- Feature Articles
- CodeSOD
- Error'd
-
Forums
-
Other Articles
- Random Article
- Alex's Soapbox
- Announcements
- Best of…
- Best of Email
- Best of the Sidebar
- Bring Your Own Code
- Coded Smorgasbord
- Mandatory Fun Day
- Off Topic
- Representative Line
- News Roundup
- Editor's Soapbox
- Software on the Rocks
- Souvenir Potpourri
- Sponsor Post
- Tales from the Interview
- The Daily WTF: Live
- Virtudyne
Admin
What you wrote makes perfect sense. However, if you notice, these historic "distortions" in precious metals were caused by conquest/opening new lands/etc. - things that won't happen going forward because our world is already globalized. On the other hand, fiat currencies were, are and will always be inflated by politicians, destroying the economy and people's well being in the process.
Now, could there be a scientific breakthrough in the future, which makes something like gold abundantly available, thus eroding its value? Absolutely. However, it's unlikely to happen, because we know the physics of converting elements to one another pretty well; and if it does happen, we can then start looking at alternative ways to ensure that a currency cannot be inflated by the whims of the people in power.
For example, bitcoins are not really usable in every day life, because of the transaction costs, value swings, but what if all of the banks in the world relied on a blockchain to settle their accounts between each other? Then, you could have a fiat currency and a system very similar to our current system with credit cards and all that jazz, but no one bank could "cheat" and make more money out of thin air. (Disclaimer: I didn't think this through, just a thought experiment.)
Admin
I love how this got through but I still have posts months old that are under moderation for no reason. The whole system needs to be overhauled if you ask me.
Also the captcha is hell. I am old and have crappy eyes and I have problems solving a lot of it. At this rate the site will become unusable to me soon.
Admin
Distortions in currency amounts can still happen with a commodity based currency because it is subject to all the same economic conditions that fiat currency is. This includes but is not limited to economic growth necessitating more currency in circulation, mines running dry leading to a lack of supply or a trade imbalance which leads to money being dragged away to other countries.
Rome for example had a famously huge problem with precious metal shortages which meant they physically couldn't mint the required coins to cover their expanding empire. Something that they newer got over. So they started debasing the currency by mixing other metals in which predictably lead to massive inflation which greatly hastened the fall of the empire.
And during the 14th century and later both China and Europe had a huge problem with gold and silver moving from one to the other due to a trade imbalance which lead to inflation in China (too much money) and deflation in Europe (too little money). This is one of the reason China shut down to outside trade. And it's how Mansa Munsa made huge bank selling gold to the Europeans.
In fact, fiat currency is more resilient to distortions than than commodity currency because the government can freely create and destroy it at will. Thus a responsible and capable government in full control of its currency can fine tune the money supply and do much good for the economy. To the point that it can even use said fine tuning to influence consumer behavior and boost domestic production or import at will. It is however obviously also more prone to manipulation by bad or incompetent actors. But that's the price to pay for power.
Put simply, a lot of people think that gold = good and paper = bad. But in actual reality commodity currencies are like Java where as fiat currency is C++. You get more power but can also shoot your self in the foot more easily.
Admin
I just don't think the scenarios you described are likely. Modern geology is pretty advanced, mines are unlikely to just run dry. Economic growth has been (for various reasons) pretty subdued for the past 20 years or so. Also, we do know how to make gold in a lab, so in the worst case scenario the energy intensive process can supplement the mining. And the historic situations are unlikely to repeat themselves going forward - because the economy is globalized.
All that aside, though, I just don't think some deflation (not enough money to account for economic growth) is necessarily evil. Again, USA and much of the world operated on gold standard for centuries and economies grew just fine. What really prevented more growth in the past was not the money system, but other factors, such as slave trade, lack of technology, pointless conquest wars (see Russia Ukraine war), etc.
If you look at the well being of a worker today, say, comparing to 100 years ago, you will see that the typical person/ family didn't really get that much richer. People make $50k a year today, but a new car is worth $35k. In 1920, people made ~$1000 a year, and a new car was ~$800. Yes the cars today are way better, but the point here is that fiat money didn't really help people get any richer compared to if we had something like the gold standard.
Admin
[reply to paragraph 1] Firstly, mines do run dry. And they get to the point where it's economically nonviable to extract resources long before that.
And secondly currency needs to be both rare enough to have value and common enough to be used as trade. One of the big reasons why people used bartering past the fall of the roman empire even though coinage was minted was because coins were so valuable that the common man just could not afford them. The lords and ladies still had coin but if you were a peasant who only want to buy bread to feed your family and the only coin in circulation is worth so much it can buy the whole bakery and the building it's in than that money is useless for you. So you don't use it.
[reply to paragraph 2] A little bit of inflation or deflation is not bad. In fact it is good. Governments manage their economy by deliberately causing inflation or deflation to effect consumer habits and thus regulate supply and demand. For example it's why the Yen is deliberately so low even though Japan has a very strong economy or why the Euro is screwing over half the EU while benefiting the other half. And of course the ever trickling inflation that ruins your savings is critical to encouraging people to take risks and invest.
The problem is when either of those things get out of control. We call those situations hyper or runaway and once they start they are very hard to fix. And fiat currency is actually better in those situations because you can just burn paper money or print loads of it out of thin air to compensate. Something that you can't really do with gold. It's just that for the same reason fiat currencies are more likely to get there under incompetent management.
Also someone please teach me how to use the quote system here properly.
