Why not? We can all 'voluntarily' choose which ever side of the road we want to drive on - there absolutely no difference logically if an individual does so on the left or right. However, for the greater good, governments impose a standard and regard it as their right to do so.

Similarly, we could all 'voluntarily' choose which currency to use or even issue. But would this be good for the greater good? The government would disagree and not without reason - for example, consider alternative payment systems already out there; just because I want to pay with Paypal, doesn't mean that the site I'm buying from accepts it. And how many places will refuse American Express, or for that matter any credit card?

There are lots of problems associated with the decentralization of money - even when it's only superficial decentralization, as in the UK - ever try to spend an NI banknote in London? Or a Manx banknote?

I think we may mean different things by inflation here; would I be wrong in assuming you mean inflation as a measure of the increase in prices of various goods?

I'm referring to inflation as an increase in the money supply.

Same thing at the end of the day.

Hawkeye123

The Corinthian wrote: »

... if we continue electing the same incompetents, are we not already failing to protect ourselves?

True. Where corruption is concerned, I find the Greens to be least corrupt. Selflessness and sacrifice is part of being responsible. How many FF, Labour or Sinn Fein TDs cycle to the Dail? Perhaps Mr O`Snodaigh for example ought to cycle to make amends for printing so much ink on deceased trees.

Stabshauptmann

Valmont wrote: »

Considering that from 1976 - 2010, the average rate of inflation in Ireland was 5.76%, it is fair to say that people have seen their money lose some of its purchasing power--in effect, an inflation "tax". If you have cash in the bank, it will lose value every year, even above the paltry interest rates offered by high-street banks.

Yes, that is what inflation is. But to call it an inflation "tax" isnt accurate, inflation doesnt create any dead weight loss on the supply and demand curve (in the long run), it just adds some zeros...

Inflation has an inverse relationship to unemployment. It is the attempt to raise the standard of living of everyone that you find your purchasing power dipping.

This led me to ask: why do we only have one currency?

We dont. You can buy goods and services with whatever you and the person you are trading with want. I frequently barter. Ever use store credit? Or as someone else mentioned, theme park money?

Why does the government (or the EU) control it?

As I said, you can use any currency you like, but people (at present) have the most faith in the government's currency, so it is the most widely used.

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me?

The governement would not try and stop you, I dont think. You would not be breaking any laws I can think of. Unless you tried to open a bank, in which case you would need a license to accept deposits and grant loans. The reason being that you would be safe guarding peoples assets, and as the state wishes to protect their citizens, they will insist you meet necessary standards.

*Play around with the Inflation Calculator to see how much value money in the bank can lose.

I will also compare my earning power today vs those in 1982 in terms of purchasing power parity. Despite a pint costing considerably more today, I see that I am able to purchase far more of them from the same units of work. How interesting... :pac:

The Corinthian

Stabshauptmann wrote: »

I will also compare my earning power today vs those in 1982 in terms of purchasing power parity. Despite a pint costing considerably more today, I see that I am able to purchase far more of them from the same units of work. How interesting... :pac:

This is an important point. The charge is that inflation results in a loss of value in our money, yet we need to remember that as a medium of exchange, that value ultimately translates to goods and services and it is those that we have to examine.

I actually remember coming across the Guinness Index years ago and noting also that despite inflation, and recessionary dips, we are actually better off today than we were just before joining the EEC and that overall there has certainly not been any long-term loss in the value of our money.

On a related note, the Economist published an article this week that I thought would be relevant to this thread.

RBX

Valmont wrote: »

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me?

It's been done. Take a look at www.letstrade.ie and in particular http://www.letstrade.ie/faq.htm#13

I think it's quite similar to what you're suggesting.

SeanW

KyussBishop wrote: »

On a basic level, the gold standard produces deflation, rather than inflation, and steadily reduces the price of commodities due to the value of money increasing; meaning anyone who has to go into debt for any reason (e.g. to take out a mortgage), ends up with both the price of their commodity (house) decreasing over time, whilst the burden of their debt increases over time (due to value of money increasing).

OK, first of all, that happens in the current system too - a debt increases with time if you don't pay the interest, houses/cars/whatever depreciate as well regardless of whether there's a central bank or not.

Secondly, in recent Irish history property prices skyrocketed ... because of historically low interest rates.

If house prices had stayed at 1980s levels but the downside was that you had to either save a lot or take out a mortgage in gold, I suspect a lot of our young people would have been fine with that.

Finally, a gold backed currency empowers the lower and middle classes more than the wealthy.

Rich people with lots of money can buy inflation-proof assets if they want to. Easily and efficiently. Poor and middle class people will be unlikely to have savings in anything other than small amounts of legal tender currency and so poor/middle class savers have more to gain than the wealthy and definitely way more than the political classes from a gold backed currency with market-led interest rates.

I'm explicitly in favour of hard currency for that reason.

KyussBishop

No, it's not the same; in a deflationary monetary system, you're effectively paying an incrementally higher level of interest as every year goes by, because the principal the interest is based upon is always increasing (whereas it decreases in an inflationary economy); due to this, it favours creditors over debtors.

The poor and middle classes are overwhelmingly the ones who will be in debt, so they won't be 'empowered' by it, as they are the ones who dispense with more of their income as well as go into debt, rather than saving it all.

