Why does the state control the supply of money?

Valmont

Considering that from 1976 - 2010, the average rate of inflation in Ireland was 5.76%, it is fair to say that people have seen their money lose some of its purchasing power--in effect, an inflation "tax". If you have cash in the bank, it will lose value every year, even above the paltry interest rates offered by high-street banks.

This led me to ask: why do we only have one currency? Why does the government (or the EU) control it?

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me? I'm asking these questions so that we may have a discussion on the nature of the state's power to control and alter the supply of money and why we shouldn't be free to choose our own currency (or multiple currencies, if that's what people would prefer).

*Play around with the Inflation Calculator to see how much value money in the bank can lose.

Permabear

This post has been deleted.

20Cent

Is it illegal? Don't some amusement parks have their own money and some towns?
Don't know if Dunnes Stores will take Valmount Vouchers for the weekly shopping. Is it more to do with credibility than big evil guvment?

Hayte

Permabear wrote: »

This post had been deleted.

The problem is that there are a number of government controls on banks that exist to protect depositors, and none of those protections apply to PayPal which operates like a deposit bearing bank in so far as you can holds funds with them which can be accessed by debit/credit card. Those deposits are not FDIC backed and your account can be frozen by PayPal in the event of a dispute, even one without merit.

But we are talking about state control of the money supply, not state controls full stop, which makes me wonder why you bring up PayPal - an entity that has nothing to do with central banking or money supply, and which has a great many problems of its own to deal with. Most of those problems are related to a separate issue - the lack of state protection for people depositing money in a bank like entity, which is what PayPal is. It is not a bank.

deise go deo

There has been an increase in the use of local currencies, which are usually contained within a town.
They are an interesting concept as they keep money in the local economy.

As for a private currency on a national scale, there are many questions with with such a thing.

What effect on the value of the currency would the taxation of its sale have?
Would its value be recognised in court, ie should someone be robbed, is it x-amount of money that has been stolen, or x amount of paper?
How would counterfiting of the currency be prevented?

One of the big issues that such a currency would face is that it would not be legal tender and would not have to be accepted anywhere, its acceptance would be at the discretion of everyone using it, it could be refused at anytime. That introduces a certain lack of certainty in it, by comparision to existing state controled currencies which retailers are obliged to accept as payment.
The other issue is what benefit is there to accepting the use of such a currency, why would a shop for example bother with it, why would it be more appealing than the existing currencies?

krd

Permabear wrote: »

This post had been deleted.

And their business would have failed.

You can create your own digital currency - and it has been done. Bitcoins.

Where it fails, is through speculation on the currency, hoarding, and volatility.


Throughout the world there are hundreds of currencies. Very few currencies are used in global trade. The smaller currencies tend to be far more risky. Smaller currencies are also more open to predatory speculation - there were quite a few instances where loans to African countries were looted before they even left the bank in New York.


People complain about the Euro. But they seem to be completely unaware of what Europe was like before it - and before the ERM. The volatility was murderous. A company's profit margin could be blown by a currency fluctuation. A lot of business couldn't happen, because the cost of the risk.

Derivatives wouldn't solve the problem - there wouldn't be a large enough market to support the derivatives - and even if there was, the cost of supporting that derivatives market would be a huge burden. There's also bogus idea that derivatives protect their consumers against loss - they don't in effect, if they function, they spread the cost of the risk, but the community of derivatives consumers still have to pay that cost - like people who insure their cars. In practice most derivatives products fail - they're just not worth having.

Weaker/smaller currencies often try to peg to a strong currency. It's still swings and round abouts.

I think the current central bank system works well - to a point. The point where it fails, is every major banking institution seems to be infected with misanthropic cranks of the Austrian school. "Objectivist" types like Alan Greenspan. The Peoples Bank of China, they're more of a bank you could admire. If they ran it like the Fed or the ECB, or even the Bank of England, China would have been a smouldering wreck by now. Sometime in the not too distant future, the market may decide, the Yuan of Communist China is the hardest currency in the world.

Soldie

krd wrote: »

I think the current central bank system works well - to a point. The point where it fails, is every major banking institution seems to be infected with misanthropic cranks of the Austrian school. "Objectivist" types like Alan Greenspan. The Peoples Bank of China, they're more of a bank you could admire. If they ran it like the Fed or the ECB, or even the Bank of England, China would have been a smouldering wreck by now. Sometime in the not too distant future, the market may decide, the Yuan of Communist China is the hardest currency in the world.

ECB interest rate: 1%
BOE interest rate: 0.5%
Fed interest rate: 0 - 0.25%

Very Austrian indeed.

What's so admirable about China's monetary policy? Their inflation rate was close to 10% a few years ago. It dropped off dramatically in early 2009 but has been rising steadily since.

It's interesting that someone who speaks out so frequently on the so-called evils of libertarianism is comfortable with the systematic erosion of ordinary people's savings.

It's not like you're interesting in a debate anyway; your recent posting history indicates that you have an axe to grind.

SupaNova

krd can you name a few of these Austrian cranks? Should be easy if banking institutions are infested with them, or have you resorted to making stuff up as you go along now?

TEMPLAR KNIGHT

I think you'd be interested in reading about the Wörgl experiment very interesting stuff, I'd link it but I'm on my phone!

_Gawd_

krd wrote: »

I think the current central bank system works well - to a point. The point where it fails, is every major banking institution seems to be infected with misanthropic cranks of the Austrian school. "Objectivist" types like Alan Greenspan. The Peoples Bank of China, they're more of a bank you could admire. If they ran it like the Fed or the ECB, or even the Bank of England, China would have been a smouldering wreck by now.

Alan Greenspan, Austrian economics, objectivist, banking system working well?????

For christ sake, read a book.

krd

Soldie wrote: »

It's interesting that someone who speaks out so frequently on the so-called evils of libertarianism is comfortable with the systematic erosion of ordinary people's savings.

Damage the health of an economy by over suppressing inflation, those savers will have their savings eroded by other means. As an economy suffers, they'll feel that pain in other ways; higher taxes, lower services, they may see their own economic activity damaged, and inevitably, the inflation will come all the same. Except, it will be all downside with no up.

Inflation isn't just caused by how much money is in an economy. It's also greatly effected by the speed of the economy. The hotter the economy - the higher inflation can climb, with the same amount of money.

If people and businesses are not spending, you don't have an economy.

Money is just money. It's only as good as the underlying economy. The high inflation in China is largely down to the countries economy rocketing along. The peoples bank of China do have a high interest rate - in comparison to ours.

