| This has got to be one of the dumbest fucking things I've ever seen. Its only real point is that commodity-based currencies and deflations weaken government. Furthermore, its idiotic praise of societal-level saving is pure nonsense. My income is someone else's expenditure, my credit is someone else's debt. Money can obscure this fact, not alter it. In order for me to save, someone else must spend. Do they have to spend beyond their means and go into debt or reduce their own savings for me to save? Well, that's where the issue of money comes in. If we have a standard-issue modern currency, ie: slow but steady rate of inflation targeted by a central bank, then some amount of new money enters the economy each year. As long as total new savings in the year don't exceed this amount, then and only then can everyone save at the same time. In a gold-backed inherently-deflationary currency without fractional reserve banking or government fiat to create inflation.... all savings is zero-sum. Such a currency is indeed inherently deflationary, and the deflation spirals as those who can actually afford to save come to own larger and larger portions of the total bullion supply -- which they are of course saving! You end up with only one way to put aggregate demand back into the system: credit. Which is exactly what has happened to our real societies in the past three decades of anti-inflationary, anti-labor public policies! Problem is, that makes the deflation truly become a crisis, because even a 2% annual deflation is in fact an extra 2% interest compounding on any and all nominal debts. Deflation is bad for the same reason inflation is bad, namely that an unexpected change in currency value alters the real terms of almost all business contracts ex post facto. But deflation is also distinctly bad for another reason: once it kicks in, there is no incentive for net creditors/savers to engage in any real production of anything. Their biggest incentive becomes the generation and continuation of nominal debts (whose real value accumulates a deflation bonus). Worse, as the deflation happens and alters contracts ex-post-facto, people's debts become unpayable. So now the creditors go bankrupt too, and the only people left safe are the savers who literally stored physical bullion in a physical location. Anyone with so much as a bank account finds out they were actually a creditor, and are now completely fucked. Deflation is a wet dream of survivalist "gold, beans, and ammo" nutters, and the world's worst preventable nightmare for everyone else! |
It's pretty dumb. Really, thoroughly dumb. But you've added some real bloopers of your own:
> If we have a standard-issue modern currency, ie: slow but steady rate of inflation targeted by a central bank, then some amount of new money enters the economy each year. As long as total new savings in the year don't exceed this amount, then and only then can everyone save at the same time.
This is not true. Not even close. First, you are conflating two different concepts: (a) an increase in the money supply and (b) inflation. Inflation is often the result of an increase in the money supply, but that's not what it is: inflation is an increase in how much stuff costs. That is, it's a general increase in prices.
And prices can move broadly in one direction or another for many reasons other than a change in the supply of money; the price-level depends also on how fast money circulates, on the level of supply and demand for goods and services, and on all sorts of related factors.
Second, the possibility of saving does not depend on an increase in the supply of money. Doubtless you are thinking of saving in accounting terms: to save means to have more money later than you have now, so in aggregate that must mean that there needs to be more money in the economy tomorrow than there is today.
No. Saving is one side of the saving-investment process, which is about doing useful work and creating new things. That work and those things are abstractly called wealth and have value; wealth and value can be denominated in money, and people use money to facilitate the transfer of different sorts of wealth. But wealth is not money, and saving is about accumulating wealth, not money.
You're absolutely correct that if saving were merely about financial wealth, about increasing one's "value on paper", then we would need more money to gain wealth as a society. But it's not, and we don't need more money to accumulate wealth as a society precisely because it's not the money we value, but the things and the results of useful work. And so people trade their money for new things and results, and we can grow wealthier without increasing the money supply.
> In a gold-backed inherently-deflationary currency without fractional reserve banking or government fiat to create inflation.... all savings is zero-sum.
On the savings part, see above. On the part of about a gold-backed currency, or really any commodity currency, here's the thing: they're not inherently deflationary, or even fixed in supply. It's just that growth of the money supply is tied to things like improvements in mining technology or the results of prospecting. What I find really funny when I hear Ron Paul or somebody advocate a return to the gold standard and the abolition of the Federal Reserve is that they're really arguing for handing over monetary policy to the mining industry!
> Deflation is bad for the same reason inflation is bad, namely that an unexpected change in currency value alters the real terms of almost all business contracts ex post facto.
Yes, right. (Though it's really uncertainty about changes in the price level that inhibit useful economic activity. Change itself is not bad, but its unpredictability is.)
> ... But deflation is also distinctly bad for another reason: once it kicks in, there is no incentive for net creditors/savers to engage in any real production of anything.
There is less incentive, not none. Deflation represents a real income stream (that is, a constant potential accumulation of goods and services), but just as you might choose to work more (or harder) to increase your income, so you might during a deflationary period.