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Comment by fixxer | Hacker News Reader

"If there’s one thing that militias and Tea Partiers hate more than “fiat money” that’s not backed by gold, it’s fiat money that exists only in electronic form, where it can be easily tracked and controlled by the government."

Ugh. Good article until the author felt the need for this asinine political gem. I am neither a militia member nor a tea party republican, but I recognize the flaws of a system in which a bureaucracy controls money supply based on arbitrary theory rather than some index immune to manipulation. Therefore, I must be a militiaman. Cheap thrills kill copy, journo.

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> ...some index immune to manipulation.

Commodity money and representative money aren't any more immune to manipulation than fiat money. It doesn't matter whether you use gold, silver, or marshmallow peeps -- the value of your holdings are pegged to the value of the assets, which sway with the market. And the central bank can still manipulate that value, they just have to buy and sell the asset to do it.

Fiat money gives nations a central mechanism to manipulate their own currency without hoarding gold and silver. Commodity & representative currency allow other countries to manipulate the currency. In _any_ monetary system, losing control of your money supply causes bad things to happen (see also: Greece).

I recognize those flaws as well, so I presume by the author's definition I am a progressive militiaman.

Or maybe I'm just an intelligent individual.

Big "maybe" there, admittedly.

You are affirming the consequent, as is the parent.

> And the central bank can still manipulate that value, they just have to buy and sell the asset to do it.

Yes, true. But the fact that there is SOME LIMIT is pretty nice. In other words, the Fed could create as many dollars as there are bits to represent them without much effort at all. Only once you start overflowing a 64 bit integer does there start to be any kind of restraint on the amount of dollars created and only for a year or two until all the software gets migrated to use 128 bit long long long longs!

Commodities -- especially gold and silver which have widespread historical precedent as money -- can't really just be made up. Yes they're vulnerable to the vagaries of the market, but that market is at least based on some reality! And before you say "but the central bank can just make the prices go to infinity" thus achieving their price goals anyhow, I would respectfully disagree. The point of commodity backing of paper notes is that if you lose faith in the value of the notes you can always demand the commodity and hold that instead.

they can be made up when you have enough of them.

just look how usa dictated crude oil prices at will or how the diamond business work for the last couple of centuries.

First thanks for replying instead of just downvoting.

I might argue that the commodities you're referencing and precious metals are a little different. What you want to look at is the size of the stores versus the yearly production.

I don't know what the crude stockpiles are worldwide above ground, but they don't amount to much more than a few months worth of consumption. So if you were going to pick a single commodity to use, you probably wouldn't pick crude. Because there's very little buffer, supply or demand shocks quickly work their way into prices. This is not ideal. http://en.wikipedia.org/wiki/Global_strategic_petroleum_rese...

Diamonds do satisfy the "large reserves relative to production" as DeBeers supposedly has many decades worth of diamonds locked up in vaults. This is to keep the price higher than it otherwise would, made possible by demand they manufactured through advertising.

So while diamonds do have the buffer we want, they aren't divisible. Take a barrel of crude and pour it into two different containers. Each is now worth basically half of the first container. But split a diamond in half, and its value isn't cleanly divided in two. Diamond prices are based more on the carat square or cube (http://forums.udacity.com/questions/100166221/power-law-or-e...) so dividing a diamond in half makes each of the halves worth 1/4 of the whole. Not a good feature of something monetary; getting change for a dollar doesn't destroy any value.

Gold and silver on the other hand are divisible, fungible, and have high value relative to size and weight. Gold doesn't tarnish at all and silver very slowly and whatever oxide it does produce is protective. Also the yearly production of gold and silver from mining only represents a few percent of world stockpiles so supply or demand shocks have to be very large indeed to make drastic price changes; also a nice feature. Diamonds aren't fungible nor divisible. Crude doesn't have large stocks and has much lower per-unit value.

It's been well demonstrated that economies with gold standard currencies fall apart.. it played a big role in the global great depression and every affected nation ditched the gold standard before their economies were able to recover. There is no example of this system working well and plenty of examples of it failing.

> It's been well demonstrated that economies with gold standard currencies fall apart

Then why were gold and silver considered money for thousands of years if they were so awful and horrible and destroyed everyone's economies? We still use forks and spoons even after the spork was invented, and regular chairs even after beanbag chairs were invented.

Perhaps it was the financial innovations that caused the problems, not the actual money? It's obviously hard to disentangle the two, but the East India Company didn't make up a bunch of gold, they issued a lot of stock. That was the innovation that really enabled things to go nuts. The Great Depression here in the US was the result of tremendous amounts of credit being issued against stocks; people were allowed to buy on margin in absolutely insane ways. Eventually prices went down and the margin calls were made and the whole thing collapsed.