People have a choice with what they'd like to do with their money. Enjoy it now, by spending it - there's nothing morally wrong with that. Leave it in the bank and see it eaten up by inflation. They could also chose to risk it and invest it in something industrious to see if they can get a higher return.

The accusation that's often level at governments is they can't create wealth and employment - this in not quite true - a great deal of private wealth has been created through sweet heart deals with individuals in the private sector. It's probably far more appropriate to accuses banks and people who work in financial services of being the real non-wealth creators - wealth destroyers even. Inter bank derivatives trading is as bogus as the banks just printing money and taking swodges for themselves.

Inflation forces individuals to get their money out from underneath their mattresses and make it work. What's a banker going to do with money? ...Their idea of a business is to hand money to another banker, who's going to hand it to another banker, who then may lend it to a government. Or worse, they'll give it to a builder - who'll be building office blocks for businesses that do not exist. Remember our builders?...They were like the Dozers in Fraggle Rock. No clear goal as to who would be renting these buildings.

The Peoples Bank of China have been targeting China's property boom. They have expressed intentions to devalue property - to poop their own property party, because they know it would be catastrophic if they let it run wild - letting "the market decide" is what happened to Ireland.

Here, in a country like Ireland. Our "freedom" is completely bogus. During the buildery boom, only eejits had access to capital. You had to fail an IQ test before you got a loan. Ultimately, capital/money is a form of freedom - it's power. Those who have access to enough capital, can sit on their arses and have it work for them. But those who do not, are effectively as free as cotton picker on a Soviet collective farm.

In China it's croney capitalism - in Ireland it was just the same. And don't even mention the level of snobbery that came into it. The winks and cute hoor nudges.

Von Hayeks idea of independent unregulated currencies competing with each other is just barmy. It's not like it hasn't been tried before.

SupaNova

I'll respond to the parts that aren't unnecessary rambling and focus on your arguments for why you think inflation is good.

krd wrote: »

Damage the health of an economy by over suppressing inflation, those savers will have their savings eroded by other means. As an economy suffers, they'll feel that pain in other ways; higher taxes, lower services, they may see their own economic activity damaged, and inevitably, the inflation will come all the same. Except, it will be all downside with no up.

Higher taxes and lower services are actually what is needed. This return to normality is met with hysterical cries of brutal austerity. If we had the ability to print to make up the shortfall with our own national currency with no effort to raise taxes and cut government spending we would be on our way to Hyperinflation. Thankfully we don't have the ability to inflate irresponsibly.

People have a choice with what they'd like to do with their money. Enjoy it now, by spending it - there's nothing morally wrong with that. Leave it in the bank and see it eaten up by inflation. They could also chose to risk it and invest it in something industrious to see if they can get a higher return.

People should have the choice between spending it now or leaving it in the bank where inflation does very little to its purchasing power, and thankfully again we are part of a currency which has the specific aim of keeping inflation below 2%. And surely you are aware that inflation forcing people to look for higher returns has the effect of turning the average Joe into a speculator, as seen with housewives chasing yield in the stock market during the dot com bubble and swathes of people looking to flip property in the housing bubble. Unless you are from the school of thought that speculative bubbles are good for the economy and its better to have boomed and bust than never boomed at all, a la Ben Bernanke.

Inflation forces individuals to get their money out from underneath their mattresses and make it work. What's a banker going to do with money? ...Their idea of a business is to hand money to another banker, who's going to hand it to another banker, who then may lend it to a government. Or worse, they'll give it to a builder - who'll be building office blocks for businesses that do not exist. Remember our builders?...They were like the Dozers in Fraggle Rock. No clear goal as to who would be renting these buildings.

So we shouldn't keep our money under the mattress or in banks, we should spend every penny? In your world, lets say I spend 2/3rds of my income on what I need , and I can't save for a rainy with a bank or under my mattress, because hey what's the point it will be devalued by inflation. Would I have to pick and choose what to buy based on what I think might have some value in a few years? Lets see:

-If I pay $15,000 to buy an extra car just as an inflation hedge, it will probably be worth less in a 2 years. Lets say it is worth $12000 nominally after 2 years, but $10,000 adjusted for inflation, I have lost 1/3 of my purchasing power in 2 years. Well that didn't go well. So I bought a pointless 2nd vehicle that served no utility at all, it certainly didn't have its intended utility as an inflation hedge. Electronics would be even worse. Food wouldn't be good either as it would spoil and lose real value.

-Now there are goods that hold their value well with inflation and even appreciate over time. Some fine art for example would do very well. Who is likely to have the means to acquire the fine art like this? I don't think the you will see an average Joe at an Auction of a Rembrandt. So you still think inflation will be good for the average Joe?

-Or maybe you want the average Joe to pile into Agricultural commodities, oil, precious and industrial metals, how would the average Joe fair becoming a part time commodity speculator?

-And now that I am spending my remaining one third of my income speculating with more than likely disastrous results, what do I do when a rainy day comes along and I have no savings? Does government just print some money and give me a handout for me to bid up some more prices?

southsiderosie

_Gawd_ wrote: »

Alan Greenspan, Austrian economics, objectivist, banking system working well?????

For christ sake, read a book.

MOD NOTE:

This kind of posting is not very constructive, especially considering that this is the Political Theory forum. If you disagree with someone's points, then engage with them, rather than simply dismissing them or sneering at them.

Belfast

[QUOTE=This led me to ask: why do we only have one currency? Why does the government (or the EU) control it?

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me? [/QUOTE]

legal tender laws are the problem with a new currency.

a company in America call "Liberty Dollar" tried using gold and silver in the shaped of coins to barter for good and services.
the called them rounds or gold or silver etc.

FBI / Secret Service raid
"The Liberty Dollar offices were raided by agents of the Federal Bureau of Investigation (FBI) and the United States Secret Service on November 14, 2007. Bernard von NotHaus, the owner of Liberty Services, sent an email to customers and supporters saying that the FBI took all the gold, silver, and platinum, and almost two tons of Ron Paul Dollars. The FBI also seized computers and files and froze the Liberty Dollar bank accounts."
http://en.wikipedia.org/wiki/Liberty_Dollar#Exchange_service

look like they did not like the idea of a competing currency.


Why does the state control the supply of money?
because it gives the state more control of the economy and allow it to spend more money without having to up up taxes.

KyussBishop

The overall question of the thread is an extremely simplistic one really, and uses the misleadingly portrayed dichotomy of "choice" (non-fiat currency) vs "no choice" (fiat currency), when in reality both systems create a different balance of 'choices' and 'lack of choices'.

