[gnaritas]

Just think about it a bit, fixed or barely growing supply of currency; what happens when the economy booms and the population grows, more demand for that money, no more supply of that money, the value of the money must go up, goods must be marked down in price, salaries must be lowered, because there's less money being used by more people.

Deflation; it strangles an economy for obvious reasons that require nothing more than understanding the inevitable consequences of fixing the supply of your medium of exchange. Printing money is what keeps prices stable as the population and economy grows. If you didn't print more money, you'd be forced into deflation; you think people like their salaries being cut? Do vendors like lowering prices across the board not because things are cheaper, but because the value of money has risen? How do make long term contracts when the value of your money isn't stable? How do you get a 30 year mortgage or rent a place when no one knows what the currency will be worth tomorrow? That's why gold failed.

[brc]

Well, no.

Inflation; it strangles an economy for obvious reasons that require nothing more than understanding the inevitable consequences of endless increasing the supply of your medium of exchange. Printing money is what keeps prices rising forever as the population and economy grows. If you endlessly print more money, you'd be forced into inflation; you think people like the value of their labor constantly reduced? Do vendors like rising prices across the board not because things are more expensive to produce, but because the value of money has fallen? How do make long term contracts when the value of your money isn't stable? How do you get a 30 year mortgage or rent a place when no one knows what the currency will be worth tomorrow? That's why fiat currencies always fail.

Inflation/Deflation are both effects - the difference is that it is impossible to reduce the prices of things to zero, but it is possible [and has been done, many times] to increase prices to infinity.

[gnaritas]

Yes, they're both not ideal, but they aren't equal in badness. What's better, 1% inflation or 1% deflation, because 0 isn't possible. I suspect we can part ways with the answer to that question.

[ogreyonder]

While I appreciate the effort that went into writing this thought experiment, that's not what I'm interested in.

I would like a historical example demonstrating the problem of the gold standard. The world worked this way for centuries, so surely there must be some documented case of one of the doom scenarios you proposed.

[gnaritas]

One need only look at the occurrences of and severity of the markets boom bust cycle before and after the we left the gold standard. We've had no depressions since the great depression and the recessions since then have been far milder than the many depressions/recessions before then. Depressions were a common occurrence under the gold standard, we've had none since we went off it. This doesn't prove causation, but given the role of deflation[1] in many of those recessions/depressions, it's certainly correlated.

The world didn't abandon the gold standard because it was working; they abandoned it because gold is a poor currency that suffered from deflation. Bitcoin will have the same problems, but may succeed anyway because it can't and won't replace the dollar, but will serve as digital gold; it's a good commodity but a poor currency. No one sane will be pricing anything in Bitcoin, they'll spot price in Bitcoin based on the current USD exchange rate.

I'm a Bitcoin supporter, but that doesn't mean I have to ignore history.

[1] http://en.wikipedia.org/wiki/List_of_recessions_in_the_Unite...