[lisa_henderson]

Whenever I find myself in a conversation with a goldbug, and they complain about something like "the craziness of unbacked monetary systems" I say "I like your shirt. I will give you $500 for that shirt." (This assumes the shirt is clearly worth less than $500.) If they ask why I make such an offer, I ask if they would accept such an offer. If they suggest they would, then I ask why they would accept such an offer. If they think my "unbacked" $500 is crazy, why would they take the deal? The shirt is a real physical object, and the fact that it has value to them is demonstrated by the fact that they are wearing it. The $500 in paper money is to them "a fiction", as it says in the article. So why would they take a fiction over a real shirt that that gives them real value?

This rarely changes anyone's mind (few people ever change their minds about issues regarding money) but I hope I can at least raise the contradiction to the top of their minds. All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.

[shard972]

> The $500 in paper money is to them "a fiction", as it says in the article. So why would they take a fiction over a real shirt that that gives them real value?

He didn't say that fiat currency is a fiction, he said that he is worried that the world economic system might be built on the fiction of fiat currency.

Since you can print fiat, it's entirely possible in this current fractional reserve system that most fiat's employ to create a lot of artificial wealth.

Just because he's pointing out there could be a bubble doesn't automatically mean he ascribes 0 value to a US dollar, he just won't put his life savings in it.

> This rarely changes anyone's mind

Mainly because it's a dumb strawman.

> but I hope I can at least raise the contradiction to the top of their minds.

I really can't see the contradiction in thinking that there is a bubble in currency and still believing that said currency still has value in the current.

> All currencies are backed by our willingness to accept them, and that is the only backing that any currency ever needs.

Until people aren't willing due to inflation through debasement.... Thats the point....

[wolfgke]

I'm not a goldbug, but I'd answer to

> So why would they take a fiction over a real shirt that that gives them real value?

Because they can nearly immediately exchange the $500 (fiction) into something of real value (gold).

[shard972]

Thanks for raising this to the top of his mind.

[geofft]

But that would then imply that the five-hundred-dollar bill has value, because it can be exchanged reliably and easily for value.

The goldbugs, as far as I know, don't favor gold because it's shiny; they favor it because it's physical and it's historically been popular in so many cultures as a medium of exchange for things of real, inherent value (food, labor, housing, etc.). I think a definition of "value" that roots gold as having value because it's gold would be so self-referential as to be useless.

[wolfgke]

> But that would then imply that the five-hundred-dollar bill has value, because it can be exchanged reliably and easily for value.

No this is IMHO no valid implication. Say, goldbugs don't believe that money is something other than fiction. But they do believe that at least for the next few days this fiction will not break down in the society: This is enough time to buy gold. But they are not sure how much longer the "illusion" will hold up (say, for a month?).

So the right question to ask (for the goldbug) is "only" what will happen earlier:

a) The money illusion breaks down? or b) I've converted the earned money into gold?

[geofft]

OK, fair. You're effectively defining "value" as "can be exchanged reliably and quickly for other things with/requiring value indefinitely". So the goldbug assumption is that there's a constant and nontrivial risk of people no longer accepting fiat money in the near term, but there is little to no risk of people not accepting gold. I think we can dispute the data informing this worldview, but that's a self-consistent worldview. Thanks.

[AnimalMuppet]

There have been historical incidents where that worldview was correct. To say that such circumstances will never occur again seems optimistic. (To say that they will occur as soon or as often as the goldbug expects seems unrealistically pessimistic.)

[geofft]

That is a good argument. However, I suspect that their is a subtler form of the gold bugs' argument that has more validity but they're not phrasing (or haven't even thought about): the $500 has real, serious value, but it doesn't clearly have $500 value.

What's the value of the shirt? That depends on a lot of things that aren't known to you, and might not be known to them: how long will it last? how versatile is it? what would it cost to find an equivalent shirt, or to resell it? etc. These things are also ambiguous at a clothing store, although less so. But what is clear to both you and the goldbug is that it's clearly and obviously worth much less than $500: you're willing to estimate a rough value, even though neither of you can't put an exact number on it.

