[HN Gopher] The U.S. government's failed 1890s attempt to forge ...
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The U.S. government's failed 1890s attempt to forge unity through
currency
Author : samizdis
Score : 49 points
Date : 2021-06-11 12:39 UTC (10 hours ago)
(HTM) web link (www.smithsonianmag.com)
(TXT) w3m dump (www.smithsonianmag.com)
| cratermoon wrote:
| Twice in my education, once in middle school and once in college
| (my instructor did a very dramatic read of William Jennings
| Bryan's "Cross of Gold" speech), I encountered the Free Silver
| movement in history classes. I never understood it then and to
| this day I still don't understand what the kerfuffle was about.
| It seems like a religious doctrinal difference rather than one
| that would have any real economic effect.
|
| Somewhat before I cared about money, in 1971, Nixon decoupled the
| dollar from gold, and although I do recall hearing about the
| accompanying wage/price freeze, I don't think it's ever mattered
| to me whether or not I could exchange my paper for gold.
| ffggvv wrote:
| as far as i can tell (correct me if im wrong)
|
| Farmers had massive loans that were gold denominated. (dollar
| backed by gold). The currency was deflationary, and the massive
| debts were breaking the back of farmers/rural areas.
|
| Adding silver as backing of dollar essentially increases supply
| of the backing of the currency, creating inflation. which
| relieves the farmers debts. (pay back less real money)
|
| so the farmers and WJB basically just wanted inflation to
| relieve their debt load. (and silver interests also obviously
| backed the idea)
| cratermoon wrote:
| I get it now, thanks to you and another reply. I was never
| taught the economic technical details, just the socio-
| political history.
| billytetrud wrote:
| You couldn't exchange your paper for gold since 1931. Maybe
| that's why it felt like nothing changed to you. However,
| institutions could. Since 1971, unfettered monetary inflation
| has been used to siphon wealth from the people for the benefit
| of a segment of rich elites close with the federal reserve.
| It's no coincidence that real wages haven't increased
| significantly since that Nixon administration.
| https://economics.stackexchange.com/questions/15558/producti...
|
| Requiring backing for dollars was a real limiter on inflation
| and government spending. Inflation fuels an ever increasing
| debt cycle that is incredibly harmful for the economy, but
| great for banks and financial institutions.
| RC_ITR wrote:
| You think that centralizing the global economy around a metal
| that has limited intrinsic value, limited supply, relatively
| high density, random allocation below out earth's surface,
| and extremely high storage costs is a good thing for poor
| people?
| billytetrud wrote:
| I think strictly limiting the ability for central banks to
| inflate the monetary supply (and use that created money to
| their own ends) is good for poor people. If it requires
| centralizing the global economy on gold, I certinaly think
| it would be worth it. However, an alternative would be to
| simply renationalize the Fed and put legislated limits on
| dollar monetary inflation. There are a lot of options here
| that don't involve going back to a gold standard.
|
| It kind of sounds like your argument is "gold is expensive,
| so how could it be good for the poor". Is that.. really the
| argument you're trying make here?
| notahacker wrote:
| No, the argument people are making is that the interest
| rates associated with forcing inflation down further
| increase the returns the wealthy make lending money and
| the price the poor and people creating jobs for the poor
| pay to borrow money. We already have a legislated
| inflation target: it's 2%. We tried screwing around with
| raising interest rates to whatever level was necessary to
| try to hold absolute dollar amounts below a certain level
| instead in the early Reagan years and it was a quickly-
| abandoned disaster.
|
| The argument that imposing restrictions on the quantity
| of new assets the rich have already have lots of and the
| poor don't and need to borrow them would benefit the poor
| is the economic equivalent of positing a flat earth
| dragonwriter wrote:
| > We already have a legislated inflation target: it's 2%.
|
| That's a Fed rule of thumb long-run target, but its not
| legislated.
| notahacker wrote:
| Fair enough, strictly speaking their legislated objective
| only includes "stable prices" as one of their goals, but
| their publicly stated policy target of 2% is regarded as
| consistent with that legislated objective. The Bank of
| England's legislated objective is "price stability" alone
| complete with statutory responsibilities to justify all
| its actions in relation to that, which is also considered
| to be consistent with a 2% target.
| dragonwriter wrote:
| For the Fed (can't speak to Bank of England), it has in
| legislation what is frequently referred to as a "dual
| mandate" of "maximum employment, stable prices and
| moderate long-term interest rates." [0] The 2% Fed target
| explicitly is justified as balancing stability and
| employment.