But the gold didn't cause the problem. The problem was the issuance of credit based not on the creditworthiness of the individual or the project but based on the assumed value of the instruments that the credit was being issued to purchase. Blaming the money for not being able to inflate is like blaming the victim for being weak enough that the criminal is able to murder them. It confuses the cause (the criminal) with the outcome (the victim is murdered).

There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all.

Gold and silver used as money were actually a form of barter. They did not require people to trust a government, and in fact predated government as we know it today.

Gold- and silver-backed currency were actually paper, and thus required people to trust the government to redeem them. Well, if you're going to stipulate that people have to trust the government, then gold or silver is just an implementation detail. In operation, it works like government price fixing of gold and silver. Like any price fixing, it leaves the economy open to outside manipulation by anyone who controls enough of the price fixed item.

Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to.

> There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all.

That's a very interesting point! I think I "knew" that they were different without ever putting it together like that. It's obviously true though, there were a number of years here in the US when you could own dollars but not the gold that the dollars supposedly represented. http://en.wikipedia.org/wiki/Executive_Order_6102

> Gold and silver used as money were actually a form of barter.

I'm not sure I agree with that but it's probably semantics. Is gold "money" or "commodity" and why? There's no obviously right answer. If people did bookkeeping in ounces of gold and paid their taxes in ounces of gold, doesn't that make it "money" in the sense that we would use today?

> Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to.

So it's not clear to me that granting the government (technically the Federal Reserve which is privately owned and truly only answers to its owners) control over the economy the way we have is actually a good thing. You still have an entity that can manipulate prices and the economy, it's just most people accept this as a good thing without any thought at all. Most people probably still believe that the gold inside Fort Knox or the Federal Reserve banks are somehow meaningful and in some way related to our money; but they aren't. You've traded the possibility of someone manipulating the economy in a harmful way for the certainty that someone will manipulate the economy but with the outcome unknown at any time.

The Fed still does price fixing, by the way. They fix the price of money, or as most people call it, the interest rate. Because their balance sheet knows no limits they can buy or sell as much of anything as they want until the interest rate is the "right" one as decided by a bunch of people who don't have a lot of connection to the real economy anymore.

You might argue that the Supreme Court is similar (unelected and generally unaccountable) but there's a difference. The people on the Supreme Court can make decisions based on existing law and precedent and legal arguments brought before them. And it's fairly easy for the Congress to override their decisions if they're particularly egregious since they publish opinions that explain their reasoning.

As it stands there's really no feedback mechanism for the Federal Reserve short of writing new laws that change the entire system. None is built in. Sure they have to go before Congress twice a year, but they can't be fired for policy opinions. It's a sweet gig if you can get it, but it's kind of insane just how much power these folks wield and how little accountability they face for their actions.

The Fed is part of the federal government. It was created by Congress, its leaders are appointed by the President and confirmed by the Senate, it creates and enforces federal regulations, heck it even has its own federal police force.

It's an independent federal agency, like the EPA, FCC, FTC, SEC, etc. Its actions are constrained by the mission boundaries set by Congress. In the case of the Fed, part of its mission is to manage the economy for "maximum employment, stable prices, and moderate long-term interest rates." Another part is to set regulations on how banks can act, sort of like how the FCC sets rules on how communications companies can act, or SEC on financial companies.

It does get adjusted by Congress. The Dodd-Frank bill passed after the financial meltdown changed the Fed's role and gave it some new regulatory powers. If you read the Fed's mission web page:

http://www.federalreserve.gov/aboutthefed/mission.htm

The 3rd bullet is new, added by Dodd Frank in 2010.

So I guess where we differ here is on practical matters, not theoretical ones. Sure Congress created the Fed, but it's unlike any other independent federal agency. The president can fire the head of the FCC, FTC, SEC, EPA, etc. The president can't fire the head of the Fed. I understand why that is (to remove political influence) but at the same time, it makes those folks completely unaccountable. The only way to change things is to pass new laws, and for some reason it's damn near impossible to pass new banking laws. Probably because the banks have so much money and can lobby so effectively as a result.

The Fed chair is among the most independent officers of the U.S., but they are not completely unaccountable. As a civil officer of the U.S., the Fed chair could be impeached by Congress. But the standard for impeachment is high; I doubt a good-faith disagreement over monetary policy would do it.

In general, it's hard to pass major laws. I'm not sure laws governing the Fed have any special difficulty. Gramm-Leach-Bliley in 1999 (which banks lobbied for) and Dodd-Frank in 2010 (which banks lobbied against) both had major impacts on the role of the Fed. There are plenty of issues with a 10+ year gap in major bills.

> I doubt a good-faith disagreement over monetary policy would do it.