Overwhelmingly those who already have a lot of money benefit from it, because (just in straight out net value amounts) the value of their holdings are increasing directly in line with deflation; the overall share of the economy held by the lower/middle classes, would be constantly shrinking in comparison to the money held by the wealthy, and this would only get worse over time as deflation accelerates.


The idea of the gold standard as a serious modern contender for national (or global) currency is quite unusual really (and has exactly zero chance of happening in any significant economy); the feared hyperinflation it's supposed to protect against, that Austrian economists have hastily predicted would come in the wake of the current crisis, has not materialized (so obviously the predictive power of Austrian economic theory is limited there, indicating large flaws in the theory, but you won't find that being acknowledged).

The idea of a gold standard is pretty much obsolete these days, since no matter what material you base it on (pure gold or bimetal), the rate of expansion of the money supply is always going to be decreasing year upon year once the production of material reaches its peak, guaranteeing deflation.


The flipside of that, is that within a century or more when technology makes it incredibly cheap to extract gold from seawater and other currently untappable (but extremely abundant, dwarfing current inventory) sources, you then have instant massive inflation as the value of gold plummets.


Going forward, the chartalist based approach to money, like being pushed by Modern Monetary Theory, seems like it will be one of the more dominant approaches in the future, if economics doesn't stay mired in its current dismal state.

If you adopt the gold standard, you pretty much guarantee that whenever there is any significant economic downturn, that unemployment is going to be a significant issue as well, exacerbating the economic issues.
There is no good reason for this to be accepted, and increasing the money supply to pay for public services to guarantee full employment is a good resolution to this, which would be impossible under a gold standard.

The EU is a good example of the negative effects of a gold standard in that case, as the euro countries do not have that kind of control over their money supplies, and solutions to the EU crisis are prevented by political impasse.

Austrian economists would decry the supposedly inevitable hyperinflation, but as I mentioned, that has already been predicted in the wake of the huge injections of money into the US economy for instance, and has not materialized.

SeanW

The genuinely rich have means to protect their wealth from inflation. Gold is tax free in both the U.S. and the E.U. Even if it weren't, the rich can easily buy land, foreign company shares & bonds, whatever.

There are however, a lot of people who are not rich enough to justify this, for example the middle class or "bourgeois" as the communists called them, and the more fortunate/prudent members of the lower classes, that have the option to save their money for some productive future use, or spend whatever they earn and borrow as necessary.

Say you have high inflation and low interest rates, like in the modern era - it makes very little sense for the working classes to save for college, retirement, a house or car or anything of that sort, instead, they might as well spend spend spend spend, and borrow whenever there's a need.

But lets assume for a moment that you're right and that a gold standard would mean permanent deflation.

That simply changes peoples behaviour yet again to encourage poor and middle classes to save for things instead of borrowing, things like houses would become genuinely affordable as you would be able to save to buy a house rather the modern definition of affordability, which is how big a mortgage can you afford to pay over 40 years. (same applies to college education in the U.S. these days).

Permanent deflation would also mean lower nominal interest rates.

The fiat money system you love so much is what caused all these housing bubbles in the U.S. and the periphery of Europe, and most likely many others.

There is no good reason for this to be accepted, and increasing the money supply to pay for public services to guarantee full employment is a good resolution to this, which would be impossible under a gold standard.

How did that work out for the people of Zimbabwe and Wiemar Germany?

The EU is a good example of the negative effects of a gold standard in that case, as the euro countries do not have that kind of control over their money supplies, and solutions to the EU crisis are prevented by political impasse.

The Euro is an example of an international integration that should never have happened. One currency was NEVER going to fit the needs of such widely disparate countries - like Greece and Germany, in different phases of the business cycle, with different levels of economic productivity, and governments that pursue different policies.

It's well known that Irelands, and Greeces "historically low interest rates" were not in response to our needs - it was widely acknowledged at one point that our economy was overheating - but a response to the needs of the core (France, Germany, Northern Europe) that was struggling at the time. So the peripheral economies overheated and imploded, and now that this has happened you're suggesting that we now help the peripheral states by printing Euros which will overheat the Northern states ...

That just doesn't make any sense.

Austrian economists would decry the supposedly inevitable hyperinflation, but as I mentioned, that has already been predicted in the wake of the huge injections of money into the US economy for instance, and has not materialized.

That's because they've doctored the figures, the new "inflation" statistics do not include food and fuel, two of the most basic essentials. The reason? "They're too volatile" (translation, they show that the Federal Reserve is a pack of liars). Under the old rules, American inflation is running around 10%.

The idea of a gold standard is pretty much obsolete these days

You are absolutely right, but that's ONLY because fiat currency empowers government at the expense of the people.

oscarBravo

SeanW wrote: »

Gold is tax free in both the U.S. and the E.U.

In what sense?

The fiat money system you love so much is what caused all these housing bubbles in the U.S. and the periphery of Europe, and most likely many others.

If fiat currencies cause housing bubbles, how do you explain the absence of housing bubbles in many places, and for decades at a time in others?

Correlation doesn't imply causation - but when you don't even have correlation, how can you claim causation?

SeanW

oscarBravo wrote: »

In what sense? If fiat currencies cause housing bubbles, how do you explain the absence of housing bubbles in many places, and for decades at a time in others?

No V.A.T on investment gold in the E.U., they don't (yet) have VAT in the U.S.

Indeed in the U.K. you can sell sovereigns and gold Brittania coins without paying CGT on any appreciation you enjoyed.

Again, gold is just one of the many ways people with lots of money can dodge inflation.