Admin
[reply to paragraph 3] You seem to be under the impression that economic growth automatically translates to more wealth per person. This is not the case. It simply means more wealth in the system total. If your population rises disproportionately compared to your economic growth you can easily end up in a situation where the economy has grown but the people are poorer. And vice versa. Your economy could be imploding but if the population is imploding even faster they might well individually be getting richer. For all the good that does them.
And that's before we get to the issue of wealth distribution which is a whole other topic.
What it all boils down to though is that fundamentally the monetary system your country uses, whether it be fiat or commodity is not about making people richer. It's about making sure that the economy remains functional and does not return to barter.
Admin
Re mines - yes of course, no particular mine is endless, but my point was that it's extremely unlikely that all the world's sources of gold simultaneously and suddenly run dry. Just like with shale oil, people will find new sources when existing mines start to become more expensive to operate.
Re coins - by no means am I advocating a system where people exchange actual gold coins with each other. We'll still need cash, payment cards, etc. The question is, how is cash emission controlled; backing by gold is just a natural and easy way to prevent inflation.
Re advantages of fiat - yes and no. Does a controlled inflation encourage risk taking? Maybe. However, did you ever think why we need measures like that? Could it be the economy is strangled in many other ways, necessitating inflation to spur growth? And also, I just really, really distrust humans, be it ECB, FRS, or anybody else. If you look at the world history, not a single fiat currency has ever survived for a long time. Gold, on the other hand, has been around for millennia.
I'm not even particularly attached to gold. I just want to make sure USA does not end up like Venezuela, which seems to be a possibility today (albeit still a small one). If you have ideas on how to do it without gold, I'm all ears.
Re wealth per person - no, I'm not under that impression at all; but, from the human perspective, the aggregate GDP is not really a meaningful number. Sure, large countries with high GDP can invest in bombastic projects like space exploration and that's great; however, for the average family, what they care about is how much they have/make. And on that front, US workers are not really better off than 100 years ago.
Re wealth distribution - nothing is more of a "tax the poor and give to the rich" than "digitally printing" dollars and giving those to Goldman Sachs, don't you think?
Re monetary system - agreed, and one more requirement - said system has to be sustainable and reliable long term, or else people lose confidence - quickly.
Admin
Paragraph by paragraph:
It's not about finding new sources in the world. It's about finding new sources that you have access to FOR FREE. If you have to pay another country for the privilege of making your own money that gives them complete control over your fiscal policy and makes you their slave. And this is not an exaggeration.
As I have explained again and again INFLATION IS NOT BAD. A certain level of inflation can often be necessary for the healthy functioning of an economy. If your economy is producing more wealth than it did before or its population is growing than you need more physical currency going around for trade to keep functioning. And that by necessity means inflation.
Inflation does not spur growth. Inflation is simply the consequence of more money being physically in the system. And adding more money into the system can but need not by necessity spur growth. It can also have the exact opposite effect. It's all very complicated and has to do with the interaction between supply and demand. And there is not a good TLDR for that.
Either way it's nothing new or unusual. Nor does it have anything to do with fiat currencies. Rome famously had a massive liquidity problem that they solved by debasing their currency with less valuable metals leading to inflation that ruined their economy over time. And yet at the same time Greece famously almost went bankrupt a few years ago because they were tied to the Euro and thus couldn't use controlled inflation to fix their problems which it absolutely would have.
Admin
The goal of a government when it manages the economy is not to make the average person richer than his parents were. It's to keep the economy and by relation the country stable while enriching them self and their backers and keeping the people just rich enough that they don't start breaking out the pitchforks and torches. And for that to succeed all you need to do is ensure that economic growth is sufficient to balance out population growth.
I meant wealth distribution as in all the money or gold or wealth in the world won't save your economy if its distributed poorly. If your leaders are living in a palace made of gold while the people mining that gold don't have enough currency to afford food it really does not matter what you use as the backing for that currency. Because that is a wealth related issue and not a currency related one.
No, not really. Just look at Europe. Plenty of countries here go through monetary systems the way a rock star goes through groupies. Like, the average Eastern European nation for example has gone from pre-ww2 currency, post-ww2 currency, communist era currency (or several!) to post communist currency and now potentially to the Euro all in living memory. Each transition being caused by and followed by periods of financial instability.
Yet people still believe in the monetary system, use banks and generally function without doubting the value of their money. Really, as far as stability is concerned you only need to ensure it stays stable for a decade or so so that people can get used to it.
People have very short memories when it comes to things that would upset their convenience. Just ask any IT person. xD
Admin
Same, except all I have to add is my wife's income (usually 0) and deductions from donations. [I really should start keeping a log so I can claim working from home expenses.] Oh, and I have to say "I'm claiming my share of the benefit for having private health insurance, and also my wife's share" (this is just selecting the appropriate code in four dropdowns). Just did mine last night, took about 15 minutes.
One benefit relative to the USA, if I have been correctly informed, is that here if you use the ATO's software and answer honestly but your tax is calculated incorrectly (i.e. due to an error in the ATO's software), you don't owe any penalty beyond paying the additional tax debt if there is one. I am given to understand that in the USA, you face penalties for an incorrect calculation even if it's due to an error by the IRS, which is mind boggling to me.
Although this year, for the first time, the estimate says I will owe the ATO money, instead of getting a few hundred dollars back like usual. So I'll have to chat to my company's payroll people to find out how that happened.
Admin
Copy the lines you want to quote into your response, and prefix them with > (a greater-than sign, if that gets mangled). Like old-style email replies. I generally add a space as well but from memory I don't think it's required.
Admin
So a quote works:
Testing
Thank you.