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Comment by tmn | Hacker News Reader

There’s nothing fundamentally stopping all currencies from floating against gold and gold being the base asset

If your economy grows by 100 percent, and the supply of gold grows by 10 percent, its a massive problem

Why is that a problem?

If it's more profitable to keep your money under a mattress than to make things, provide services, or provide loans, the economy will tilt toward hoarding cash instead of more productive activities.

This is the classical argument, but I think it's been largely refuted by practice. Instead of hoarding cash inflationary systems motivate hoarding 'things' and then trying to rent them out to everybody. This is arguably even less productive as it's fundamentally socially harmful.

When the value of things naturally declines over time, there's no real motivation to hoard them. And I think hoarding is less harmful than never-ending rent seeking. This entire issue of sidestepping inflation by hoarding+renting is what led to things like the WEF predicting that 'You will own nothing, and be happy.' That's just fundamentally dystopic because it's setting the recreation of feudalism, under a capitalist shell, as a goal. The unstated implication of their prediction is that the super-rich would own everything, and then rent it to you.

Look at Bitcoin to see an example. It's a gambling game that is relatively useless to do transactions with.

Gold is a terrible unit of international money because the supply isn't flexible enough to accommodate any growth in international trade.

Contrary to popular belief, during history gold has always had limited role in the monetary system, because it was too scarce to really be useful (in most of human history, Silver, not gold was the cornerstone of trade, and trade itself was a tiny part of economic activity in an era where most of it was subsistence farming). It's only when banking and paper money replaced silver that gold took a bigger role in the monetary system. The gold standard is in fact an invention of the late 19th century and it didn't last long before it disappeared progressively (the first world war being the beginning of the end).

Unfortunately for us, it just happened to be the period when a bunch of influential economists grew up (particularly Ludwig Von Mises), and like every human being they assumed that the system they grew up with was special and what came after was decadent, an idea that has unfortunately since then become widespread in the general population.

Most people wrongly assume that the key property for a commodity to become the basis of a monetary system is scarcity, but in reality scarcity is a drawback. Money must be abundant enough (too abundant is bad, but too scarce is even worse).

Isn't a more modest opinion that gold admits a guaranteed minimum on its price because of scarcity and demand from industrial applications? That guaranteed minimum on its price is what enables it to be used as a hedge against a possible hyperinflation event of the USD. By comparison, the USD, like all other fiat currencies, might not have any guaranteed minimum price.

I'm out of my depth, so apologies.

There is a fixed supply of gold that does not correlate with economic output. It makes zero sense to tie the value of paper money to gold.

That argument comes from an ancient list of arguments against gold. But nobody seems to be able to explain why that would matter at all. There doesn't need to be any correlation with the amount of currency and the economic output. And there has never been any such correlation, including right now with the dollar or any other currency.

If you want an economy to prosper the currency value has to remain stable. That means it has to scale with economic output. You can, of course, not do that, if you want to kneecap yourself.

Both the dollar and the euro have lost 70% of their value in the last 20 years. Most other currencies more than that.

OK, now do dollar-denominated assets. Stocks, bonds, commodities, real estate. How have those fared over the same time period? Those types of assets are where I put my money for long-term savings.

Only idiots that don’t understand inflation hold lots of cash, bringing that up is a strawman. Cash is not a store of value, it’s a unit of exchange and unit of account. Again, cash is not for saving, it should be used to purchase assets if you want to create long-term wealth.

Inflation is a tool used to encourage people to spend or invest their money instead of hoarding it. By spending it or investing it in dollar denominated assets, economic activity and GDP increased. Hoarding cash doesn’t help anyone.

Have you ever considered that perhaps your ideas about the monetary system are wrong?

There is no reason for me to take you seriously, since you're resorting to just being aggressive, calling people idiots, and so on.

So you can take that as you're being right and me not having any arguments against your superior intelligence, which you certainly will think.

But I don't give any value to what you say or believe. There is no productive conversation to be had with you.

If you think 3% inflation is bad, wait until you see what happens when you don't have it. The value of money has to decrease or it won't circulate - see Bitcoin.

Read ‘float’

Only the fact that it would be an idiotic policy that would destroy the economy.

Why would you let your monetary policy be run by gold miners in China, Russia and Australia? They could cause inflation or deflation simply by increasing or decreasing gold production.

Conversely how is the Fed supposed to manage inflation if it runs out of gold?

Gold is an industrial metal, also used in jewelry, not a financial panacea.

Now you know why so many countries want to leave the dollar system. There are no meaningful constraints on the supply of dollars.

Gold at least places real constraints on the growth of the money supply. Imperfect as it is, it’s better than a financial cabal in one country creating money to suit their needs irrespective of any other objective.

Right, that's why exactly one country, Zimbabwe, has a currency that is gold convertible.

You’re so close to understanding. Remind me what happened before their currency became gold convertible?

Imagine if there was a gold which could be transferred across borders easily and completely securely within seconds, proof of holdings and ownership could be easily proven, and there was no future risk of gold supply shocks (eg gold asteroid hitting earth or alchemy becomes viable).

This sounds amazing! Is it also protected from being lost forever by trivial mistakes that are very common?

Yes, when managed by someone competent, just like Gold.

All the arguments against gold are completely bogus because there is nothing stopping the price of gold from climbing to meet the economic need. The price of gold was suppressed for a long time by institutions, but this active suppression is increasingly difficult to continue.

As for verification and transfer, that's what electronic shares are for, distributed across a few key physical asset holders.

Price of a commodity metal can do whatever they want without causing a big problem. It is just a resource allocation signal. However if you base your currency value on it suddenly you are forcing debtors into bankruptcies if the value shoots up. Credit relationships aka investments are what make an economy run and grow, not some arbitrary commodity price.

Debtors who roll their loans also go bankrupt when the fed raises interest rates. Rolling loans is par for the course for many capital intensive businesses. This is because in a low interest rate environment if you act prudently you’ll get outcompeted.

Fed interest rates don't fluctuate anywhere close to gold prices.

You're just so used to a debt fueled economy that you can't think of it being any other way. That is the problem though in that 99 times out of 100, debt goes rogue in a runaway sense and blows up the system. It is a time bom.

In essence, debt doesn't need saving from the system; it's the system that needs saving from debt.

An economy that can be debt based is going to out perform yours nine years out of 10

Sure, but it will be gone after a hundred years of compounded debt.

A system that lasts a hundred years before failing is a successful system. This reminds me of comments about bankrupt companies that made massive profits for 10 years, calling them failures. That's a success and the comment is sour grapes.

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