Right, but the idea that the Fed is allowed to debase the currency at-will, with no repercussions because it's a "good faith disagreement over monetary policy" is precisely the problem. Just the language there attempts to steer the debate by hiding what is actually happening.

The idea that banks are too big to fail and bailouts will always happen and whatnot has led to a tremendous buildup of risk in the system. Profits are privatized and losses are socialized. Heads I win, tails you lose is great if you're me, awful if you're you.

In the absence of a "guaranteed" bailout (if you're too big to fail, anyhow) we might enforce some restraint on the banks but it might take a very painful recession where a bunch of them fail to do so. Or the government could break them up and say "nobody is too big to fail now, so good luck!" and institute some kind of rule about deposit insurance and banks' total assets under management.

Ultimately I'm not so much a "gold bug" who loves gold irrationally as I am someone who wants some kind of restraint on the government. There are probably other ways to do it, but at least by using older methods you get the benefit of a lot of history to read and to draw conclusions from. I'm open to other avenues of providing restraint, but they need to be distributed and not subject to the vagaries of elections. The people have precious few ways to directly influence the government given the way that politics have evolved, so any way to return some power to the people is a good thing in my mind. To me it seems like commodity money is a way to do that without turning the whole world upside down, but it wouldn't surprise me if we differed on that point.

Anyhow thanks for the conversation, it's been nice to engage with someone on the issue rather than just get downvoted.

All currencies fall apart. Period.

It's unfair to claim that only gold standard currencies fall apart, or that they're more inclined to do so.

When your money supply is pegged to a physical resource, the primary economic activity that is incentivized within that economy is producing more of that resource (ie, digging gold up out of the ground, or invading/"colonizing" countries to get theirs). There are few people who would consider that a healthy way to grow a modern economy.

In what way does that sentence imply that you are a militia man or Tea Partier, given your beliefs?

The sentence reads: "Militia men and Tea Partiers hate fiat money". Not "people who hate fiat money are Tea Partiers or militiamen".

Some people love to be offended, I guess.

I'm not a offended, but it's a throwaway line. It's both irrelevant and unsupported by any facts in the article. (And in general only supported by anecdotal evidence at best.) The author uses its merely to identify his personal bona-fides to his intended demographic.

No, not really. I just find the constant injection of political labels tiresome.

No, the logic error is yours, not theirs. They said "tea-partier ERGO fiat-money-hater". You're asserting the straw-man opposite.

But apparently we share a common platform, so at what point am I de facto tea party? Serious question.

When your core sociopolitical axioms are generally dominated by strict Constitutionalism, Judeo-Christian ethics, Randian objectivism, and austere governmental fiscal policy (including gold/silver-based currency), you're probably a "tea party" type. Serious answer.

2/4. You're not helping. Need a tie breaker.

Let's try some litmus-test questions (don't downvote if you don't agree with them, not looking to argue about their validity, I'm just identifying the "are you a tea partier?" line).

Do you agree:

    the government may not operate beyond what the Constitution clearly grants & empowers?
    short of actual declared war, government should spend no more than tax revenue? 
    currency should be commodity-backed (gold preferably)? 
    direct federal taxation of citizens should be repealed? 
    human life, including right of continued existence, begins at conception; the "choice" is to create human life, not end it? 
    short of adjudicated felons & mental defect, ownership of weapons in defense of self/family/state shall not be restricted? 
    short of conspiracy to commit non-victimless crime, contracts are binding and upheld, if needed, by the state?
    capitalism is, on the whole, superior to all other socioeconomic systems? 
    insofar as capitalism isn't perfect, government should only interfere (minimally at that) to resolve chronic systemic problems?
    voter identification is a valid administrative process (ensuring only you vote as you, and you are entitled to)?
    financial "entitlements" are unconstitutional/inappropriate and should be ended (society has better solutions to the issues addressed)?
    government exists to protect & facilitate rights, not limit/suppress them? freedom *of* religion != freedom *from* religion?

That's a start at trying to hit key points.

Awesome. I'm (9 checks) tea party by that definition.

Now, here is a kicker: I don't like these people either.

EDIT: Downvotes! Ha!

Yeah I'm getting murdered for being "tea party" on this thread for finding some merit to historical money.

In what sense is tracking an index, or some function of an index, not basing the money supply on "arbitrary theory"? There's no law of nature that says the money supply must have X relation to any index -- if there was, the whole concept of "control of the money supply" would be ill-formed.

Sure, let's go with that. It is all subjective. What political color am I now?

My real argument is that the article had merit until the subtle mud slinging and big reveal of the author's bias.

> Therefore, I must be a militiaman

(A ⇒ B) ⇏ (B ⇒ A)

TFA uses a cheap rhetorical trick to imply that since those opposed to central currency share something in common with a low-status group, then opposing central currency lowers your status.

You know who else liked central currency? Hitler!

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