[otherme123]

Any book about history of inflation shows the same pattern repeated over and over again, for the last 10,000 years: the government debases the money, e.g. the one ounce pure gold coin now is half gold half copper. They start to pay with those coins, at first at the same prices, but with the new demand rising prices go up. The government always try to put the blame on the greedy merchants, and always try to put price caps, to pass laws forbidding price rises, etc.

The dynamic of inflation makes this narrative plausible: when the government spends their new debased money, the first to get them are their providers, and their volume rises. As with every demand spike, prices go up, but the closer you are to the money printing, the best deal you get being able to spend new debased money as it was the old money. Wages are usually the last to get the rise, so the worker see how the bussiness raise their prices "greedily" while they don't get wage raises.

[imtringued]

Precious metal coins is a concept that the ancient Greeks introduced and the Romans spread across their empire.

Ancient Egyptians didn't use precious metals. They used something far more mundane. You are a farmer? You bring your harvest of corn to a storage house and receive a receipt of your deposit on a clay tablet.

But here is the thing. Storing grains is expensive and they don't last forever, so the depositors are charged the cost of storage if they keep their receipts for longer than a year.

Now imagine you do the same thing except your receipt is gold. The concept of an eternally lasting receipt should raise an eyebrow. Who is going to pay for the storage costs? If nobody, then congratulations you just invented a Ponzi scheme! Early depositors get bailed out by future depositors!

Alternatively, the value of the coins must shrink to accommodate the loss of grains, but here is the thing. You are in a deflationary boom, you don't care about reality. But at some point you will try to spend your deflated money, right? Well, you will come crashing down to reality. The sudden price adjustment towards reality will cause a lot of inflation all at once.

Ok, so now that we know the dynamics of precious metal money even in the absence of government intervention, aka cycles of booms and busts.

We can now think about the motivation of the Roman Empire which is the most famous historic example of "debasement" because they were the first ones to do it on a large scale. Well, you see, the Roman empire was constantly expanding its borders to acquire new precious metal mines. This works until you run out of mines. In other words, it was a pyramid scheme that needs a constantly expanding territory.

So instead of thinking as precious metal money to be something aspirational, it would be smarter to realize that it doesn't work. I mean the easiest way to prove the idiocy of a gold standard is to point at all the fiat currencies that originated from a failed gold standard, which is basically all of them. In other words, fiat currencies aren't some kind of perversion of money, they are the late stage of a failed precious metal currency! It is easy to see why. Precious metal currencies don't circulate fast enough to clear the market because of their deflationary tendencies aka hoarding. So banks create a money substitute that is as good as the real thing but the problem is that the substitute can be hoarded as well so the problem can never be solved other than by substituting existing money with even more of the same hoardable money. In other words, the money supply has to rise all the time to accommodate uncoordinated/speculative saving decisions that have not been properly communicated to the market.

What I think is either sad or amusing, is that people think that these dynamics can somehow be avoided just by the government being tough enough on the economy to make all forms of money substitutes illegal, as if that wasn't some kind of massively disruptive government intervention.

Now let's go back to Ancient Egypt. If people hoarded the grain money, then the same dynamic would apply to that money right? The grain banks would have to create fake deposits for grains that don't exist and there would be constant runs on the banks, right? Except there is no historical evidence that this ever happened because people didn't want to pay the storage fee. Isn't it strange that this ancient civilization never recovered, even after thousands of years of Roman currency? Maybe the whole idea was a scam from the start. Permanence in our world is a meaningless concept. Your gold money will remain on earth billions of years after humanity has gone extinct, how exactly is it supposed to maintain its value?

[otherme123]

I love how one can make an example (gold coin) to illustrate an issue (debasement) to receive a long lesson about the example being incorrect instead of discussing the issue. I never said "gold is the solution", and in fact my example is about how governments historically debased gold coins.

An egyptian government can also "debase" grain. Just issue fake receipts for unexistent grain, and buy things with them at current prices. Suddenly, there are a lot of grain receipts circulating, so you expect prices to rise. The government can now blame the price rise to the merchants! They are the ones that are rising the prices, and that's all you can see.

On the example of the grain deflation, you don't have a "receipt in gold". You buy or sell grain, and that's it. Lets suppose a simple market that stores grain at a cost of 10% in a year. You sell grain on January for 100 ounces of gold, but if you try to re-buy the same amount of grain in December, it costs 110 ounces, or receive a 10% less grain for 100 ounces. As simple as that. Your 100 ounces of January didn't guarantee you the same amount of grain in December, because they are not a "receipt in gold for X amount of grain". Prices are a dynamic way of economic coordination to reflect whatever reality it may come. E.g. if half the silos burn through the year, grain prices will double to reflect that, and that's not inflation. But good luck reclaiming your clay receipt amount of grain.

The problem here is not the gold. The problem is issuing more money than people are demanding. There is nothing wrong with issuing money (e.g. in form of new credit) if people demands credit that they are paying sooner or later. The problem is the government creating new money with zero intention of paying it back, because that fuels inflation.

Deflation is not bad _per se_. We have deflation in computer or mobiles prices since forever: we know we can buy a cheaper computer in the future with the same specs than today, yet we don't hoard money instead of buying computers. We buy them when we really need them. Inflation creates an artificial urge to spend sooner than you want/need, because we know our today money won't buy the same in the future but less. That looks like a good thing on the surface ("the economy moves" they say), but it has a lot of bad consequences: erodes savings, consumption rises above our real needs, investment is more difficult because economic calculations are uncertain.

Historic inflations are well explained here: https://www.amazon.com/Forty-Centuries-Wage-Price-Controls/d..., where the authors collect a large number of inflation events in the last 4,000 years and show how every single government followed the same route: 1) debase the money, 2) expend their newly created money, 3) prices raise, 4) people complain, 5) government blames the merchants and creates laws to control prices and punish price raises 6) inflation persists.

[mo_42]

> The problem here is not the gold. The problem is issuing more money than people are demanding. There is nothing wrong with issuing money (e.g. in form of new credit) if people demands credit that they are paying sooner or later. The problem is the government creating new money with zero intention of paying it back, because that fuels inflation.

I don’t see the problem here. Does the government have any intention of paying it back? What would happen if all created money was payed back?

Seems more like created money/governmental debt needs to stay so people have something in their pockets to actually pay for something.