The goldbug ought to be complaining that everyone looks at a five-hundred-dollar bill and thinks that it's clearly and obviously worth exactly $500.00. That is tied into a lot of things, including, like the shirt, how long it will last and what it can be exchanged for, and neither of you know these things for sure.

With our worldview and assumptions, you and I might conclude that the bill is definitely worth at least $495: the chance of government collapse or a run on the banks, even over the next several years, is much less than one percent, and we can expect to use the bill before inflation devalues it by one percent. The goldbug, with their worldview and assumptions, might conclude that the value is fuzzier and possibly as low as $400: maybe there's a 20% chance of a run on the banks in the next few years. That still makes it worth obviously more than the shirt.

So the goldbug shouldn't be arguing that the money is unbacked and valueless, and you're right that things (including bills) are worth what people think they're worth. The goldbug should be arguing that we as a culture are overvaluing the bill. (And normal people do make these calculations: ask anyone who travels frequently between two countries with different currencies whether they prefer to keep cash in one currency or the other. Even over such a small value, there's a good chance they'll have an opinion.)

Reading between the lines of this article, there's an argument to be made that the world's large banks are not 100% trustworthy, as we'd hope. Maybe they're 95% trustworthy, but we should be skeptical of the claim that they're "beyond reproach", and simple human error, let alone malice, can cause gold to be misaccounted. And if they're misaccounting mere bars of gold, what else are they misaccounting?

[kansface]

What a strange opinion you hold!

| All currencies are backed by our willingness to accept them...

This is true!

| ... that is the only backing that any currency ever needs

This is clearly false- just consider any currency that has experienced hyperinflation. Currencies backed by commodities are not subject to such troubles. Or consider the hidden tax of even nominal inflation caused by monetizing debt (ie, printing "mind backed" currency to pay debts). Such systems are essentially a transfer of wealth from the poor to the rich since poor people don't have access to financing/loans.

| So why would they take a fiction over a real shirt that that gives them real value?

Of course both the shirt and paper money have value, subject to supply and demand. But, the paper money tends to hold on to its value better when its backed by something more than the restraint of central banks.

[xenadu02]

>This is clearly false- just consider any currency that has experienced hyperinflation. Currencies backed by commodities are not subject to such troubles.

This is completely false. When silver was discovered in Nevada the price was massively affected. Hell, Spain's economy was wrecked by the importation of gold from the Americas.

If we ever figure out how to bring asteroid resources to earth reliably, or if someone discovers a large deposit of gold you will see just how "stable" the value really is.

[maratd]

> So why would they take a fiction over a real shirt that that gives them real value?

Ok, relax, I'm a fan of fiat currency as much as anyone, but your argument is a bit off.

Most people who argue for a gold standard aren't debating some innate worth of money. They're generally arguing that a backed currency restricts the government's ability to simply print money and create out of control inflation, which has actually happened many times.

My response to that would be that our democratic system has created a sufficient dis-incentive to do that and the fact that we haven't yet is sufficient proof that it works.

That said, I try not to keep my assets too liquid. Oh well =)

[xrange]

>government's ability to simply print money and create out of control inflation, which has actually happened many times.

...I suppose that it doesn't even have to be out-of-control for it to have a fairly dramatic effect...

http://observationsandnotes.blogspot.com/2011/04/100-year-de...

[maratd]

See that wonderful spike upward in the chart you're quoting? That would be the Great Depression.

I assure you, inflation is the lesser of two evils. Deflation is much, much worse.

[sopooneo]

I'm not a gold bug either, but I think there is a flaw in your example. The owner of the shirt might be worried about the eventual devaluation of the dollar, but trust its short term stability enough to believe the risk would be worth it to trade their shirt for lots of fiat currency, and immediately use the fiat currency to buy 30 shirts.

They took a small short-term risk to increase their tangible goods by 300%.