Correlation doesn't imply causation - but when you don't even have correlation, how can you claim causation?

The meltdown of the peripheral economies could have been predicted by both the Austrian and Keynesian economic models.

• Keynesian economics holds that when an economy is overheating, monetary and fiscal policy should be conservative so as to provide a counter-cyclical dampening force.
• Austrian economics holds that any time interest rates are artificially lowered below what the market would otherwise demand, via the expansion of the money supply, the surplus money will find its way into unproductive uses like housing construction, or tech stocks or dodgy government bonds (a.k.a Greece) or just about anything that could become a bubble-icious fad.

By both models the destruction of the Eurozone periphery was entirely foreseeable and totally avoidable.

And I contend that trashing the savings of poor and middle class is rarely ever a good thing.

oscarBravo

SeanW wrote: »

The meltdown of the peripheral economies could have been predicted by both the Austrian and Keynesian economic models.

• Keynesian economics holds that when an economy is overheating, monetary and fiscal policy should be conservative so as to provide a counter-cyclical dampening force.
• Austrian economics holds that any time interest rates are artificially lowered below what the market would otherwise demand, via the expansion of the money supply, the surplus money will find its way into unproductive uses like housing construction, or tech stocks or dodgy government bonds (a.k.a Greece) or just about anything that could become a bubble-icious fad.

By both models the destruction of the Eurozone periphery was entirely foreseeable and totally avoidable.

And I contend that trashing the savings of poor and middle class is rarely ever a good thing.

That doesn't answer my question at all.

If fiat currencies cause housing bubbles, then in every time and place that there is a fiat currency, there should be a housing bubble. This is self-evidently not the case, so there are clearly other factors contributing to housing bubbles.

If you're going to use housing bubbles as an argument against fiat currencies, you'll first have to demonstrate not only that housing bubbles can happen when there are fiat currencies, but that they can't happen when there are not.

SeanW

oscarBravo wrote: »

That doesn't answer my question at all.

If fiat currencies cause housing bubbles, then in every time and place that there is a fiat currency, there should be a housing bubble. This is self-evidently not the case, so there are clearly other factors contributing to housing bubbles.

If you're going to use housing bubbles as an argument against fiat currencies, you'll first have to demonstrate not only that housing bubbles can happen when there are fiat currencies, but that they can't happen when there are not.

I never explicitly said fiat currency = housing bubble.

I primarily blamed low interest rates for screwing up all the economic indicators (which I stand over) and said that they helped money go into unproductive uses like housing construction, tech stocks, Greek government bonds. Thought I was fairly clear about that.

I also never claimed it was impossible to have a bubble without a fiat currency but I did explain how - through both Austrian and Keynesian models - low interest/fiat currency can help to create bubbles, either explicitly, as Austrians believe, or by the metaphorical equivalent of pouring fuel on a fire, as Keynesians believe.

oscarBravo

SeanW wrote: »

The fiat money system you love so much is what caused all these housing bubbles in the U.S. and the periphery of Europe, and most likely many others.

SeanW wrote: »

I never explicitly said fiat currency = housing bubble.

Hmm.

SeanW

I said that artificially low interests (especially at the wrong time of the Keynesian business cycle) caused the most recent housing bubbles.

It was you that read way too much into that, and came up with this stuff about how I had to prove that a housing bubble could not happen without fiat money.

Which is something that not only have I not said, but that I do not believe. Clearly a bubble could happen even in a gold standard system, if a bad idea had enough traction behind it, there could very well be a bubble, fueled to a limited extent by the real loanable funds that existed.
But it would be:

1. Less likely in the first place
2. Pop a lot sooner, before much harm.

So yes, irresponsible expansion of fiat money caused a lot of the recent bubbles, and caused money to go into things it never should have. But I never claimed that the link between the two was so strong that you had to have one to have to have the other, or any of the bizarre stuff you came up with.


Frankly, you've been misrepresenting my position.

Mongfinder General

Interesting thread.

But riddle me this. As we know, the $ was detached from the gold standard back in 1971. The euro is not backed by gold either. Has there ever been a fiat currency in history that has survived?

KyussBishop

It doesn't matter if the rich can ameliorate the effect of inflation on their money, they have to put it to productive use to do so; in a deflationary economy they don't have to do anything productive with it, they get an automatic increase in value with no effort.

Also, part of the idea of a gold standard is to get rid of tax, but where is the increase in value of each unit of currency coming from? It comes from economic growth, which means a deflationary gold standard effectively puts a 'tax' on economic growth, a tax where the benefits overwhelmingly go to those who already have lots of money.


You say the lower/middle classes win with a gold standard, but you don't seem to concentrate much on the debt, just the savings; it's fair to say that lower/middle classes are usually the ones who go into debt (particularly for a house, and in the US many for college; the poorest in particular can't prudently save for these), so they straight away lose on debt.
They also lose in the long term socio-economically, because it seems that in the long term the gold standard is going to concentrate money in the hands of those that already have a lot of it.

SeanW wrote:

The fiat money system you love so much is what caused all these housing bubbles in the U.S. and the periphery of Europe, and most likely many others.

In a fiat or gold standard system, banks have to lend money responsibly so that debts don't go bad; that irresponsible lending is a shared fault between the banks (for giving out the loans without adequate checks, and with ridiculous lengths, pushing up the price of houses; this is the part Austrians rarely acknowledge) and the government (for not adequately supervising the banks, and having lax regulations).

