[aazaa]

The article begins with the idea that the causes of the Great Depression are not known or too numerous to pin down. It then continues by claiming that "recent scholarship has resulted in striking agreement on the reason for the crisis." The cause of the Great Depression was the gold standard, according to the article:

> ... The constraints of the gold-standard system hamstrung countries as they struggled to adapt during the 1920s to changes in the world economy. ... Central bankers continued to kick the world economy while it was down until it lost consciousness.

What this article ignores, like countless articles before and since, is the Roaring 20s. Articles like this treat the Great Depression as an event that hit the US economy out of the blue. But even superficial study of the ten years prior reveals something obvious: a massive, compounding, technology-fueled asset bubble.

The article also ignores the event that kicked off the Roaring 20s: the depression of 1920-1921:

https://en.wikipedia.org/wiki/Depression_of_1920–1921

This depression resolved itself under a gold standard regime and with minimal intervention by the Federal Government and Federal Reserve.

50 years ago the US abandoned the last vestiges of the gold standard. Today we find ourselves in the middle of a technology-fueled asset bubble. The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts. This is, of course, the very definition of a Ponzi scheme.

Whatever this comes to, we won't have the gold standard to kick around. It's been out of the picture for decades. What happens when the world's governments decide to outdo each other on how much currency they can conjure into being?

[VHRanger]

It's extremely HackerNews-ish of you to propose that the author of the article ignores your pet theory.

The author of the linked article is Barry Eichengreen, widely recognized as the premier scholar of the Great Depression. The article references about 900 pages worth of other articles, believe me: your pet theory about the 1920's events is considered in the conclusion. They're not ignoring it because they read fewer books than you.

> The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts.

Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

A government can be in debt forever, the only thing that matters is borrowing costs and growth rate (and how the growth is generated see eg. Chinese real estate for malinvestment).

[aazaa]

> It's extremely HackerNews-ish of you to propose that the author of the article ignores your pet theory.

What pet theory is that? All I did was to mention two historical episodes that preceded the event under discussion, and which the paper fails to mention.

> The author of the linked article is Barry Eichengreen, widely recognized as the premier scholar of the Great Depression.

So what? We're talking about the paper, not a person.

> The article references about 900 pages worth of other articles, believe me: your pet theory about the 1920's events is considered in the conclusion.

On what pages does the paper take up the issue of the speculative bubble leading up to the Great Depression?

> Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

A main MMT talking point. Yes, I've read Kelton's book and yes, a government that prints its own currency is not like a household.

MMT is an experiment. For all our sakes, I hope its proponents are right.

> A government can be in debt forever, the only thing that matters is borrowing costs and growth rate (and how the growth is generated see eg. Chinese real estate for malinvestment).

What if malinvestment looks like investment until it doesn't?

[dnautics]

> Governments don't work like a household.

That's right. If a individual accumulates too much debt, then the individual can choose to discharge obligations through bankruptcy resulting in loss of credit, or death of the debtor, and ultimately the lessor is on the hook for the risk, and those two parties with agency over the debt contract are the only two who directly must suffer consequences. (yes there is tangential collateral damage, like if there are dependents, but it's not a whole lot).

If a government goes into debt, it externalizes the consequences of the spending to the public. "well, we vote for our representatives who spend". But that's not true. Suppose you were 16 (or, even more extremely: -1 years old), and couldn't vote against representatives voting for something stupid, like, say the US government invading Iraq. You are still on the hook for paying off the costs of those decisions. Sovereign debt is an end-run around the principle of "no taxation without representation", and it's in a much more morally questionable place.

Or, you can choose to reject the principle of "no taxation without representation", which if you are happy to do that explicitly and publically I will shut up.

Finally, the burden of amortizing sovereign debt is often achieved through the printing press, which in the long run causes inflation. Households usually can't do this. This disproportionately hurts the poor, so that adds onto the moral objection to sovereign debt.

[handrous]

> Or, you can choose to reject the principle of "no taxation without representation", which if you are happy to do that explicitly and publically I will shut up.

That "principle" covers some territory a lot broader than the specific way you're requesting it be interpreted. The idea that those born into a country cannot be held accountable for debts accrued before they were born—or anything relating to the situation of the budget before they have a say in government, I suppose—is, I think it's fair to say, not a common interpretation of the slogan's meaning, now or (most certainly) in the past.

That's not even to say you're wrong, morally or whatever, but your tactic of trying to pin someone down with these words isn't a good one.