In general, whenever the "panacea of choice" is used as an underpinning argument of almost any Libertarian ideal, the system does superficially appear to provide greater choice on one level, but the detailed effects of implementing such a system greatly curtail a whole array of other choices.

In this case, it's simplistically put as a choice between being able to trade with a currency of your own desire, or a government-monopoly fiat currency; it is really a choice between a much wider array of issues:
- Regulation of banking vs deregulation of banking (and all of the consequences therein, many of which restrict choice in other areas).
- Some government control over the economy vs little/no government control over the economy.
- Government ability to use monetary policy to manage aspects of the economy vs not.
- Taxation and how it should be managed/paid (should be noted that fiat currencies gain a lot of their power, by being the only way to pay tax).


It's not a simple matter of maximal individual choice (and to hell with the consequences), it's a matter of determining how the entire economy of a country should be run, and picking the system which is 'least harmful' than any other.
The merits/pitfalls of an economic system, should not be based solely on whether people should have the choice of any currency or not; that's a very poor metric of determining the benefits/harms of an economic system.


Also, PayPal are an odd example to promote as Libertarian-inspired company, since they (just like Mastercard/Visa) are voluntarily co-operating with the US government, in order to put a financial blockade on WikiLeaks (who have taken a genuinely notable stand for freedom of information against state corruption, which should be at the top of any Libertarian's ideals), and PayPal have a huge amount of online criticism against them in how they have handled locking people out of their accounts in the past and withholding money.

They aren't really a model of an ideal Libertarian-inspired company, and their practices which have received criticism, as well as their market dominance on the Internet (much akin to Visa/Mastercard dominance in payments both online and offline), do not inspire much trust or confidence; most non-cash consumer financial transactions are controlled by a worrying small number of companies, with bad records for restricting transactions, that Libertarians would (rightly!) be up in arms about if a state were carrying them out.

The way this kind of stuff in general, seems to be portrayed is:
When a government does it, it's the tyranny of the state, when a corporation does it, it's their freedom to do it and your fault for not picking a better alternative (even if there are no practical alternatives, leaving only the illusion of choice).
The potential for a 'tyranny of corporations' is flatly denied, generally.


On the wider topic (and particularly on the topic of currencies of Libertarian ideals), it will be interesting to see in the future what happens with Bitcoins, and similarly derived currencies; these are literally impossible to regulate/control, without fatally impacting freedom of speech/expression and net neutrality on the Internet.

Belfast

KyussBishop wrote: »

The overall question of the thread is an extremely simplistic one really, and uses the misleadingly portrayed dichotomy of "choice" (non-fiat currency) vs "no choice" (fiat currency), when in reality both systems create a different balance of 'choices' and 'lack of choices'.

In general, whenever the "panacea of choice" is used as an underpinning argument of almost any Libertarian ideal, the system does superficially appear to provide greater choice on one level, but the detailed effects of implementing such a system greatly curtail a whole array of other choices.

In this case, it's simplistically put as a choice between being able to trade with a currency of your own desire, or a government-monopoly fiat currency; it is really a choice between a much wider array of issues:
- Regulation of banking vs deregulation of banking (and all of the consequences therein, many of which restrict choice in other areas).
- Some government control over the economy vs little/no government control over the economy.
- Government ability to use monetary policy to manage aspects of the economy vs not.
- Taxation and how it should be managed/paid (should be noted that fiat currencies gain a lot of their power, by being the only way to pay tax).


It's not a simple matter of maximal individual choice (and to hell with the consequences), it's a matter of determining how the entire economy of a country should be run, and picking the system which is 'least harmful' than any other.
The merits/pitfalls of an economic system, should not be based solely on whether people should have the choice of any currency or not; that's a very poor metric of determining the benefits/harms of an economic system.

You are right a non-fiat currency would limit choices.
That's what it is designed to do.
It is designed to limit the control the state has over the economy.

KyussBishop wrote: »

The way this kind of stuff in general, seems to be portrayed is:
When a government does it, it's the tyranny of the state, when a corporation does it, it's their freedom to do it and your fault for not picking a better alternative (even if there are no practical alternatives, leaving only the illusion of choice).
The potential for a 'tyranny of corporations' is flatly denied, generally.

Corporations can become a tyranny , but this only becomes a lasting problem if the Corporations are supported by the state.

KyussBishop

Belfast wrote: »

You are right a non-fiat currency would limit choices.
That's what it is designed to do.
It is designed to limit the control the state has over the economy.

That's pretty much missing the point of my entire argument, and imposing yet another limited-perception view of choice.

Belfast wrote: »

Corporations can become a tyranny , but his only becomes a lasting problem if the Corporations are supported by the state.

Or in other words, 'tyranny of corporations' is really 'tyranny of the state'; that pretty much backs up exactly what I said, in that the potential for a 'tyranny of corporations' is just about flatly denied.

I don't think anybody outside of those promoting extreme versions of 'free-market-fundamentalism' hold the view that monopolies/oligopolies only occur when assisted by a state.
I am genuinely curious how, on its face, anyone takes that as a credible viewpoint, unless they are willfully blind to history; it makes the cynic in me question motives/honesty to be honest, because it is so ridiculous.


This went to particularly facetious lengths in a thread here a while back, where I put forward an extremely well-backed argument of how Standard Oil was an historic example of monopoly, and this was denied by turning it into a semantic argument over the word 'monopoly', insisting on a completely unrealistically strict interpretation of that word:
https://www.boards.ie/vbulletin/showthread.php?p=78397606#post78397606


In the end, Standard Oil was broken up by the state; so basically, from a Libertarian viewpoint, it's another example of "corporations can do no wrong" i.e. Standard Oil is argued not to have been a monopoly, whereas a corporation in a similar position supported by a state, is a definite example of state created monopoly.

It's a very notable double standard really, one that in my opinion should be used to judge the honesty of peoples arguments.

DubTony

KyussBishop wrote: »

-

Also, PayPal are an odd example to promote as Libertarian-inspired company, since they (just like Mastercard/Visa) are voluntarily co-operating with the US government, in order to put a financial blockade on WikiLeaks (who have taken a genuinely notable stand for freedom of information against state corruption, which should be at the top of any Libertarian's ideals), and PayPal have a huge amount of online criticism against them in how they have handled locking people out of their accounts in the past and withholding money.

They aren't really a model of an ideal Libertarian-inspired company, and their practices which have received criticism, as well as their market dominance on the Internet (much akin to Visa/Mastercard dominance in payments both online and offline), do not inspire much trust or confidence; most non-cash consumer financial transactions are controlled by a worrying small number of companies, with bad records for restricting transactions, that Libertarians would (rightly!) be up in arms about if a state were carrying them out.

