I used to look down on the gold standard. Conventional economic wisdom, as Banks discussed here, holds that Gold was more a liability than an asset; most countries didn't exit the great depression until they ditched the gold standard.
Still, its amazing that humans decided to peg their currencies, essentially informational mechanisms, against gold atoms, the “waste” product of prehistoric supernovae.
Of course, gold was chosen because of its rarity; unlike many elements that course be fused in stellar furnases, gold had to wait for rare supernovae events.
Gold also is fairly inert. It doesn't rust or corrode, making it a permanent store of value.
In this new, debt-laden, inflationary world, it might be time to revisit the gold standard, our at least the idea of pegging currency to something scarce.
Perhaps the 21st century equivalent would be bitcoin; the encoded output of energy consumption.
> Gold also is fairly inert. It doesn't rust or corrode, making it a permanent store of value.
Why should the latter follow from the former? Why shouldn't it be that a worn and corroded metal be more valuable than a less worn one (like a nice patina's copper)?
I've been loosely following this series and haven't yet seen you engage seriously with the credit theory of money. Maybe you have and I missed it?
Here's why it matters. You say, "'gold' or other precious metals have acted as the de facto currency in most of Eurasia" but that's pretty underspecified. What was the difference between the gold stamped with the emperor's face, and an unformed piece of gold that weighed the same amount? The former and not the latter could be used to pay tax debts!
Which helps us understand why this claim is also false, "Thus the pound was not a thing with value in itself but a claim to a specific weight of gold." -- no, the value in a pound isn't just its weight in gold, b/c those values often came apart. The value was that the sovereign currency is the only way of fulfilling your tax debts — the failure of which to fulfill could land you in jail.
Currencies are, and have always been, debt/credit instruments to avoid subjugation to legitimate state violence. When you change the medium of exchange, nothing changes. What's doing the normative work justifying the value of the credit token is the credibilty of the state to exert its legitimate violence over you in the form of taxation. The higher the taxes, the more demand there is for the currency.
"Fiat" sometimes gives the misleading impression that sovereign paper gets its value ex nihilio — from pure faith. But that's not it. It gets its value from the tip of the taxman's sword. States have an interest in price stability b/c part of the implicit promise in sovereign currencies is that they won't depreciate the value of this stuff so much that it acts as an effective tax increase. Gold standards functioned as a kind of central bank before they could set their own rates.
So to your closing and opening remark that the trust relies on solvency, that's not quite right. You all have already admitted in this series that sovereigns can't go bankrupt in their own currencies. The question of trust is about (i) the sovereign's ability to extract taxes, and (ii) their ability to maintain price stability of their tax redemption tokens (currency).
So if you disagree, perhaps you could give us your account of tally sticks and their economic function?
Fiat currency is not just for "emergencies." A specie standard maked it impossible got a central bank to target the (lowest) inflation rate that maintains full employment of resources when prices are hetrogeneously sticky downeward (the normal case, I think) With a specie standrd inflation is tied to the microeconomics of gold supply and demand and the demand for money. Ther is no reason to think that would maintain full employment of resources.
Great work!
I used to look down on the gold standard. Conventional economic wisdom, as Banks discussed here, holds that Gold was more a liability than an asset; most countries didn't exit the great depression until they ditched the gold standard.
Still, its amazing that humans decided to peg their currencies, essentially informational mechanisms, against gold atoms, the “waste” product of prehistoric supernovae.
Of course, gold was chosen because of its rarity; unlike many elements that course be fused in stellar furnases, gold had to wait for rare supernovae events.
Gold also is fairly inert. It doesn't rust or corrode, making it a permanent store of value.
In this new, debt-laden, inflationary world, it might be time to revisit the gold standard, our at least the idea of pegging currency to something scarce.
Perhaps the 21st century equivalent would be bitcoin; the encoded output of energy consumption.
> Gold also is fairly inert. It doesn't rust or corrode, making it a permanent store of value.
Why should the latter follow from the former? Why shouldn't it be that a worn and corroded metal be more valuable than a less worn one (like a nice patina's copper)?
I've been loosely following this series and haven't yet seen you engage seriously with the credit theory of money. Maybe you have and I missed it?
Here's why it matters. You say, "'gold' or other precious metals have acted as the de facto currency in most of Eurasia" but that's pretty underspecified. What was the difference between the gold stamped with the emperor's face, and an unformed piece of gold that weighed the same amount? The former and not the latter could be used to pay tax debts!
Which helps us understand why this claim is also false, "Thus the pound was not a thing with value in itself but a claim to a specific weight of gold." -- no, the value in a pound isn't just its weight in gold, b/c those values often came apart. The value was that the sovereign currency is the only way of fulfilling your tax debts — the failure of which to fulfill could land you in jail.
Currencies are, and have always been, debt/credit instruments to avoid subjugation to legitimate state violence. When you change the medium of exchange, nothing changes. What's doing the normative work justifying the value of the credit token is the credibilty of the state to exert its legitimate violence over you in the form of taxation. The higher the taxes, the more demand there is for the currency.
"Fiat" sometimes gives the misleading impression that sovereign paper gets its value ex nihilio — from pure faith. But that's not it. It gets its value from the tip of the taxman's sword. States have an interest in price stability b/c part of the implicit promise in sovereign currencies is that they won't depreciate the value of this stuff so much that it acts as an effective tax increase. Gold standards functioned as a kind of central bank before they could set their own rates.
So to your closing and opening remark that the trust relies on solvency, that's not quite right. You all have already admitted in this series that sovereigns can't go bankrupt in their own currencies. The question of trust is about (i) the sovereign's ability to extract taxes, and (ii) their ability to maintain price stability of their tax redemption tokens (currency).
So if you disagree, perhaps you could give us your account of tally sticks and their economic function?
Fiat currency is not just for "emergencies." A specie standard maked it impossible got a central bank to target the (lowest) inflation rate that maintains full employment of resources when prices are hetrogeneously sticky downeward (the normal case, I think) With a specie standrd inflation is tied to the microeconomics of gold supply and demand and the demand for money. Ther is no reason to think that would maintain full employment of resources.