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Comment by chwahoo | Hacker News Reader

> yet no deflationary spiral has set in (afaik)

Gold isn't currently the currency (in most places), so I'm not sure what you mean here. If you listen to the podcast, the right-leaning (but generally fair) host makes a convincing explanation why there would be deflation under bitcoin. Also, gold and deflation are part of a popular story for explaining the great depression. I say all of this not to debate any of these points, but to point out that there is a case to be made that bitcoin would deflate over time and that it might have negative consequences.

I think bitcoin is somewhat different than gold because it is more decentralized (in practice) than having a national currency backed by gold. For example, it may scale more cleanly than gold and cash for corrupt uses, since bank accounts and the sources of money can be more readily hidden. I'm skeptical that this is a good thing.

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During all 19th century gold and silver were the main currency. Economy was on the rise (industrial revolution) but there wasn't any problem with deflation nature of gold.

The link below suggests that you're right---the price of gold was remarkably steady for at least the second half of the 1800s.

http://www.nma.org/pdf/gold/his_gold_prices.pdf

Why would the price have been so steady? Was the supply of gold increasing at just the right rate to keep it steady (unlikely) or was the economy so much less efficient at the time that prices didn't tend to fluctuate as they should (my guess). Perhaps the government played a role by owning a massive amount of gold? I don't think any of these explanations would apply to bitcoin (or gold, now).

Is there a better explanation? (and does it also apply to bitcoin?)

From Gregory Clark's _Farewell to Alms_:

> However, in preindustrial England, and indeed in many preindustrial economies, inflation rates were low by modern standards. Figure 8.7 shows the English inflation rate from 1200 to 2000 over successive forty-year intervals. Before 1914 inflation rates rarely exceeded 2 percent per year, even in the period known as the Price Revolution, when the influx of silver from the New World helped drive up prices. In a country such as England, which had a highly regarded currency in the preindustrial era, the crown did not avail itself of the inflation tax, despite the close restrictions Parliament placed on its other tax revenues. Only in the twentieth century did significant inflation appear in England. By the late twentieth century annual inflation averaged 4–8 percent per year. Thus there has been a decline, not an improvement, in the quality of monetary management in England since the Industrial Revolution. > > ...Thus in Roman Egypt wheat prices roughly doubled between the beginning of the first century AD and the middle of the third.[12] But that reflects an inflation rate of less than 0.3 percent per year.

I submit that it is unlikely that any of your explanations would operate over most of England's post-Invasion history and also in Roman Egypt a millennium before.

I couldn't find the data right now, but if i'm not mistaken, long term there was deflation, not inflation (though there were fluctuation due to wars and influx of precious metals from New World).

E.g. compare 1800 with 1900 with the help of CPI: http://www.measuringworth.com/calculators/ppowerus/

You are looking on the wrong numbers, dollar was fixed to gold, so no surprise, that its price is stable.

You should measure how many services and products 1kg of gold can buy you.

Wasn't the (or a) problem with the great depression that they started to decouple money from gold? Although I guess there is any number of theories about what caused the great depression.

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