[dnautics]

> but your tactic of trying to pin someone down with these words

Sir, this is hacker news.

Ok, but seriously, to put it in a less-memey way. Many of the posts that I post about topics where I feel like "the word must be spread" are performative but interesting. I actually don't give a shit about convincing the parent poster of mine. Most of those people are going to be closed minded, bias-confirming, and unreceptive to rethinking their belief structures. I care about giving ideas to receptive people who are reading it with a memorable twist. Probably most people have not considered the injustice of sovereign debt explained in the context of "taxation without representation". These folks can then digest what I have to say, and re-articulate it with their own personal touch (possibly more effectively than the way that I did), and then spread the word to 100 unreceptive people with a low yield (say, 2%) and 100 more receptive people, who will then spread it, etc.

Anyways, given your response it seems to already have worked. Here you have given an alternative way to deliver the same message. Fantastic. Also, my response has enough upvotes for me to think, "gee, here are X more people now have this brainworm about the fundamental unfairness of sovereign debt".

[handrous]

> Sir, this is hacker news.

You make a very good point. I stand corrected. :-)

[SilasX]

>Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

If that was an attempt to show a difference from households, I don't see it, since those thing are equally true of households.

[VHRanger]

A household spends to consume or enjoy leisure. You might invest it as well, but that's not "spending"

A business spends to generate ROI.

[SilasX]

A house hold can spend to consume or invest, and I was only replying to the remark you made, not whatever new argument you might make later to salvage it.

[mabub24]

In many ways, the concept of "printing money" is too simplistic to describe how the banking system and monetary systems interact with each other, especially once you get your head around the fact that money is (almost always) "created" endogenously through the expansion of balance sheets.

You can't just think like a customer going to the bank; you have to think of it like a number of actors in a complicated network of credits and debits as well as global trade with imports and exports.

[nicoffeine]

The gold standard was abandoned because it is a terrible idea for civilizations that have technologies like accounting systems and currencies that are difficult to counterfeit. Tying economic expansion to the ability to mine and store one type of element doesn't make any sense.

There are countless asteroids out there with quadrillions of dollars of precious metals. Does that mean the first private company to create a currency "backed" by a claim to one of them is worth more than the US economy? No, of course not. The US economy produces food, shelter, water, goods, services, etc etc. It's worth far more than a chunk of atoms. Even if you could magically spirit those atoms into a vault somewhere, what do you do with them at that point?

Modern monetary theory is doing just fine, and so are all of the nations issuing fiat currency, selling bonds and notes, building infrastructure, and providing fertile ground for markets to do interesting things. Nostalgia for the gold standard is just way for people to claim the superiority of economic theories that are simply not useful anymore.

[loki49152]

Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand.

The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits.

Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is.

[nicoffeine]

> Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand.

Okay. What countries use representative currencies and how are they doing?

> The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency.

Are you saying the world economy is literally impossible?

> The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits.

You just said money a medium of exchange. As long as both parties agree to the transaction, and it wasn't a barter, whatever wasn't the good or service was the money.

And you don't mean the money must be a trade-able commodity. No one is going to walk around with a set of weights and tubs of water to determine the purity of coins so they can buy or sell a sandwich. You're making the argument that if the currency could be exchanged for lumps of metal at a treasury office that it would somehow be an improvement.

> Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future.

I honestly have no idea what you're saying here. Which economists claim that no one can know how economies work?

> Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is.

So far the fiat currency system has been a part of the most rapid progression of technology and trade in recorded history. I'm not saying it was the driver behind it, but that has been the dominant currency system in place for the last 70ish years. It absolutely has flaws, and absolutely can be ruined by corruption and poor governance. It also works so well that people who hate fiat currencies still use them every day. I'd bet .225 ounces of 99% pure gold alloy that you bought your lunch with it.

I wonder how much money that is.

[tastyfreeze]

> So far the fiat currency system has been a part of the most rapid progression of technology and trade in recorded history.

There is an argument to be made that the progress would have occurred regardless of the currency system in place. That is to say it is nothing more than coincidence that fiat was in place during this period of progress. The progress is the result of capitalism not the currency system. However, had this progress occurred under a gold standard we would have been much better off. Fiat monetary policy has bled value from the economy for nearly 90 years. All of that value lost to inflation would still be in the economy if we had stayed on a gold standard.