It's not that the money system is fiat that caused this, it's the legacy of the last 30 years of neoliberal economics that pushed deregulation and deeply flawed economic theory, and academia that has been captured by the status quo of neoclassical economics, not giving enough voice to alternative theories.

SeanW wrote:

How did that work out for the people of Zimbabwe and Wiemar Germany?

I wasn't aware their problems were caused solely by guaranteeing full employment? Sounds like the hyperinflation argument again, which prominent Austrian economists have predicted in the wake of the massive spending of the current crisis, but which has failed to happen.

While excessive injection of money into the system can cause inflation (even hyperinflation), the Austrian bugaboo of hyperinflation has so far discredited itself in false predictions, and there's no reason such an injection of money can't be handled properly.
Straight away, part of the inflation that might be caused by guaranteeing full employment, will be offset by the increase in GDP/GNP provided by it, and the rest can be offset in taxes until private industry recovers and people under temporary public employment are re-absorbed into the private system.

No reason at all that can't be managed properly without leading to significant inflation/devaluation; even where some devaluation may happen, you have to weigh how much of that is acceptable compared to the social cost of mass unemployment.

This is a whole range of policies that can not be explored under a gold standard.

SeanW wrote:

now that this has happened you're suggesting that we now help the peripheral states by printing Euros which will overheat the Northern states

I'm not suggesting that, I agree with you that the Euro should never have happened; we should have our own sovereign currency, and control over our own money supply (as should the rest of the EU).

SeanW wrote:

That's because they've doctored the figures, the new "inflation" statistics do not include food and fuel, two of the most basic essentials. The reason? "They're too volatile" (translation, they show that the Federal Reserve is a pack of liars). Under the old rules, American inflation is running around 10%.

The food and fuel markets are both hopelessly unregulated, and the massive influx of money into these markets (as a desperate store of value) are both causing massive market manipulation to push up prices and keep financialized assets performing.

They are perfect examples of the damage excessive deregulation and financialization can cause.

SeanW

OMG your post is so full of straw men, self contradictions and non-sequiturs I'm not sure where to start.

It doesn't matter if the rich can ameliorate the effect of inflation on their money

Ok, so you don't care if the rich can ameliorate the effect of inflation but the middle and working classes cannot? Now who's the elitist?

they have to put it to productive use to do so

That's a very wild claim, refuted by the fact that they can buy gold, or other "holding" assets, lets ignore this obvious error and assume the above is true.

You then go on to say:

The food and fuel markets are both hopelessly unregulated, and the massive influx of money into these markets (as a desperate store of value) are both causing massive market manipulation to push up prices and keep financialized assets performing.

Self-contradiction much?

Also, part of the idea of a gold standard is to get rid of tax

Again, totally 100% false. There's a difference between monetary policy (the policy of money creation) versus fiscal policy (the government policy of taxation and expenditure). They're serparate things though one can influence the other, as you point out below.

Now, where I would part company with fellow libertarians is my belief that some redistribution is OK. If someone is disabled, they should get living allowance. I also think it's a good idea to help the poorest people get, for example, a college education in some useful field, or to (at least partly) subsidise the health care of somoene who cannot afford it.

You can tax the rich and upper middle classes to pay for this and it doesn't matter whether they're paying taxes in gold or government funny-money.

They're separate issues.

you don't seem to concentrate much on the debt, just the savings

And you concentrate too much on debt, not enough on savings.

In Ireland in the 1980s interest rates were very high, so houses cost about £25,000. If you had a few hundred pounds, you could have a 2nd car and thus basic transportation. Pretty sure personal bankruptcy was rare, people didn't spend money they didn't have. It might not have been glamorous, but it worked, and people didn't have crazy debts.

Fast forward to the 2000s and "historically low interest rates" and people took out 120% mortgages over 40 years to buy shoebox apartments for €500,000, took out new car loans every year to have a "new year" reg. plate, now we have Starbucks where people come in to spend €5 on a cup of coffee and put it on their credit card.

None of this makes any sense to me.

in the US many for college

College in the U.S. used to be cheaper, I remember a video from one libertarian who remembered how he used to work as a waiter during the summer months to pay for college that year.

Indeed, famously, Abraham Lincoln was a lawyer but he never went to college at all. He started life as a poor grocery clerk, bought some law books for 50 cents, sat the Bar and became a lawyer, and a damn good one by all accounts.

But as I said above, when someone needs a college education, there's no reason you can't have the Irish system - provided there's tax revenue to pay for it.

KyussBishop

SeanW wrote:

OMG your post is so full of straw men, self contradictions and non-sequiturs I'm not sure where to start.

Hmm, not really? I'd be particularly interested where you can point out any straw men; the others you argue, I've addressed below.

SeanW wrote:

Ok, so you don't care if the rich can ameliorate the effect of inflation but the middle and working classes cannot? Now who's the elitist?

Quote where I stated either of those things; that's putting words in my mouth.

SeanW wrote:

That's a very wild claim, refuted by the fact that they can buy gold, or other "holding" assets, lets ignore this obvious error and assume the above is true.

You then go on to say:

The food and fuel markets are both hopelessly unregulated, and the massive influx of money into these markets (as a desperate store of value) are both causing massive market manipulation to push up prices and keep financialized assets performing.

Self-contradiction much?

On the first point, you are wrong, because holding assets are a store of value they do not constantly increase value over time like money does in a deflationary gold standard.