|
| The ECB also has a 2% target, and its asymmetric
| explanation of stability may explain it: "By stable
| prices, we mean that prices should not go up (inflation)
| significantly, and an ongoing period of falling prices
| (deflation) should also be avoided." [0]
|
| Note that they define stability as avoiding _signficant_
| inflation and also avoiding significant _periods_ of
| (even small) deflation.
|
| [0] https://www.ecb.europa.eu/explainers/tell-me-
| more/html/stabl...
| imtringued wrote:
| The bias towards inflation exists because it can reduce
| the real interest rate below 0%. Lowering interest rates
| below 0% is not practically possible. If we could hit
| negative interest rates deflation wouldn't be such a big
| deal.
| reedjosh wrote:
| > simply renationalize the Fed and put legislated limits
| on dollar monetary inflation.
|
| Nothing simple about that though since the current system
| benefits the most powerful.
|
| This _is_ why bitcoiners treat it like a religion. There
| is no traditional political way to return to sane
| monetary standards. Moving to BTC removes the
| untrustworthy governmental control from the equation.
|
| Bitcoin's energy usage is only necessary as a hedge
| against powerful actors trying to kill it. Proof of stake
| currencies are great, but it's likely if bitcoin hadn't
| paved the way, any such system would have been killed by
| a state actor since it hurts their main source of
| finance.
| billytetrud wrote:
| Indeed. I meant its a simple idea. It would be simple to
| write a lwa for it. But of course, it would be
| politically fraught. Similarly tho, it wouldn't be
| politically simple to switch back to gold-backing.
|
| But yes, hopefully bitcoin can save us from this mess one
| day.
| torstenvl wrote:
| My intuition is the opposite of what you're saying. Inflation
| devalues debt and savings while increasing the nominal value
| of wages. The guy with hundreds of thousands in savings and
| bonds loses from inflation; the guy with $80,000 left on his
| mortgage working as a senior sales associate at Home Depot
| benefits from it. How does this siphon money from the people
| to the benefit of rich elites?
| billytetrud wrote:
| There is more to inflation than the value of the currency.
| Price inflation generally comes from monetary inflation -
| growth in the money supply. Where does that created money
| go? Who gets that money? What does it fund? These questions
| are at the root of the issue.
|
| Yes, price inflation reduces the value of debt. However, it
| also means there is a pretty big disincentive to save
| money. When you take away an easy avenue for the poor to
| save money, those people have one less easy way to save for
| their future.
|
| But to the question of who gets the money, this is the
| concept of seigniorage. The people closest to the money
| creation get the most value from that money. That's because
| when that new money is spent, prices haven't accounted for
| that monetary inflation yet, so they have higher buying
| power than they should have. When that money trickles down
| to the rest of us, that money has already lead to
| devaluation of the money that results in price inflation.
| In practice, banks, financial institutions close to those
| banks, and governments get the most benefit from this
| created money.
|
| But this is also a zero sum game. Creating more money
| doesn't create more wealth. The more currency you create,
| the lower the value of the currency. So where does the
| value gained in seigniorage come from? Well it comes from
| the people farthest away from the hose: the poor.
|
| This is why the monetary inflation leads to price inflation
| means prices go up before wages go up.
|
| There's even more to it than this. Its a complex topic. But
| I hope you see where the iceberg might be.
| imtringued wrote:
| The real problem is that the Fed isn't powerful enough.
| It can only set the interest rate and it can't even set
| it below 0%, it cannot decide how to distribute the
| money. The only one who can do that is the US government.
| Republicans hate distributing money fairly because it
| goes against neoliberalism and people vote for
| republicans because they believe in austerity at all
| costs (unless its tax cuts that benefit them personally)
| and making sure there is a poor group of people at the
| bottom to provide cheap services.
| dragonwriter wrote:
| > The real problem is that the Fed isn't powerful enough.
| It can only set the interest rate and it can't even set
| it below 0%,
|
| AFAICT, experts have for years (even before the recent
| spat of foreign NIRP uses provided additional experience
| on the effects and raised new questions about whether the
| Fed would use them) long indicated that the Fed _can_ set
| and pursue a negative target rate, but has never really
| shown interest in doing.