[kaesar14]

Where do you get this notion from? If you separated the economic system from the global economy during the biggest expansion of the economy ever, we’d have been even better off? Based on absolutely what information?

[tastyfreeze]

The growth would have happened anyway. The economic system is just a way to trade wealth and keep score. It doesnt matter if it is fiat currency, gold or grains of sand that are traded. Being on a fiat system allows an outside player to siphon value out of the economy for their own gain the same as a tax. If we had been on a gold standard during this amazing growth period the only way an outside party could siphon off wealth is with taxes.

If we were on a gold standard and the government took 2% of every single transaction for the last 90 years we would still be better off. Inflation is a tax that is compounded over time.

[imtringued]

Globalization has exploded since we got off the gold standard. It was heavily slowing the world economy down. There just isn't enough gold to represent all the amazing things people want to do.

[tastyfreeze]

With globalisation happening about the same time as coming off the gold standard I understand the conclusion. There are two flaws in the logic leading there. First, globalisation is the result of the technonogy, particularly transportation and materials, available. Second, even with a gold standard the value of gold increases over time. A single unit of gold is able to buy more as the economy it represents grows. On the ground, with dollars pegged at an amount of gold, you would see this as prices decreasing as they were for the history of the US gold standard.

[imtringued]

>Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits.

If "money" is a physical medium of exchange then advanced economies do not have or need "money".

Our modern banking system simply lets people promise each other goods and services. It's effectively a system built around relationships.

[slowhand09]

I posted this yesterday.

Food for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver. Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver.

But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency.

Paper currency representing a given quantity of gold/silver/etc is a good idea. When you divorce it from that backing value is when governments print money to inflate. We all lose when that happens.

[nicoffeine]

Gas is more expensive because fossil fuels are more difficult to extract, we have some environmental standards instead of none, consumption has skyrocketed, and there's an organization called OPEC that maximizes the price. Pretending that none of that would be true if dimes still had silver in them is ridiculous.

If you had taken those same two 1964 dimes and put them in a DJIA index fund, you'd have $7. That's because storing shiny things in a vault does not contribute to economic activity. It doesn't invent anything, manufacture anything, provide any service, or create any new markets.

No one thinks that their economy would be better off with a huge stockpile of gold instead of a huge stockpile of CPUs. No one thinks that a reduction in mining capacity should restrict the amount of currency available for business loans. Representative currency is a vestigial technology that is no longer useful.

[slowhand09]

Precious metals are not typically considered as drivers of economic activity. They are used as hedges or backstops. Your $7 in an index fund after 57 yrs doesn't sound that productive being only 2x what the value of the silver is.

[tastyfreeze]

As I have said many times on HN, a gold standard protects the wealth of the people from government excess. That is also why the gold standard was ended by government.

[rat87]

That seems like another way of saying that a gold standard is inflexible and impractical and can't represent the actual economy particularly well

[tastyfreeze]

The inflexibility of a gold standard is a benefit. More gold or an increase in gold value is required to represent greater wealth. The gold can be traded for or mined. However, the gold standard ensures that the dollar you earn today maintains purchasing power for as long as you care to keep it. Your gold backed dollar can't be made worthless in a generation by the excess of politicians seeking money, power, and control.

Politicians are people subject to all the same emotions as you or I. Money and power are powerful motivations for corruption. There is access to a lot of both in government. The gold standard was a check on greed at the government level and in turn a restriction on the power government had to manipulate the economy for the benefit of a few.

[imtringued]

>However, the gold standard ensures that the dollar you earn today maintains purchasing power for as long as you care to keep it

That's basically a concession to the old at the expense of the young. We basically have the gold standard in housing and it's not good.

[nicoffeine]

> More gold or an increase in gold value is required to represent greater wealth.

Not true. A restriction in supply can raise the price, and the discovery of new sources can lower it. Plus wealth is entirely subjective. Would you rather have a warehouse full of food, water, and ammunition during a crisis, or a warehouse full of gold? (Hint: people may not want to trade food for a soft metal that can't be fashioned into anything but decoration.)

> The gold can be traded for or mined.

It can also be lost in a shipwreck[1] contributing to a banking panic[2].

> However, the gold standard ensures that the dollar you earn today maintains purchasing power for as long as you care to keep it. Your gold backed dollar can't be made worthless in a generation by the excess of politicians seeking money, power, and control.

Of course it can. Private banks failed all the time, despite claiming that you could trade their notes for gold/silver. Governments can simply abandon the gold standard (and they did).

