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Comment by ubernostrum | Hacker News Reader

I've explained this before, and probably will have to explain it again:

http://news.ycombinator.com/item?id=629390

If you're right, basic economics is wrong. More likely, basic economics is right and you're wrong.

You didn't explain anything. Why would the value of a constant amount of money increasing in proportion to productivity growth lead to "wild fluctuations"?

You seem to take it as given that the opposite imbalance (rapid inflation) would lead to wild fluctuations. I'm inclined to agree, since actual prices do not move in perfect lockstep and there will be a great deal of uncertainty in all markets.

But that's the same as an admission that rapid deflation (a necessary consequence of the effectively fixed amount of gold) would do so as well. This is true because, logically, the effects of either type of imbalance should be similar, with the only difference being the direction of the final stable point (up in the case of inflation, down in the case of deflation).

The US economy grows by about 3% a year, give or take a point. With gold money and a constant supply of gold, I fail to see why this would lead to "wild" deflation. It seems that deflation should mirror economic growth, which is hardly wild.

The problem isn't the average year over year. The problem is the outliers: we live in a modern world where massively game-changing events can occur and spawn whole new industries almost overnight without correspondingly wiping out old industries in the same time period (once such event -- the Internet -- is how you're talking to me right now). These events cause sudden huge upward swings in available goods and services, while gold remains stable. The only thing that can happen to a gold-standard economy in such a situation is crippling deflation.

I didn't see this for a week so you probably won't either, but here goes:

Productivity has grown a few percentage points a year, give or take, consistently, for a long, long time. One industry may boom for a decade, but the economy as a whole is relatively stable. I'm still not seeing anything wild.

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