For an asset to be comparable to money in a deflationary gold standard, it has to solidly increase in value over time, at an accelerating rate.

You don't seem to have fully understood how the value of money in a gold standard progresses, or the socio-economic effects of that.

SeanW wrote:

Also, part of the idea of a gold standard is to get rid of tax

Again, totally 100% false. There's a difference between monetary policy (the policy of money creation) versus fiscal policy (the government policy of taxation and expenditure). They're serparate things though one can influence the other, as you point out below.

Now, where I would part company with fellow libertarians is my belief that some redistribution is OK. If someone is disabled, they should get living allowance. I also think it's a good idea to help the poorest people get, for example, a college education in some useful field, or to (at least partly) subsidise the health care of somoene who cannot afford it.

You can tax the rich and upper middle classes to pay for this and it doesn't matter whether they're paying taxes in gold or government funny-money.

They're separate issues.

True in that it does depend upon who you ask.

SeanW wrote:

And you concentrate too much on debt, not enough on savings.

I don't ignore the effect on savings, you seem to be ignoring the effects on debt; debt is the primary place where a deflationary gold standard is massively imbalanced, so you have to take it into consideration.

As far as savings go, I've specifically pointed out how those who already have a lot of money, benefit the most from deflation (far far in advance against those with lower/middle incomes).

SeanW wrote:

College in the U.S. used to be cheaper, I remember a video from one libertarian who remembered how he used to work as a waiter during the summer months to pay for college that year.

Indeed, famously, Abraham Lincoln was a lawyer but he never went to college at all. He started life as a poor grocery clerk, bought some law books for 50 cents, sat the Bar and became a lawyer, and a damn good one by all accounts.

But as I said above, when someone needs a college education, there's no reason you can't have the Irish system - provided there's tax revenue to pay for it.

Okey, agreed there; that still leaves houses of course, and I don't think it's a realistic proposition that people will be able to save up for houses, and completely avoid debt.

Your example from the 1980's shows how much lower the price of houses was, but you have to compare that to the average industrial wage as well; it was no more realistic to save up and avoid debt to buy a house then, than it is now.

SeanW

KyussBishop wrote:

While excessive injection of money ... guaranteeing full employment ... more and more regulations

They had full employment in the former Soviet Union, they also had central banking and very strong government with lots of laws and regulations.

I think their people sent us a post card saying "HELP, it's not working. Wish we were over there"

KyussBishop wrote:

Quote where I stated either of those things; that's putting words in my mouth.

I said that it's far easier for the rich to exchange their government funny-money for something that beats inflation - like gold - than the average person.
You responded by saying that:

KyussBishop wrote:

It doesn't matter if the rich can ameliorate the effect of inflation

As far as savings go, I've specifically pointed out how those who already have a lot of money, benefit the most from deflation (far far in advance against those with lower/middle incomes).

And I live in the real world where freinds and family had money in pensions (that they had to have invested because of central bank money trashing) and the money was lost in tech stocks, construction projects and other nonsese. None of them rich. All of this could have been avoided if the working and middle classes were given a currency based on gold certificates and the like.

What I want is nothing short of empowering the average person. That's why I am for the most part a libertarian.

True in that it does depend upon who you ask.

No not really. Many libertarians want BOTH a gold standard AND little/no tax.

But they will all agree with me that fiscal policy (government taxation and spending) and monetary policy (the policy of money control) are separate issues, and you can have different policies in each, if needed.

The straw man was the claim that gold currency = no tax. I never said that (noone did) and I don't believe it. Like oscarBravos claim that I had to defend the view that bubbles can only occur under fiat currency (again, I never said that and don't believe it) it's a straw man.

KyussBishop

SeanW wrote: »

They had full employment in the former Soviet Union, they also had central banking and very strong government with lots of laws and regulations.

I think their people sent us a post card saying "HELP, it's not working. Wish we were over there"

This isn't going down the whole Marxist/Communist/Socialist "guilt-by-association" line or argument is it? Need to address the arguments on their own merits/demerits; this just avoids addressing my argument, in favour of comparing it to Soviet Russia.

SeanW wrote:

I said that it's far easier for the rich to exchange their government funny-money for something that beats inflation - like gold - than the average person.

You avoided answering me there; you said:
"Ok, so you don't care if the rich can ameliorate the effect of inflation but the middle and working classes cannot? Now who's the elitist?"

I asked you to quote where I said either of those things, i.e. that I don't care about "x, y", or where I accused anyone of elitism.

SeanW wrote:

And I live in the real world where freinds and family had money in pensions (that they had to have invested because of central bank money trashing) and the money was lost in tech stocks, construction projects and other nonsese. None of them rich. All of this could have been avoided if the working and middle classes were given a currency based on gold certificates and the like.

What I want is nothing short of empowering the average person. That's why I am for the most part a libertarian.

I acknowledge the negative aspects of inflation, but you haven't acknowledged the negative aspects of deflation.

To illustrate the effect on debtors: At a deflation rate of 1%, the principal of a persons mortage over 20 years will increase by 20%, and the interest is on top of that, and the interest gradually increases by 20% as well over that time.

In a deflationary gold standard, once the production of material reaches its peak, the rate of deflation is going to keep on increasing at an accelerating rate thereafter as well, so it's a ridiculous concept where deflation is going to keep getting worse and worse over time.