It all comes down to the fact that gold backed currency does not solve the primary problem of credibility and corruption at the levels of institutions and governments. It only adds another variable. Your ability to trade your paper for gold is still dependent on the ability and willingness of that bank or government to make the exchange. If they say no, what are you going to do?

The next step you could take is to refuse currency and to use only gold/silver/clam shells/whatever to do your transactions, which simply puts you at a huge disadvantage in any modern economy. Literally no one is going to do business with you if they have to add the burden of authenticating your clam shells to buy your product or rent your time.

In the end, there is no functional difference between "We promise that we will give you a grain of gold for this dollar if you ask" and "We promise to not mismanage this currency into hyperinflation." During an existential crisis, both promises may be broken. Hell, they probably will be broken. But the promise on the paper you're holding isn't going to matter either way.

[1] https://en.wikipedia.org/wiki/SS_Central_America#Sinking

[2] https://en.wikipedia.org/wiki/Panic_of_1857

[dnautics]

> Modern monetary theory is doing just fine,

How's that gap between the rich and the poor going?

Look, the US was on the gold standard between 1850 and early 1900s, and not only recovered from a civil war, but ALSO freed all of its slaves AND went from a backwater country to a world superpower, and reduced inequality all at the same time.

https://voxeu.org/article/american-growth-and-inequality-170...

[AnimalMuppet]

> How's that gap between the rich and the poor going?

It's quite high - as high as it was in 1850, when we were on the gold standard. So... what's your point?

[posix_me_less]

The gap is reported to be increasing, but is that actually regarded as a problem by the ruling class? They may actually prefer this, as it gives them greater chunk of power and secures their position.

In other words, the gap may be increasing and we don't like it, but this may very well be the intended "how is it going".

One case in point: in 1970's, instead of giving employees their share of profits from productivity increases, the system gave them an easy way to get into debt instead (the credit card).

[dnautics]

I'm not in the ruling class, so I would not say "monetary theory (modern or otherwise) is doing just fine". Perhaps nicoffeine is in the ruling class?

[nicoffeine]

The US was on the gold/silver standard from 1792-1850. Was that the reason it continued the genocide of millions of indigenous people, took their land, and then imported millions of slaves to farm that land? Maybe there are other possibilities for history other than the currency system during a given time period.

I remembered there were a series of financial crises leading up to the Civil War, and sure enough, the first use of fiat currency in the US was to solve a financial crisis caused by the gold/silver standard:

'In 1853, the U.S. reduced the silver weight of coins to keep them in circulation and in 1857 removed legal tender status from foreign coinage. In 1857 the final crisis of the free banking era began as American banks suspended payment in silver, with ripples through the developing international financial system. Due to the inflationary finance measures undertaken to help pay for the U.S. Civil War, the government found it difficult to pay its obligations in gold or silver and suspended payments of obligations not legally specified in specie (gold bonds); this led banks to suspend the conversion of bank liabilities (bank notes and deposits) into specie. In 1862 paper money was made legal tender. It was a fiat money (not convertible on demand at a fixed rate into specie). These notes came to be called "greenbacks".' [1]

Technically Continental Dollars were zero interest bearer bonds, but they were also issued to help finance the Revolutionary War[2].

So, your argument for the gold standard is not only logically incoherent, but even if it was, it's completely ignorant of the history of currencies in the United States.

[1] https://en.wikipedia.org/wiki/Gold_standard

[2] https://en.wikipedia.org/wiki/Early_American_currency#Contin...

[dnautics]

> So, your argument for the gold standard is not only logically incoherent

Wrong. The argument is a refutation of the idea that economic growth cannot happen while on a gold standard, that it will be disastrous. It is an existence statement, not a universality statement.

[rsj_hn]

> The argument is a refutation of the idea that economic growth cannot happen while on a gold standard,

This is correct. Rapid economic growth happened on the gold standard. The issue is not about long term economic growth, but volatility. Hard money creates an environment with lots of rapid inflation and deflation and very strong boom/bust cycles. That volatility has costs (human costs of the pain of mass layoffs) but also benefits (weaker companies are more rapidly weeded out). After the Great Depression, it was decided that the costs outweigh the benefits, but it's a legit question that should not be so readily dismissed.

[nicoffeine]

Who said economic growth cannot happen on a gold standard? I said it's a useless technology for civilizations that have better ones. You responded with an incoherent argument and a claim that 1850-early 1900s is a time period that shows the value of representative currency.