Paypal was sold to eBay in 2002, so it's current practices can't really be blamed on the founders.

KyussBishop

Interesting; some of the Paypal founders, including those of Libertarian ideals, played a part in companies involved in US-sponsored propaganda efforts against WikiLeaks.
Peter Theil in particular, is involved with the company Palantir, who were involved in the HBGary scandal that was looking to try and put out propaganda to discredit WikiLeaks, Anonymous and writers such as Glenn Greenwald (who, interestingly, contributed to an extremely good Cato study on drug decriminalization in Portugal).

Many (most) other principal Paypal founders are involved with 'The Founders Fund' as well, which is also involved in Palantir investments.


The most interesting of the lot though is Elon Musk (who is an exception to the above), who founded SpaceX; doesn't appear to have been involved with any of the other investments in questionable industries, and SpaceX (as noted in last few days) is making some quite impressive achievements. If he's Libertarian though, he doesn't appear to be openly so.

For those Paypal founders supposedly of Libertarian ideals, they (at best) seem to have a certain set of double standards and (more likely) are politically posturing, backing certain political policies, primarily to benefit their own financial interests.

That is an extremely significant thing I am noticing the more I read up on Libertarianism; a significant proportion of the most vocal supporters, have financial interests which stand to gain the most from Libertarian policies.
Generally, the kind of people who stand most to gain from the policies, and who do not have to bear the brunt of any potential social cost from the same policies.

Debtocracy

The real question is why do private banks control the supply of money? Central banks only determine the size of the balloon, private banks will determine how much the balloon is blown up. This is why we’re now seeing astronomical levels of money printing by central banks but only mild inflation. If banks started lending this money into the real economy, inflation would go off the charts through the fractional reserve lending process. It would be kept somewhat in check if all the money was lent out for productive purposes, but what are the chances of that? I’m guessing the reason people don’t get so incensed by this form of taxation by private banks is that they simply don’t understand the process or just don’t care as it occurs in the context of asset bubbles where everyone is happy.

Therefore, the public is constantly funding the banks. In the boom period we fund them through excessive inflation while in the bust period we cover their losses. The big problem is that the banks can effectively hold us random without a fundamental change in the monetary system. Those who think you can just lets banks fail better be prepared for a deflationary depression.

Belfast

KyussBishop wrote: »

That's pretty much missing the point of my entire argument, and imposing yet another limited-perception view of choice.

No I do not miss you point.

I agreed with what you said.

a gold or silver would limit choices.

if you think government managing the economy is a good idea then a gold or silver standard would not be a good idea.

KyussBishop

Belfast wrote: »

No I do not miss you point.

I agreed with what you said.

a gold or silver would limit choices.

if you think government managing the economy is a good idea then a gold or silver standard would not be a good idea.

Ah excuse me; misread that part of your post; it was the deeper limitation of choices (beyond the immediate choice of economic system) I was getting at mind.

Belfast

KyussBishop wrote: »

Ah excuse me; misread that part of your post; it was the deeper limitation of choices (beyond the immediate choice of economic system) I was getting at mind.

I am not sure what choices you are referring to.

Eliot Rosewater

KyussBishop wrote: »

That is an extremely significant thing I am noticing the more I read up on Libertarianism; a significant proportion of the most vocal supporters, have financial interests which stand to gain the most from Libertarian policies.
Generally, the kind of people who stand most to gain from the policies, and who do not have to bear the brunt of any potential social cost from the same policies.

That observation is seemingly correct (the same names do keep on popping up) but I'm not sure it's all that much of an issue.

A key part is "most vocal". It's really not surprising that the wealthiest libertarians have better means for publicizing and promoting their views. This is a pattern that can be observed in many advocacy movements. Are we surprised that Bono's name appears more often in articles about African debt than a given average debt-forgiveness supporter?

I also believe that in judging libertarian supporters there's a chicken and egg element. Namely, do people support libertarianism because they could survive well in the absense of most government programs or could they survive well in the absense of most government programs because they have a libertarian outlook? I think one could definitely argue that assuming more free-market views goes hand-in-hand with an overall change in psychology towards trying to help yourself more than the average person would.

It would be worthwhile, in the interests of testing this, to find out if, say, Peter Thiel was a libertarian before he was financially successful.

KyussBishop

That wealthy people can afford to promote their views more widely, is a valid point, but I'm partly focusing on the double-standards/hypocrisy aspect.

For instance, Thiel is benefiting both from government assistance and acting in co-ordination with the US government, in order to spread propaganda against WikiLeaks; an organization which anyone with Libertarian principals should be in favour of, for it's dedication to freedom of information and exposing state corruption.

A person having a Libertarian or free market outlook doesn't make them any more/less likely to be financially successful, though both outlooks are useful excuses for discarding ideals of social/ethical responsibilities for greater profits.

johnnyskeleton

Valmont wrote: »

Considering that from 1976 - 2010, the average rate of inflation in Ireland was 5.76%, it is fair to say that people have seen their money lose some of its purchasing power--in effect, an inflation "tax". If you have cash in the bank, it will lose value every year, even above the paltry interest rates offered by high-street banks.

This led me to ask: why do we only have one currency? Why does the government (or the EU) control it?

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me? I'm asking these questions so that we may have a discussion on the nature of the state's power to control and alter the supply of money and why we shouldn't be free to choose our own currency (or multiple currencies, if that's what people would prefer).

*Play around with the Inflation Calculator to see how much value money in the bank can lose.

As long as you account for it in the governments currency for tax purposes then I don't see any reason why you can't start your own currency. Its no more nor less than a gold certificate if it is fully gold backed.

The problems with such a currency would be people having faith in your currency, being able to adequately control its supply and the fact that you will need to convert to euro whenever dealing with the government or to settle a debt (official currency must be accepted in discharge of a debt, other currencies do not).

As to PB's comment about governments being able to inflate money away, what is to stop the issuer of private money from doing likewise?

Valmont

johnnyskeleton wrote: »

As to PB's comment about governments being able to inflate money away, what is to stop the issuer of private money from doing likewise?

You can't print gold, unfortunately!

I would wager that state control of the supply of money is based on nothing more than a desire to spend more than they have or can outright steal through taxation which, understandably, gets the voters goats up more than the more stealthy tax of inflation. There's no other practical purpose or benefit to ordinary people that I can see, to be honest. Anyone?

KyussBishop

On a basic level, the gold standard produces deflation, rather than inflation, and steadily reduces the price of commodities due to the value of money increasing; meaning anyone who has to go into debt for any reason (e.g. to take out a mortgage), ends up with both the price of their commodity (house) decreasing over time, whilst the burden of their debt increases over time (due to value of money increasing).