| notahacker wrote:
| Seignorage revenues are distributed amongst ordinary
| people borrowing money who benefit from lower interest
| rates rather than being captured by those who own gold
| mines. Takes a remarkable degree of cognitive dissonance
| to argue granting them to the latter group would be a
| more progressive approach.
| imtringued wrote:
| Yeah the flaw is that if the rich get the money early and
| don't generate inflation, it implies they haven't spent
| it and thus do not significantly benefit from inflation.
| They may have gotten a greater share of all USD but they
| haven't redeemed that share in a way that takes resources
| away from the poor.
|
| If they spend it, poor people would still benefit because
| the spending is creating jobs in the process. Really, the
| only problem is land ownership (renting out buildings is
| fine) and that has nothing to do with inflation, rent
| seeking is a fundamental problem that drains productivity
| from the economy.
| notahacker wrote:
| The money isn't given and isn't targeted at "the rich"
| anyway. It's lent, with interest. If it wasn't lent,
| people would have to borrow money from the [mostly] rich,
| at higher interest rates, so in that respect the rich
| actually _lose_ a subsidy.
|
| Sure, some rich people take out loans (but have to pay it
| back, which often they do by spending the loan on stuff
| that creates jobs) and some benefit very indirectly from
| asset prices rising. But as a general rule the poorest
| demographic borrows more than they own and lends
| absolutely nothing, and the richest demographic borrows
| less than it lends, and sees returns to its lending fall
| billytetrud wrote:
| Renting land is actually not "rent seeking". Tho I can
| see how people make that association. Rent seeking is
| specifically the act of manipulating pulic policy to gain
| more money without providing anything in return.
| legutierr wrote:
| The way you describe it, it seems that if increases to
| the money supply were driven by fiscal spending on
| government programs benefiting the poor and middle class,
| rather than being driven by monetary action by the Fed,
| then the poor and the middle class would be the primary
| beneficiaries of inflation, being as they would be
| closest to the hose, as you put it. Would you not agree?
| hpoe wrote:
| Because the inflation grows in respect to the access to
| captial you had before.
|
| So our Senior Sales associate at Home Depot doesn't see any
| real increase because he doesn't have any assest to take
| advantage of it.
|
| Meanwhile those that have access to cheap money are able to
| move it to others sources that are inflation resistant,
| stocks, companies, real estate, etc, meaning that overtime
| he is still getting paid $80,000 and his house may have
| increased in value but everything he needs to live is
| outpacing his ability to buy. Meanwhile those involved in
| finance are now substantially richer because they got more
| of the new money being created by having easy accless to
| captial.
|
| EDIT: If I am wrong in something here somebody tell me why,
| because that basically seems to be what is happening with
| the feds inflationary money policies is that everyone that
| can is borrowing at low interest rates then plowing that
| into real estate and the stock market because those are
| increasing in value so much, precisely because interest
| rates are so low and inflation so high.
| treis wrote:
| >IT: If I am wrong in something here somebody tell me
| why,
|
| Because wages rise with inflation too. A very simplistic
| explanation is that inflation hurts those that save/lend
| cash and helps those the own assets & borrow cash. It
| tends to be the poor that suffer because they save in
| cash & it's easier to suffer as a poor person.
| stx wrote:
| The reality is that wages have not kept up with
| inflation.
|
| https://www.pewresearch.org/fact-tank/2018/08/07/for-
| most-us...
| torstenvl wrote:
| That's the opposite of what your link shows. While wages
| have not kept up with growth in the economy or overall
| productivity, they have absolutely "kept up with
| inflation," and a tiny bit more, i.e., the average wage
| has the same buying power now (or a little more) as the
| average wage had decades ago after adjusting for
| inflation.
| [deleted]
| imtringued wrote:
| Given enough inflation you will eventually get full
| employment and wages will catch up with productivity
| increases. If you have 1% inflation for a decade the
| economic system is going to fix itself eventually but
| it's going to take forever, which is why anti inflation
| sentiments have built up as people get used to the new
| normal and are scared of change.
| treis wrote:
| Your cite includes a chart that very clearly shows wages
| rising with inflation.
| xxpor wrote:
| You're assuming someone with no assets also has no debt.
| That isn't really the case in real life. People have
| student debt, credit card debt, etc.
| reedjosh wrote:
| It's not just that.
|
| For example, if I have a debt of $250k for a house worth
| $250k and inflation is causing a net benefit on my asset
| of 1%, then sure I'm gaining from the inflationary
| regime.
