[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.

[slowhand09]

Housing wouldn't cost a million$ if not for inflation. There has always been demand, and people always found ways to meet it. But with inflation, especially high rates, your mortgage was paid back with dollars worth less than when the house was first purchased or built.

How is this a concession to the old? Why is it that someone worked for 30 yrs to pay off their mortgage shouldn't get the same treatment, mainly "appreciation" due to inflation that everything else gets?

Honest question - is this the same argument we hear about "forgiving" student loans, meaning having people who didn't sign up for them, agree to them, utilize them, or even go to college, pay of the debts of those who did?

[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

[spiralx]

Before your examples Europe had the Great Bullion Famine during the 15th century that caused deflation across the continent due to the lack of gold. This was ended when the Spanish started flooding Europe with vast amounts of gold from the Americas, which then caused massive inflation instead.

https://en.wikipedia.org/wiki/Great_Bullion_Famine

A long period of deflation followed by a long period of over-inflation doesn't scream stability to me!

[tastyfreeze]

Yes, all of those bad things can happen. A gold standard is not perfect. The goal isn't to be perfect. It is to have a currency that is fair to the greatest number of people. Gold is a currency trusted by all, fiat is a currency of force.

In crisis I would rather have the food, water, and ammunition. What a silly strawman. A warehouse full of survival supplies is incredibly valuable during crisis but it is not durable and must be maintained when not in crisis. For the long term representation of wealth I would rather have a vault of gold just like every nation on the planet. Nearly everything else degrades in a fraction of a lifetime. Gold will be exactly the same after sitting untouched for millennia. For the long life of nations this is extremely important. For the comparatively short life of a human this is less important but still valuable.

A casino is the best analog that I can thing of at the moment. When you want to play in the economy of a casino you are required to change your dollars for chips. You have to trust that the casino is not going to steal your dollars and will actually give them back. They practice full reserve banking where every dollar represented by chips is in their vault. The same is true for a gold standard economy as practiced sans full reserve. Gold is the money, banks do the job of verifying gold and exchanging for easily carried and traded tokens, dollars. You have to trust that banks or governments aren't going to steal your gold. If you don't trust them you change your dollars back to gold. If a lot of people lose trust you get bank runs. With fractional reserve banking there isn't enough gold to pay back every dollar and you get crisis and bank failures.

With any currency its value comes down to trust. A gold standard allowed people a way to keep their wealth in a durable form in times of low trust with no conversion cost. It allowed people to "take their ball and go home" so to speak. No governments needed to trust another country's fiat. The money exchanged in trade had a real, verifiable, persistent value.

Yes, a gold standard has some problems. Barring straight barter with physical gold it is still the fairest most robust currency system humans have come up with. Whatever excuses the US Government gave for ending the gold standard it still acted unconstitutionally. The government was facing a damaged economy and dwindling gold reserves as people and countries redeemed dollars for gold. The government saw their dwindling gold reserves as a problem instead of a function of a gold standard. This is the same as a casino seeing a lot of people cashing chips in and seeing their dwindling cash supply as a problem. In both cases it is a loss of trust in the token issuer that caused their supply to dwindle. It wasn't a problem with the currency it was a lack of trust in the issuer that the issuer saw as a reduction in "their" money that needed to be stopped. It was never "their" money to start with. It always belonged to the people. The people were just taking their ball home.

[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.

[nicoffeine]

> 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.

Well, this is certainly a different argument than "1850-early 1900s is a great example of the benefits of the gold standard"

> 1. For class theft, don't just take my word for it, take Paul Krugman's

Or, take his word on why the gold standard is a bad idea? (written before the EU was a thing)

"Why not emulate our great-grandfathers and tie our currencies to gold? Very few economists think this would be a good idea. The argument against it is one of pragmatism, not principle. First, a gold standard would have all the disadvantages of any system of rigidly fixed exchange rates--and even economists who are enthusiastic about a common European currency generally think that fixing the European currency to the dollar or yen would be going too far. Second, and crucially, gold is not a stable standard when measured in terms of other goods and services. On the contrary, it is a commodity whose price is constantly buffeted by shifts in supply and demand that have nothing to do with the needs of the world economy..."

> 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.

I agree that inflation can drive part of the problem in the constant pursuit of growth and profit at the expense of the environment. The problem is that moving to a gold backed currency wouldn't change any of that. We know this because the regulations introduced by the EPA in 1970, just as the US moved completely off the gold standard, are the reason that the US has cleaner air and water. Along with the fact that corporations externalized the environmental costs of our consumption habits to Southeast Asia. None of that would be different if the US had stayed on the gold standard.

> 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.

Ignoring the mild annoyance of this insinuation, it remains completely ridiculous. What was the life expectancy in the height of the gold standard? What is it now? What countries are the most carbon neutral, the most environmentally sound, and have the highest standard of living? Are they using a fiat currency system?

The difference is in policy. Most of the EU is beating the US on every metric for the average person because of their laws. Individuals in those countries have rights to food, shelter, healthcare, and education, and because those governments are legitimate and relatively uncorrupted, those rights are not only recognized but realized. Having the ability to build homes, schools, and hospitals without having to dig gold out of the ground first is part of the reason why they are able to do it.

> 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.

Finally, we can agree. Gold makes about as much sense as cryptocurrency. When used as a mechanism to try and restrict the money supply for a given economy, they complicate the situation with zero benefits for the economy or the environment.

> 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.

Please elaborate on how the gold standard would eliminate the problems of the military industrial complex and American imperialism.