That's a much worse deal for low/middle income earners (who will be the ones in debt), than the benefits from savings; to balance out just the principal hit from the debt (nevermind interest), they would need to keep savings the same size as the debt, which is obviously pointless as they could just use that to pay the debt.

SeanW wrote:

No not really. Many libertarians want BOTH a gold standard AND little/no tax.

But they will all agree with me that fiscal policy (government taxation and spending) and monetary policy (the policy of money control) are separate issues, and you can have different policies in each, if needed.

The straw man was the claim that gold currency = no tax. I never said that (noone did) and I don't believe it. Like oscarBravos claim that I had to defend the view that bubbles can only occur under fiat currency (again, I never said that and don't believe it) it's a straw man.

Hmm, actually you're right, on thinking that through I was getting that mixed up; I was getting that idea from BitCoin (something I've debated at length elsewhere), which has almost precisely the same problems as a gold standard, with the added anonymity/untraceability that would make taxation obsolete (or very impractical).

Lantus

Inflation is primarily linked to the application of interest. As interest is money that has not yet been created the system requires that the money supply is further expanded to accomodate this, this leads to inflation.

Both are simply taken for granted but represent a stunning con against the people as essentially everything we do and work for is being constantly devalued and there is seemingly nothing we can do about it.

In terms of states running money they dont per se. That task is delegated to what we term central banks, however they are not controlled directly by governments.

In a capitalist system the control of the money supply and the stability it purportedly creates is deemed important. If there were multiple currencies in say one country and the value of all were changing it could be very detrimental as uncertainty would damage business confidence.

That said, it would seem to make better sense that an 'open source' currency like PP or bitcoin could offer a number of advantages over traditional currencies.

KyussBishop

While 'open source' and other non-governmental currencies are interesting, I'm not sure how they could be made to overcome the problems with control (or lack of) with the money supply.
Either control is entirely relinquished, and the money supply expands inflexibly based on an algorithm (with associated waste of resources, i.e. computing power doing bitcoin mining, and all the problems of an inflexible money supply), or control is delegated to a trustworthy party (which is not different to what we have now).

The idea of 'control' over the money supply is limited anyway; banks always lend money out before shoring up their reserves, so it is the banks that are the central driver of the money supply, not the central bank.
What a gold standard does is put an artificial limit on this expansion of the money supply, thus putting a limit on economic growth.

SeanW

KyussBishop wrote: »

This isn't going down the whole Marxist/Communist/Socialist "guilt-by-association" line or argument is it? Need to address the arguments on their own merits/demerits; this just avoids addressing my argument, in favour of comparing it to Soviet Russia.

Nope. Just pointing out the fact that everything you want has been done in the past - in Soviet Russia and by the Federal reserve, etc. And it has ALL been to the detriment of the average person.

You avoided answering me there; you said:
"Ok, so you don't care if the rich can ameliorate the effect of inflation but the middle and working classes cannot? Now who's the elitist?"

I asked you to quote where I said either of those things, i.e. that I don't care about "x, y", or where I accused anyone of elitism.

I read your posts as being either wilfully ignorant of the reality that the rich can change their money into whatever they please, while the average people are hurt most by inflation, or a wilful acceptance of the same reality, on the basis that money "must be put into productive use." a claim which BTW I thoroughly trashed, with the help of glaring contradictions in your own policy. :cool:

As to the elitism. it's a charge generally levelled at libertarians that they only care about the rich, or ar rich themselves and simply looking out for their own interests.

To illustrate the effect on debtors: At a deflation rate of 1%, the principal of a persons mortage over 20 years will increase by 20%, and the interest is on top of that, and the interest gradually increases by 20% as well over that time.

And house prices would reflect that, possibly returning to 1970s/1980s values rather than 2000s values.

What a gold standard does is put an artificial limit on this expansion of the money supply, thus putting a limit on economic growth.

The greatest economic boom in modern history was the Industrial Revolution, where entrepreneurs borrowed - in gold - to buy production-machines from their inventors, to make stuff cheaper and more efficiently on a massive scale.

Clearly the gold standard could not possibly have put a cap on economic growth, in fact I tend to think that savings are the bedrock of any solid economy.

KyussBishop

SeanW wrote: »

Nope. Just pointing out the fact that everything you want has been done in the past - in Soviet Russia and by the Federal reserve, etc. And it has ALL been to the detriment of the average person.

That's not arguing with my points though, that's a variation of guilt-by-association, where you connect one policy I suggest, to an entire political system consisting of a vast number of policies (including the one I suggest, and many others I vehemently disagree with), and posit that systems failure as proof that all connected policies (including the one I suggest) can never work.

That's very much a variation of guilt-by-association fallacy (perhaps there's even a more precise fallacy to fit that to), which avoids the arguments; there's no reason full employment cannot be done right, and there are not many economists who view fiat currency as a failure (there is pretty wide ranging debate on how to reform things to work better, and a gold standard is viewed as going backwards).

SeanW wrote: »

I read your posts as being either wilfully ignorant of the reality that the rich can change their money into whatever they please, while the average people are hurt most by inflation, or a wilful acceptance of the same reality, on the basis that money "must be put into productive use." a claim which BTW I thoroughly trashed, with the help of glaring contradictions in your own policy. :cool:

As to the elitism. it's a charge generally levelled at libertarians that they only care about the rich, or ar rich themselves and simply looking out for their own interests.

Right so you did put words in my mouth, and applied views to me as straw men; I didn't argue that rich can't change their money into whatever they want, or that Libertarians are elitist.