This is inherently disproportionately unfair on the majority of the population, who must go into debt to get a mortgage, and extremely favourable for those with a lot of money, who never lose any value of their money, who don't have to invest for it to increase in value, and who can just hoarde an ever greater amount of money whilst it automatically increases in value without contributing anything to the economy.

An inflationary economy gradually reduces the value of peoples money, but encourages them to invest it to keep up with inflation, thus keeping money flowing through the economy and providing funds for new businesses; for a debt/mortgage, the price of the house increases over time in an inflationary system, whilst the base value of the debt decreases (which is counteracted by the interest paid).


That doesn't mean the government should go interfering with the money supply now (by putting artificial limits or setting goals for growth on it); that's a rather complicated matter, where the growth of it by government is usually reactionary to demand, rather than government being in control of it (thus it's not good for government to try and control it, or so I read).

Valmont

KyussBishop wrote: »

This is inherently disproportionately unfair on the majority of the population, who must go into debt to get a mortgage

Are you really saying that it is disproportionately unfair that buying a house involves taking on debt?

KyussBishop wrote: »

and extremely favourable for those with a lot of money, who never lose any value of their money, who don't have to invest for it to increase in value, and who can just hoarde an ever greater amount of money whilst it automatically increases in value without contributing anything to the economy.

Kyussbishop, underlying your post is the assumption that gold will increase in value ad-infinitum in the absence of state control of the money supply -- I think you will have to defend such an autlandish claim before going any further.

KyussBishop

Valmont wrote: »

Are you really saying that it is disproportionately unfair that buying a house involves taking on debt?

Eh, no? My post clearly took issue with the manner in how a deflationary economy affects those who need to go into debt, vs a non-deflationary or inflationary economy.

Valmont wrote: »

Kyussbishop, underlying your post is the assumption that gold will increase in value ad-infinitum in the absence of state control of the money supply -- I think you will have to defend such an autlandish claim before going any further.

If the rate of increase of a countries GDP outpaces the rate of increase in production of gold (which is at a relatively fixed and low rate), then yes, the value of gold will rise as demand rises, and that will have a deflationary effect on the economy of the country.

Valmont

KyussBishop wrote: »

If the rate of increase of a countries GDP outpaces the rate of increase in production of gold (which is at a relatively fixed and low rate), then yes, the value of gold will rise as demand rises, and that will have a deflationary effect on the economy of the country.

Productive economcy + stable currency = cheaper products. I really don't see the problem here.

KyussBishop

The problem is the debtor vs creditor dynamics brought about by the deflationary economy that creates, which I described in post #28.

Valmont

KyussBishop wrote: »

The problem is the debtor vs creditor dynamics brought about by the deflationary economy that creates, which I described in post #28.

Your argument was that poor people's houses deflate into nothing while rich people's cash in their mattresses inflate into untold realms of richness just by sitting there. That these 'dynamics' are completely nonsensical is indisputable; but what I'm really wondering is why you think taxing poor people's savings through inflation is a good and right thing to do? How does inflating the cost of food and petrol help poor people?

KyussBishop

No that's your misrepresentation/misinterpretation of my arguments; you clearly didn't try to read/understand my posts before getting overeager trying to rubbish them.

What I've stated is very basic:
In an inflationary economy, when a creditor loans money to a debtor, each unit of currency the debtor pays back is worth less than when he borrowed it; the debtor pays back less, but the added interest payments account for this.

In a deflationary economy, each unit of currency a debtor pays back is worth more than when he borrowed it; a deflationary economy tips the balance between debtors and creditors, in the favour of creditors.

So, in a deflationary economy when you take out a mortgage, as time goes on the amount of money you can exchange for the house decreases, and the value of money you have to pay for the debt increases.


In addition to this, in a deflationary economy money increases in value with absolutely no productive effort, it's not adding anything to the economy just siphoning off a portion of the economy growth.
This means that anyone who hoardes large amounts of money, i.e. anyone who is excessively rich, automatically gets a cut of any economic growth; the richer a person is, the more return they get for doing absolutely nothing.

If you disagree with social welfare of any kind, i.e. getting money without earning it, then surely you disagree with an economic system which inherently increases peoples wealth, without having earned it or putting in any productive effort?

SupaNova

KyussBishop wrote: »

What I've stated is very basic:
In an inflationary economy, when a creditor loans money to a debtor, each unit of currency the debtor pays back is worth less than when he borrowed it; the debtor pays back less, but the added interest payments account for this.

The balance between savers and debtors(not rich and poor) is a good point. There are poor and rich savers, as well as poor and rich debtors. We have been living under a regime where the savers have been screwed for quite some time.

Typically interest rates would be much much lower as there would be no inflation premium priced into the interest rate like there is now.

Also if the problem of deflation caused very strong and unfair increases in the burden of debt there are ways to make a loan to avoid this, i.e. having a debt contract tied to an agreed upon price index.

Valmont

KyussBishop wrote: »

No that's your misrepresentation/misinterpretation of my arguments; you clearly didn't try to read/understand my posts before getting overeager trying to rubbish them.
...

State control of the money supply = inflationary ad infinitum
Private money supply = deflationary ad infinitum

Until you provide some support for the above simplification, your subsequent arguments are based on sand. Or perhaps I've missed your point?

That aside, you admit that inflation screws lenders out of their principal -- which is basically the sham behind government bonds: 1) Bond issue 2) Inflate 3) Pay back with debased money. How is this a good or desirable thing?

And I would argue that the libertarian problem with social welfare isn't getting money 'without earning it' (which depends heavily on your definition of 'earn') but getting money that was initially stolen from other people.

So, why does the state control the supply of money? I think we're getting of track here a bit.

KyussBishop

Valmont wrote: »

State control of the money supply = inflationary ad infinitum
Private money supply = deflationary ad infinitum

Until you provide some support for the above simplification, your subsequent arguments are based on sand. Or perhaps I've missed your point?

That aside, you admit that inflation screws lenders out of their principal -- which is basically the sham behind government bonds: 1) Bond issue 2) Inflate 3) Pay back with debased money. How is this a good or desirable thing?

And I would argue that the libertarian problem with social welfare isn't getting money 'without earning it' (which depends heavily on your definition of 'earn') but getting money that was initially stolen from other people.

So, why does the state control the supply of money? I think we're getting of track here a bit.

I'm not focusing on the problems of inflation though, I'm focusing on the problems of deflation, which you seem to be happy to ignore and try to dismiss, despite me very clearly explaining the issues in my post.