|
| But what of the wealthy that have billions in assets and
| maybe even billions in debts?
|
| The two situations belie a completely regressive tax. The
| billionaire gains net 1% on their billions and I as a
| peasant gain net 1% on $250k.
|
| How can you argue this doesn't generate wealth for the
| wealthy?
|
| Consider further that 1% is a modest number for the net
| benefit of asset backed debt.
| xxpor wrote:
| >The two situations belie a completely regressive tax.
| The billionaire gains net 1% on their billions and I as a
| peasant gain net 1% on $250k.
|
| It's a regressive tax in that the person with $250k gains
| less in absolute terms than the billionaire. But that's
| just capitalism. But so what? Everyone's still better off
| than they were yesterday.
|
| This also ignores the spending effects and money velocity
| increases inflation brings. This is why the Phillips
| curve is a thing. People are encouraged to spend money.
| Higher inflation->lower unemployment. Lower unemployment,
| more bargaining power, more wages, the marginal person is
| better off.
|
| There's a reason why low inflation is correlated with the
| Regan era of corporate takeover. The wealthy today _don
| 't_ actually own physical assets, by and large. They own
| financial instruments. They'd like to be able to sit on
| them. They don't want to have powerful labor. Stagflation
| is what happens when there's an exogenous shock to the
| labor supply by the opening of the world combined with
| the oil crisis. Now you don't need more people to produce
| more stuff.
|
| Why doesn't the Fed want 0% inflation?
| reedjosh wrote:
| What you describe has a name. It's known as the Cantillon
| effect.
|
| https://www.adamsmith.org/blog/the-cantillion-effect
|
| Between fractional reserve banking with no reserve
| requirements,
|
| https://www.federalreserve.gov/newsevents/pressreleases/m
| one...
|
| and unfettered government spending, it's practically
| irresponsible to not be in debt.
|
| Either way, your average peasant can never keep up with
| the wealthy asset class under this system.
| torstenvl wrote:
| Thank you, this helped.
|
| It seems to me that, currently, entry-level wages are
| rising faster than inflation. It isn't uncommon to see
| retail or fast food hiring signs advertising starting
| wages 2x as much as what I earned in those jobs 20 years
| ago -- over which time cumulative inflation has been
| 52.1%.
|
| Do you think the reduced labor participation rate due to
| COVID-19 has made the entry-level labor market more
| responsive than the Cantillion Effect presumes?
| reedjosh wrote:
| I believe it's that and a much higher inflation rate than
| is admitted by a government that uses inflation as a
| hidden tax.
|
| http://www.shadowstats.com/alternate_data/inflation-
| charts
| imtringued wrote:
| That site is not trustworthy because they just add a
| constant to existing government numbers.
|
| Let's get real. Every statistic has a tracking error. The
| CPI will always be wrong because that is the nature of
| measurements. However, it's not so crappy that it is off
| by more than 1%.
|
| Inflation usually happens with full employment. One
| problem is that inflation can also drive full employment,
| therefore the interest rate has to act as a moderator to
| prevent the economy from overheating as people constantly
| switch jobs for better pay. Lowering the interest rate is
| only possible because there is slack in the economy and
| we haven't reached full employment. If there was full
| employment the Fed would have to raise the interest rate
| because the market demands a higher interest rate but
| that is not the case right now.
| temp50010 wrote:
| This is correct. The associate would need their
| compensation to be rising at the rate of inflation (which
| it certainly wont) in order to take advantage of
| increased purchasing power vs their debt. If rich person
| xyz has a net worth mostly denominated in assets that at
| least keep pace with inflation they can take out fixed
| rate debt and inflation will devalue it in -comparison-
| to their other assets.
| renewiltord wrote:
| I believe it's because rich people usually own assets that
| correlate hard with inflation and are therefore inflation-
| hedged.
| egh wrote:
| This is a great comment because while it's completely wrong
| empirically, it also completely misses the point of the good
| question about free silver.
|
| Like the question of what was the US civil war about
| (slavery) the question of what silver v gold was about has
| been completely obscured by interested parties seeking to
| complicate the issue in such a way that nobody understands it
| any more.
|
| There are complications, which I don't really understand, but
| all you need to know is that silver vs gold was about
| inflation vs deflation. The free silver people were farmers
| (who are always debtors) and they supported inflation,
| because inflation is good for debtors. The supporters of gold
| were creditors, and the supported deflation, because
| creditors like deflation.