SeanW wrote: »

To illustrate the effect on debtors: At a deflation rate of 1%, the principal of a persons mortage over 20 years will increase by 20%, and the interest is on top of that, and the interest gradually increases by 20% as well over that time.

And house prices would reflect that, possibly returning to 1970s/1980s values rather than 2000s values.

The ratio of house prices to the average wage back then, was not greatly different to the mid 2000's, so that makes no difference (the 'value' relative to average wage is quite similar).

In any case, you acknowledge here that the principal on peoples mortgage (and debt in general) will increase substantially due to deflation, so that pretty much blows away any benefit those debtors will get from savings.

SeanW wrote: »

The greatest economic boom in modern history was the Industrial Revolution, where entrepreneurs borrowed - in gold - to buy production-machines from their inventors, to make stuff cheaper and more efficiently on a massive scale.

Clearly the gold standard could not possibly have put a cap on economic growth, in fact I tend to think that savings are the bedrock of any solid economy.

The world economy then was absolutely tiny compared to its size now, and world production of gold was nowhere near its peak (with many massive expansions of gold mining to come in the 19th century); today, there is not a hope of there being enough gold in the world to adequately sustain economic activity, and production of gold is considered to have peaked.

Today the worlds gold supply expands at around 1.5-1.6% every year, so once the supply of gold is being fully utilized to meet a gold standard, that will become a ceiling for growth (until a new resource is tapped); since production of gold has met its peak, that increase in supply is only going to decline from now into the future as well, further constraining growth.


As I mentioned earlier in the thread, there is also still a massive untapped resource of gold as well: the oceans (which potentially dwarf the current entire world stock of mined gold).
Once technology develops to a point which makes that cheap enough to extract, the price of gold will instantly plummet enormously, and you will then be faced with true hyperinflation.

There is so much gold in the ocean, that there would be enormous amounts being extracted for a very long time to come, making a gold standard useless for avoiding inflation.


So basically, any kind of gold or bimetal etc. standard will tie you to world production of that resource, and fluctuations in the availability of that resource will have very severe economic consequences; it really is an obsolete way to manage the money supply, because there is not a hope that any resource will be a fitting match to economic growth.

SeanW

[QUOTE=That's not arguing with my points though, that's a variation of guilt-by-association ...[/QUOTE]I never called you a Communist, I just pointed out they had full employment (as policy) a Central Bank and lots and lots of regulation, which, if I understand you correctly, is what you want.

It didn't work then and our version, the Fed, the ECB etc, isn't working now.

there's no reason full employment cannot be done right

Show me one time in history when the government directly provided full employment and it worked.

I didn't argue that rich can't change their money into whatever they want

Yes, you did. You said:

It doesn't matter if the rich can ameliorate the effect of inflation on their money, they have to put it to productive use to do so

Which you contradicted in your own post later on, and then I trashed it by reminding you that they can buy gold, easier and are more likely to do so than my friends and family that lost money in pensions invested in tech stocks and housing construction. Average people BTW who genuinely did "have to put it to productive use."

or that Libertarians are elitist

I may have jumped the gun there, but it is a default assumption that libertarianism = rich people.

In any case, you acknowledge here that the principal on peoples mortgage (and debt in general) will increase substantially due to deflation

I do not deny that it's possible, but if it did come to pass, it would have a depressionary effect on property prices, and other stuff that can only be bought with loans.

so that pretty much blows away any benefit those debtors will get from savings.

I most certainly do not accept this: people in the average/middle classes to have choices on whether to borrow, spend or save. The current system discourages savings with high inflation and low (net of tax/inflation) interest. and to an extent it encourages useless borrowing. That can't be avoided.

Consider a single person making €35,000. They have significant choices: they could choose to live in a smallish apartment, drive a 2nd hand car and save large amounts of their paycheck for EVEN MORE consumption later on, save for a business, retirement, college etc.

The same person could also choose to take out a 40 year mortgate to buy a fancy house, change their car every year or so with new car loans, regularly go to Starbucks, buy a €5 cup of coffee and put it one of their credit cards.

Your system encourages the latter, mine, the former. As such, it is fundamentally my view that a "hard" currency gives the average person real power, while the inflationary fiat currency system weakens individuals and strengthens government bureaucrats, something governments throughout history have always sought.

The world economy then was absolutely tiny compared to its size now

It got a fair bit bigger though when companies began making stuff with machines though ... nothing to do with central banking.

KyussBishop

SeanW wrote:

I never called you a Communist, I just pointed out they had full employment (as policy) a Central Bank and lots and lots of regulation, which, if I understand you correctly, is what you want.

It didn't work then and our version, the Fed, the ECB etc, isn't working now.

Again, it's implied that fully employment can not work based on that, which is guilt by association and a fallacious argument.

SeanW wrote:

Show me one time in history when the government directly provided full employment and it worked.

The US during WWII, and almost any country at full-scale war; a war economy is full employment.

Note that I want the government providing temporary employment until the private sector improves and reabsorbes the workforce, not permanent employment.

SeanW wrote:

I didn't argue that rich can't change their money into whatever they want

Yes, you did. You said:

It doesn't matter if the rich can ameliorate the effect of inflation on their money, they have to put it to productive use to do so

Which you contradicted in your own post later on, and then I trashed it by reminding you that they can buy gold, easier and are more likely to do so than my friends and family that lost money in pensions invested in tech stocks and housing construction. Average people BTW who genuinely did "have to put it to productive use."