Your current argument now amounts to: "no no, talking about deflation is not allowed; we can only talk about inflation and the evils of the state!"
Which is basically a red herring, trying to distract from the (very legitimate) issues I bring up with deflation, which strike at the core of legitimacy of the gold standard (and potentially Austrian economics, though that doesn't necessarily mandate a gold standard), and which is also central to the topic of whether the state should have control of the money supply or not (not to mention highlighting potential double standards in opposing Welfare and supporting deflation).

For what it's worth, I acknowledge the problems of inflation, but have not explored them in detail yet; the discussion could be about the merits/demerits of deflation/inflation, and which is more preferable, but that's not really a possible discussion unless you acknowledge the problems with deflation.

KyussBishop

SupaNova wrote: »

The balance between savers and debtors(not rich and poor) is a good point. There are poor and rich savers, as well as poor and rich debtors. We have been living under a regime where the savers have been screwed for quite some time.

Typically interest rates would be much much lower as there would be no inflation premium priced into the interest rate like there is now.

Also if the problem of deflation caused very strong and unfair increases in the burden of debt there are ways to make a loan to avoid this, i.e. having a debt contract tied to an agreed upon price index.

Good points, and I've yet to explore the merits/demerits of inflation in more detail, though one leftover unaddressed issue is how deflation produces profits from savings (essentially taxing economic growth) without putting money to any productive effort.

One additional argument for inflation in that regard, is that since money is constantly depreciating, it encourages putting that money to use in the economy through investments and spending, rather than through saving alone.
A deflationary economy discourages putting money to use like that, reducing available credit in the economy, not to mention rewarding people for doing so (value of savings increase through no productive effort).

You can focus on the base issue with inflation "it's wrong that peoples savings lose value over time", and that's definitely a fair criticism, but the way I'm looking at it is taking the wider implications of the economic system into consideration too, as if you try to alleviate that it looks like it creates other kinds of unfairness.


A third situation to consider is inflation which is exactly in line with GDP, which would keep money at a static value, or in other words, pinning the money supply to GDP growth; this would be the best of both worlds, with savings not increasing or decreasing in value.

I don't know the potential economic arguments for/against this though, as I think there are likely other considerations other than inflation/deflation, when it comes to determining what aught to be done with money supply.

SupaNova

KyussBishop wrote: »

One additional argument for inflation in that regard, is that since money is constantly depreciating, it encourages putting that money to use in the economy through investments and spending, rather than through saving alone.

People don't save under a mattress but in banks, higher savings increase the supply of loanable funds, lowering interest rates which encourage investment. So mostly it wouldn't be an issue.

The thesis that inflation encourages more investment, and is therefore good, is a misguided one. Firstly entrepreneurs and the investment class are always looking to invest, if they aren't investing it means there are not many good available investments, creating inflation will encourage them to make much more risky and likely unprofitable investments. Then there is creating so much inflation that the average Joe, with no expertise or experience is enticed to become an investor in his spare time. You will get more investment alright, just most of it will be bad, you will get speculative bubbles with dumb money, rather than thoughtful investment by experienced entrepreneurs.

A deflationary economy discourages putting money to use like that, reducing available credit in the economy, not to mention rewarding people for doing so (value of savings increase through no productive effort).

As mentioned already, more saving lowers the interest rate, and with no inflation premium the cost of borrowing would be quite cheap. Also in a falling price environment, profitable companies would have less need to borrow, as re-investing their profits in a deflationary environment will get them a lot more bang for their buck. Here is a simple example from Reisman that illustrates how in an inflationary environment profitable businesses end up with less profits to re-invest than if there had been no inflation:

For example, consider a very simple case. A businessman spends $100 on January 1st to produce a product that he will sell on December 31st for $110. This year, however, there is a 10 percent increase in the quantity of money and volume of spending, and so our businessman will be able to sell his product for $121 instead of $110. Profits now equal $21 instead of just $10; in terms of a percentage of sales revenues and costs they are approximately doubled, and are correspondingly increased relative to
wages.

However, when the effects of taxation are taken into account, it turns out that these seemingly high profits are accompanied by a sharp decline in real profits. Assuming the same tax rate on profits, say, 50 percent, the businessman who earned $10 without inflation had $5 left that he could either consume or add to his business, because $100 of sales proceeds were sufficient to replace the goods he sold. Now, however, with
inflation, he has $10.50 of profit, almost all of which is required to replace the goods he sells, which goods now cost him $110 instead of only $100. This leaves him with only 50 cents that he can use to consume or add to his business.

A third situation to consider is inflation which is exactly in line with GDP, which would keep money at a static value, or in other words, pinning the money supply to GDP growth; this would be the best of both worlds, with savings not increasing or decreasing in value.

I don't know the potential economic arguments for/against this though, as I think there are likely other considerations other than inflation/deflation, when it comes to determining what aught to be done with money supply.

If one assumes GDP Growth, a single statistic at the huge discretion of its authors is an accurate measurement of a growing economy, maybe. But if you want zero deflation or inflation, a policy of inflation targeting like the ECB has would do, just change the target from 2% to 0%.

One of the biggest arguments against monetary inflation, even if it is not causing a price inflation measured by a price index, is, it is one of the main drivers of business cycles, which most would agree are destructive.

KyussBishop

SupaNova wrote:

People don't save under a mattress but in banks, higher savings increase the supply of loanable funds, lowering interest rates which encourage investment. So mostly it wouldn't be an issue.

That's true; I wonder how much this would concentrate investment such that it comes more from banking institutes, rather than individual investors.
You would still have a decrease in investments though, based upon the reserve rate on banks (since at say 40% reserve, they can only use the remaining 60% for investments).

Another aspect of deflation, is that the incentive to save is higher, thus there would likely be a decrease in non-essential consumer spending; not necessarily a bad thing, and the extent of it isn't really easy to determine.

SupaNova wrote:

The thesis that inflation encourages more investment, and is therefore good, is a misguided one. Firstly entrepreneurs and th investment class are always looking to invest, if there aren't investing it means there are not many good available investments, creating inflation will encourage them to make much more risky and likely unprofitable investments. Then there is creating so much inflation that the average Joe, with no expertise or experience is enticed to becomes an investor in his spare time. You will get more investment alright, just most of it will be bad, you will get speculative bubbles with dumb money, rather than thoughtful investment by experienced entrepreneurs.