Instead of the straw man and the red herrings, please explain how abandoning the gold standard in order to survive the Civil War is evidence of how effective it is. Here's more context that might help:

"The beginning of 1862 found the Union's expenses increasing, and the government was having trouble funding the escalating war. U.S. Demand Notes — which were used, among other things, to pay Union soldiers — were unredeemable, and the value of the notes began to deteriorate. Congressman and Buffalo banker Elbridge G. Spaulding prepared a bill, based on the Free Banking Law of New York, that eventually became the National Banking Act of 1863.

Recognizing, however, that his proposal would take many months to pass Congress, during early February Spaulding introduced another bill to permit the U.S. Treasury to issue $150 million in notes as legal tender. This caused tremendous controversy in Congress, as hitherto the Constitution had been interpreted as not granting the government the power to issue a paper currency. "The bill before us is a war measure, a measure of necessity, and not of choice," Spaulding argued before the House, adding, "These are extraordinary times, and extraordinary measures must be resorted to in order to save our Government, and preserve our nationality." Spaulding justified the action as a "necessary means of carrying into execution the powers granted in the Constitution 'to raise and support armies', and 'to provide and maintain a navy'".

https://en.wikipedia.org/wiki/United_States_Note#The_Legal_T...

[dnautics]

going back to your original point:

> [the gold standard] is a terrible idea for civilizations that have technologies like accounting systems and currencies that are difficult to counterfeit. Tying economic expansion to the ability to mine and store one type of element doesn't make any sense.

Hear me out. I will first start a counterstatement with two supporting points (I'm sure it's easy to find more supporting points too, but let's keep this simple).

It is a terrible idea for a civilization that exists in a system with finite resources to use a currency that is unbounded and exponential. The disconnect between the nominal economic substrate and raw reality will lead to broad class theft and environmental destruction.

1. For class theft, don't just take my word for it, take Paul Krugman's: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

"even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."

Now, let's unpack what he says very carefully. In short it is this:

"we need to keep our society looking like it's humming by posting great employment numbers, and the most effective way to do this is to incrementally cheat the labor class out of the value of their wages"

2. As for environmental destruction, surely you can see how putting society on a compounding treadmill of devaluation encourages consumption as a driver of economic growth (if we fail to post a positive growth number, we WILL have at least a transient economic crisis), and it's patently evident that we buy more, shittier things that need to be replaced, because there is diminished opportunity cost for saving your money to buy something better and more robust: but hey, it's good for circular flow.

--

Now, if you accept that an unbounded currency is terrible for a society in a finite resource regime - then, in the big picture it doesn't matter too terribly much what is restricting the expansion of the nominal basis[0]. What matters is that something restricts the expansion. If that's physical mining of metals, the capacity to expand the currency is soft-capped to a certain rate that flexes with real economic performance -- and hard-capped to the total amount of metal in the earth; if that's some digital ledger that can't be expanded, that would be fine too, but anyways the point is it's bounded.

Or, maybe you like environmental destruction and screwing the poor. If you do, you should probably say that up front, instead of hiding it behind difficult-to-unpack-ese like Krugman does.

[0] in the small, probably cryptocurrencies (which burn to make CO2) are better than mining, which dumps mercury effluent into the environment, and maybe there will even be efficient cryptocurrencies that burn up less CO2. But all are better than, say, an economic system that has the unboundedness property AND is propped up by paying off defense contractors that build depleted uranium tipped rounds that are dropped on civilians halfway around the world.

[praxulus]

> This is, of course, the very definition of a Ponzi scheme.

Most Ponzi schemes don't have the authority to levy taxes on the largest economy the in world, nor are they backed by the most powerful military force humanity has ever seen.

[newsclues]

Does that mean modern monetary policy is not a Ponzi scheme because it has a nuclear military?

[kiba]

No society can outrun living beyond their means, no matter how deep their reserves are.

[JumpCrisscross]

> No society can outrun living beyond their means, no matter how deep their reserves are

Which is why we have inflation. No reserves needed. The price levels incorporate the distance between the means and the living.

[vvoaterr]

Anybody is welcome to download the Robinhood app, and buy FAANG/FAGMAN stocks with all your disposable income. Then you, too, will be contributing to the leading cause of the next "Great Depression", plus, you'll come out of it having become quite Rich.

You're welcome.

[txru]

> FAGMAN

...

So do you use that often in polite company...?