No I did not, those two statements aren't mutually exclusive; if the rich want to put their money in something they have to buy/invest into it and thus put the money to productive use, and run the risks of asset value fluctuations or other investment risks.

SeanW wrote:

I do not deny that it's possible, but if it did come to pass, it would have a depressionary effect on property prices, and other stuff that can only be bought with loans.

It's not going to have that much of an impact because the developer still needs to be paid immediately by the creditor in the present-day lesser valued money, and you're still going to be looking at the 10-20 year mortgage repayment where the creditor gets an automatic 10-20% bonus due to the principal increasing, and that's only with deflation of 1%.

There's no way of looking at that, other than as massively favouring creditors over debtors, and hurting the lower/middle class (the most frequent debtors) the most.

SeanW wrote:

so that pretty much blows away any benefit those debtors will get from savings.

I most certainly do not accept this: people in the average/middle classes to have choices on whether to borrow, spend or save. The current system discourages savings with high inflation and low (net of tax/inflation) interest. and to an extent it encourages useless borrowing. That can't be avoided.

Consider a single person making €35,000. They have significant choices: they could choose to live in a smallish apartment, drive a 2nd hand car and save large amounts of their paycheck for EVEN MORE consumption later on, save for a business, retirement, college etc.

The same person could also choose to take out a 40 year mortgate to buy a fancy house, change their car every year or so with new car loans, regularly go to Starbucks, buy a €5 cup of coffee and put it one of their credit cards.

Your system encourages the latter, mine, the former. As such, it is fundamentally my view that a "hard" currency gives the average person real power, while the inflationary fiat currency system weakens individuals and strengthens government bureaucrats, something governments throughout history have always sought.

It's simple enough: You have to show that the increase in value of savings, will match or exceed the increase in principal on debt, or the benefits on savings are useless.

Nobody in the lower/middle class will have a choice on whether or not they want to take out a mortgage, it is definitely not a practical possibility when you look at average wages and expenses; a person would be waiting decades before building up enough in savings to avoid debt.

SeanW wrote:

It got a fair bit bigger though when companies began making stuff with machines though ... nothing to do with central banking.

That's a red herring; completely disconnected from what I was talking about.

KyussBishop

An additional cost of deflation, not mention before, is that it affects the cost of production and the price of sold goods and thus profitability for business, plus peoples willingness to invest in business (due to the increased risk and less returns).
There are two aspects to this, the appreciation in value of materials necessary for production vs money, and the stickiness of the price of goods.

During the time spent making a product, starting from buying the materials/resources necessary up to selling the product, the business is losing value all through that period of time because the resources used for making the good likely do not (in combination) appreciate in value as much as holding cash would have, so the longer it takes to produce and sell a good, the bigger the depreciation.
Also, since the price of goods stays relatively sticky, that means the price will not regularly adjust for deflation, meaning it will sell for less than it's intended value, putting another downward pressure on business profits.

This, coupled with the tendency for a deflationary economy to magnify debt, can culminate into a reduction in aggregate demand in an economy, and (in severe cases) a deflationary spiral.
This is part of the reason why deflation is viewed as a bad thing, and why it is generally avoided, because once you get into a deflationary spiral like that it can be quite hard to get out of (as we are seeing now).


Just to repeat again: Note how massively deflation favours those who already have a lot of money, far and away they are the winners in such a scenario; it's a zero-sum game as well, not everyone can win, so if there are so many aspects of deflation which massively favours those who already have a lot of money, that increase in value for them has to come at the expense of everybody else (which indeed it does, as the increase in value of money is basically a tax on economic growth, overwhelmingly going to the rich).

SeanW

The Corinthian wrote: »

Isn't that the whole point to democratic elections? And if we continue electing the same incompetents, are we not already failing to protect ourselves?

Someone much smarter than myself once said:

Democracy is like two wolves and a sheep voting on what to have for dinner. Freedom is when the sheep carries a gun ...

RBX

Someone much smarter than SeanW wrote: »

Democracy is like two wolves and a sheep voting on what to have for dinner. Freedom is when the sheep carries a gun ...

I'm just picturing the gun that the sheep probably carries in its handbag, compared to the bulletproof vest, helmet, AK47 in one paw and a Styer in the other that the wolves carry.

recedite

If wealth is generated by citizens, then why not link money supply to population demographics? At least partially. So, a three point plan;

1.Micro Financing; Everyone gets a loan of enough money to buy an average house on reaching a certain age, say at 25 or 30 yrs. The money is newly created by the central bank, and is required to be paid back fully within a 30 year period, plus interest calculated annually to be equal to the rate of inflation (about 1%) There can be no asset bubble caused by this, because this credit can only be obtained once in your lifetime, ie the demographic is strictly limited. Conversely, no debt overhang caused by the asset price collapse either. There is no need for interest rate profiteering by private banks in repaying such a mortgage. Any defaults to be absorbed by the State and considered to be social welfare, and/or possibly clawed back gradually as a reduction in the individual's pension entitlement.

2.Midi Financing;
Further money supplied into the economy to keep price inflation at around 1 %.
This to discourage the hoarding of money, and to stimulate productive use of credit which adds value to the economy.

3. Macro Financing; in the event of a general slowdown, limited money creation for State projects as a stimulus. The limit would be based on the tax raising ability of the State. By sticking to a multiple of the annual tax take, no region could ever accumulate an insurmountable debt.