Well, I don't quite think loss of monetary value, encouraging investment, would make inflation 'good' (ideally the value of money should not change at all, and excessive inflation is of course bad, I agree with your criticisms in that respect), more that deflation is bad in that it seems likely to discourage some investments, and particularly the principal that it rewards hoarding of money, and is like a tax on economic growth (because the increase in value of money is down to the GDP growth).

It seems plausible, that the greater the deflation, investments where the 'return of investment' does not match the increase in the value of money, will be less likely to be sought after; so potentially profitable business models at the lower end of profitability (but viable nonetheless), may lose out.


A point regarding the interest rate in the deflationary economy: There is the built-in interest rate caused by the deflation itself, which enforces a minimum (unstated) interest rate.

Apart from that, maintaining a moderate (not high, not too low) interest rate is also desirable, as if credit is too easily available it will fuel bubbles in the economy, particularly the housing market.

SupaNova wrote:

One of the biggest arguments against monetary inflation, even if it is not causing a price inflation measured by a price index, is, it is one of the main drivers of business cycles, which most would agree are destructive.

I don't know, the cause of business cycles seems to be one of the more contentious parts of economic theory, still in need of a satisfactory explanation, and with multiple competing theories.

Inflationary policies certainly seem to be among the most politically-available methods of causing economic damage in any case, through excessive inflation, but I don't think inflation matched to GDP or more moderate forms of inflation would come under the same criticisms of more excessive inflation.

SupaNova

KyussBishop wrote: »

I don't know, the cause of business cycles seems to be one of the more contentious parts of economic theory, still in need of a satisfactory explanation, and with multiple competing theories.

Inflationary policies certainly seem to be among the most politically-available methods of causing economic damage in any case, through excessive inflation, but I don't think inflation matched to GDP or more moderate forms of inflation would come under the same criticisms of more excessive inflation.

I'm not sure why you are so excited about monetary inflation matching GDP, inflation targeting can do the job. Also the CPI is probably a more reliable statistic than GDP, and central banks have far more practice with a policy of inflation targeting.

Also even with zero price inflation you can have a boom bust cycle. The FED during the 1920's didn't look to slow the boom because they thought hey there is little price inflation. Or take more recently, the ECB was pretty close to its 2% target since its introduction, and it didn't make any difference, that's because it is monetary inflation that causes cycles, even if monetary inflation causes little price inflation. EU fiscal rules won't prevent cycles either. Take Ireland, which was running surpluses most of the way through the boom years only for them to swing to a large deficit once the bubble popped.

There is another aspect to targeting positive inflation. Since we live in a progressive tax system, positive inflation gradually pushes people into higher tax brackets, thus over time a larger share of everyone's income gets transferred to government. The government ends up with extra revenue, not because experts sat in a room and made a decision that the government needs more revenue to spend on worthwhile policy x but merely as a side effect of inflation.

KyussBishop

Okey but none of my arguments are about preventing business cycles; the cause of business cycles is heavily under debate in economic theory and there is no indication they will disappear under deflationary policies.

The point regarding tax bands is a good one, but one which can be resolved by changes in government policy (i.e. changing the tax bands).

All of this still leaves the significant inherent issues of the debtor vs creditor dynamics (debtors being under increased burden in a deflationary economy), and the effective tax on economic growth through increase in monetary value (which massively favours those with a lot of money, rewarding them for no productive effort, and discincentivising useful economic activities like varied investments/spending in favour of saving).


Just to clarify: My impression with Austrian economics with the gold standard (and presumably with Libertarians), is that deflation is favoured? (or at least, accepted as inherent)

SupaNova

KyussBishop wrote: »

Okey but none of my arguments are about preventing business cycles; the cause of business cycles is heavily under debate in economic theory and there is no indication they will disappear under deflationary policies.

Its not really heavily under debate though, I wish it was. Most economists just have their theory, and stick to it, there is little comparing and contrasting of different cycle theories and coming to a conclusion. Take RBC theory which has taken waves of technological innovation as one of the main drivers of periods of growth which mirrors Schumpeter's cycle theory that came well before, and that theory had been shown up by Austrians already.

The point regarding tax bands is a good one, but one which can be resolved by changes in government policy (i.e. changing the tax bands).

Well I'd take 0% inflation targeting and moving tax bands if continuous inflation does occur over what we have now.

All of this still leaves the significant inherent issues of the debtor vs creditor dynamics (debtors being under increased burden in a deflationary economy), and the effective tax on economic growth through increase in monetary value (which massively favours those with a lot of money, rewarding them for no productive effort, and discincentivising useful economic activities like varied investments/spending in favour of saving).

As I mentioned this could be solved with loan contracts attached to an agreed on price index by the debtor.

Just to clarify: My impression with Austrian economics with the gold standard (and presumably with Libertarians), is that deflation is favoured? (or at least, accepted as inherent)

Libertarians are mostly split between the Austrian and Chicago school. I think the Chicago school is the more popular, and they don't advocate a gold standard. Amongst Austro-Libertarians a majority but not all favour a gold standard. In general both monetary inflation and deflation are seen as harmful and price inflation and deflation that are not caused by changes in money supply are seen as harmless.

KyussBishop

Well, one of the competing theories is that the credit cycle is the main cause of economic/business cycles (some Austrian economists appear to subscribe to this), and one of the derived theories of this is debt deflation, which seems to be gaining ground:
https://en.wikipedia.org/wiki/Debt_deflation

If there are multiple different theories, where many economists seem to be disagreeing over them, then it seems it's very much still in debate; the Austrian business cycle theory has much criticism itself, and (my impression of it) seems to be a useful precursor to a lot of other credit cycle theories, but may be partially outdated now.

SupaNova wrote:

Well I'd take 0% inflation targeting and moving tax bands if continuous inflation does occur over what we have now.

The general idea of that makes sense to me, so (barring any other implications I'm not aware of) I'd agree there.

SupaNova wrote:

As I mentioned this could be solved with loan contracts attached to an agreed on price index by the debtor.

Well, what this doesn't solve is the aspect of rewarding people who hoarde money (and, well, everyone holding money too), increasing the value of their money with no productive effort (an economic growth tax, in a sense).

Also, what would attaching the loan to a price index affect? Just the interest rate on the loan, or the total amount owed? If the actual amount owed doesn't change, the person still (in the long run) has to pay back more (discounting interest).
I think it would be very difficult to get banks to agree to a loan where the actual amount owed would continuously go down like that (even if it's the same value of money owed).

If you don't do that, the interest rate would instead have to continuously go down, as you're paying interest not on "money borrowed" but "money borrowed + accumulated value from deflation" (so deflation isn't just an added interest rate, it accumulatively increases interest over time), so this gets more complicated, in favour of creditors.
If one year deflation exceeded the 'real' interest rate, you may end up with a negative adjusted interest rate; I doubt banks would ever agree to that either, even if it made logical economic sense (for debtors that is, creditors would have every interest in taking advantage of this).

SupaNova wrote:

Libertarians are mostly split between the Austrian and Chicago school. I think the Chicago school is the more popular, and they don't advocate a gold standard. Amongst Austro-Libertarians a majority but not all favour a gold standard. In general both monetary inflation and deflation are seen as harmful and price inflation and deflation that are not caused by changes in money supply are seen as harmless.

Okey, I suppose I'll look into the Chicago school more in that case, as (to me anyway) the gold standard isn't looking like a sound platform for backing Libertarian ideals.

EDIT: Actually, on initial look, the Chicago school seems to also have significant issues, in that it (I think) appears to inherit most of mainstream/neoclassical economics problems.

SupaNova

KyussBishop wrote: »

Also, what would attaching the loan to a price index affect? Just the interest rate on the loan, or the total amount owed? If the actual amount owed doesn't change, the person still (in the long run) has to pay back more (discounting interest).
I think it would be very difficult to get banks to agree to a loan where the actual amount owed would continuously go down like that (even if it's the same value of money owed).

Yes it would have to affect principle and interest. The banks may not like it some of the time, but banks can get screwed by inflation too, and this would prevent that, so there are pros and cons from a banks perspective.

I wouldn't worry to much about the debtor getting screwed. Under such a system there would be many price indexes like there is now, likely many more, so the debtor can try choose the one he feels gives him the best deal.

KyussBishop

Ya the trouble though, is I think there is no disadvantage at all to banks, who refuse to reduce the principal over time, and/or refuse to issue negative or gradually-reducing interest rates.

You could put the deflationary system in practice and it would favour banks just fine, even if banks reduced principal or interest over time; what would especially favour banks though, is that there are any number of arguments they can use in order to refuse a reduction of principal or interest rates over time.

Basically, the bargaining position tips in favour of the creditors/banks; debtors have to justify a reduction in principal or continuous reduction of interest over time, and the banks can just refuse that with any number of superficially sound (but principally false) arguments: "sure we're not giving away free money", "no, you have to pay back as much money as you took out", "negative interest? oh so we'll pay you to take our money! don't think so."

With inflation or no inflation/deflation, it's a simple matter of determining the interest rate, and possibly increasing it as times goes on, to match inflation; much less ambiguous.
A positive inflation disfavours the creditor still, but the creditor is going to ensure that interest adjustments accounts for that.

johnnyskeleton

Valmont wrote: »

You can't print gold, unfortunately!

Sure, if the currency is actual gold (you can however dig it out of the ground, use it in industrial or jewelry processes or any number of other things which can cause the gold supply to fluctuate rapidly, but that's not really all that relevant). But if it is simply gold backed then the private individual can break the link with gold just as governments can.

Valmont wrote: »

I would wager that state control of the supply of money is based on nothing more than a desire to spend more than they have or can outright steal through taxation which, understandably, gets the voters goats up more than the more stealthy tax of inflation. There's no other practical purpose or benefit to ordinary people that I can see, to be honest. Anyone?

State control is based on the fact that the vast majority of people either support, or at least accept the existence of, the State and its ability to raise taxes etc. People have confidence in it. If a private undertaking was to have its own currency it would need to be based on something that everyone believes in the inherent worth/power of. Microsoft for example.

Despite what goldbugs want to believe, the amount of people who place their trust in gold is a tiny fraction of those who place their trust in the State and its individual parts i.e. their friends and neighbours.

Again, there is nothing to stop you and your friends eschewing paper money and adopting your own bills of exchange (or indeed using gold or whatever) so long as you account for any taxes or other regulatory matters that you are obliged to comply with by law.

Hawkeye123

Valmont wrote: »

Considering that from 1976 - 2010, the average rate of inflation in Ireland was 5.76%, it is fair to say that people have seen their money lose some of its purchasing power--in effect, an inflation "tax". If you have cash in the bank, it will lose value every year, even above the paltry interest rates offered by high-street banks.

This led me to ask: why do we only have one currency? Why does the government (or the EU) control it?

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me? I'm asking these questions so that we may have a discussion on the nature of the state's power to control and alter the supply of money and why we shouldn't be free to choose our own currency (or multiple currencies, if that's what people would prefer).

*Play around with the Inflation Calculator to see how much value money in the bank can lose.

These are very valid questions Valmont. People should be free to protect themselves from incompetence by the government. One problem is the notion that prudent people are somehow "scheming" individuals who should be taxed to prevent them protecting their hard earned money.

The Corinthian

Valmont wrote: »

And crucially, if I want to create a new gold-backed currency for people to use voluntarily, what right would the government have to stop me?

Probably the same right that they have to stop you driving on the 'wrong' side of the road.

*Play around with the Inflation Calculator to see how much value money in the bank can lose.

Why is it suddenly a surprise that there's inflation? It's not exactly new and no type of currency is immune to it; even gold-backed currencies - how do you think gold-backed currencies emerged? They did so because of massive inflation in silver-backed currencies.

Hawkeye123 wrote: »

People should be free to protect themselves from incompetence by the government.

Isn't that the whole point to democratic elections? And if we continue electing the same incompetents, are we not already failing to protect ourselves?

Valmont

The Corinthian wrote: »

Probably the same right that they have to stop you driving on the 'wrong' side of the road.

To be fair, that makes no sense.

The Corinthian wrote:

Why is it suddenly a surprise that there's inflation? It's not exactly new and no type of currency is immune to it; even gold-backed currencies - how do you think gold-backed currencies emerged? They did so because of massive inflation in silver-backed currencies.

I think we may mean different things by inflation here; would I be wrong in assuming you mean inflation as a measure of the increase in prices of various goods?

I'm referring to inflation as an increase in the money supply.

K3lso

Apologies if this has already been touched upon but changing a primary currency would not need to be overseen centrally. All it would take would be the people accepting other means of exchange tomorrow morning - the people would gradually gravitate towards solidity and confidence. The market would supply a valuable means to trade, exchange...namely, gold and silver.

In any event, it wouldn't take a government to "back" or peg a Euro/Dollar/Pound to a metal - the market would do it overnight.

That is what makes Hayeks Decentralisation of Money pretty much irrelevant. It's been years since I've read it but the basic premise was that government should allow for competing currencies was it not? Why would we need competing currencies if the market was dictating our means of exchange? In any event, the creme would rise to the top over fiat and the precious metals I suspect would still be the most widely used.