|
| It's that simple. The author of the above comment apparently
| thinks the populist farmers were completely wrong and they
| should have been against inflation. This may be true (it's
| not, but let's stipulate) but the commenter prefers to
| obfuscate the issue rather than confront the clear fact that
| free silver populists supported it BECAUSE it was
| inflationary.
| billytetrud wrote:
| > completely misses the point of the good question about
| free silver
|
| Oh the irony... talking about missing the point. I didn't
| miss the point. I just had nothing to say about that point.
| Aunche wrote:
| >Since 1971, unfettered monetary inflation has been used to
| siphon wealth from the people for the benefit of a segment of
| rich elites close with the federal reserve.
|
| Not deciding to arbitrarily tying the dollar to a random
| commodity makes the dollar more efficient. I can see how the
| wealthy disproportionately capture this benefit. However, it
| doesn't follow that people close to the Fed benefit more than
| anyone else does. Private equity and venture capitalists are
| further from the fed than banks, but have grown even faster.
|
| Also, if you wanted to stop inflation, why not just do it
| another way like forcing a debt ceiling or limiting how much
| money can be created to a rate similar to that which gold is
| mined? Tying your money to a volatile commodity seems like
| the worst way to do it.
| billytetrud wrote:
| > Not deciding to arbitrarily tying the dollar to a random
| commodity makes the dollar more efficient.
|
| How so?
|
| > it doesn't follow that people close to the Fed benefit
| more than anyone else does
|
| Its a well established fact that this is the case. Its
| called Seigniorage. Its called the Cantillion Effect. This
| isn't controversial in any way.
|
| > Private equity and venture capitalists are further from
| the fed than banks, but have grown even faster.
|
| Do you have a source for that? Banks are regulated in a way
| that limits the risks they can take, and therefore the
| return they can get, so it wouldn't be surprising that
| banks growth is smaller, especially over short time spans
| (eg years vs decades). Private equity and venture
| capitalists are often very close to banks too, so the
| difference is likely negligible. And I would have to
| imagine that people who own private equity firms are a lot
| more likely to also have equity in banks.
|
| > why not just do it another way like forcing a debt
| ceiling or limiting how much money can be created to a rate
| similar to that which gold is mined
|
| Yes, why not? I don't think I ever advocated that going
| back to a gold-backed dollar is the only solution. What was
| important about the gold standard was that it was a widely
| agreed upon culture of limited monetary supply. Any way
| that leads us back to that kind of culture where people
| undertand the importance of a limited money supply and
| fight to preserve it is a way out of our predicament.
| Aunche wrote:
| I'm not an economist, but I do think my intuition about
| money is correct.
|
| >How so?
|
| Money is supposed to be medium for the exchange of goods
| and services. At first, gold acted as a perfectly
| acceptable medium. However, as the economy grows, the
| supply of gold does not at the same rate, hence why money
| slowly became less and less tied to gold. First came
| fractional reserve banking and then the end of the gold
| standard. As long as the dollar is tied to gold, you
| always need to factor in the opportunity cost of holding
| gold into making an investment or a loan. For the decades
| following WWII, the American government could ignore this
| effect because the Bretton Woods system basically allowed
| the American government to pass that opportunity cost
| onto the Europeans and Japanese who were desperate for
| economic stability, but that wasn't sustainable forever.
| The wealth the American government got from essentially
| renting out dollars trickled down to the people, which is
| why I think many people reminisce the gold standard.
|
| >Its called the Cantillion Effect... Private equity and
| venture capitalists are often very close to banks too
|
| So can you define what you mean by being "close to the
| Fed"? I think the Cantillon effect just describes how the
| rich asymmetrically benefit from monetary expansion. The
| rich and poor can both take advantage of cheaper debt,
| but only the rich can afford to use that to grow their
| wealth.
|
| I don't think that this is enough reason to stop monetary
| intervention though. I'd much prefer our status quo to
| another Great Depression. The problem isn't that the Fed
| expands the money supply when the velocity of money
| falls. The problem is that they are unable to shrink the
| money supply when the economy recovers because with the
| rest of the federal government is required to issue $1
| trillion in debt every year to operate. In theory,
| returning to a gold standard would incentivize Congress
| to be better at fiscal policy, but I'm pretty sure that
| they would just instantly become bankrupt.
| mullingitover wrote:
| > Since 1971, unfettered monetary inflation has been used to
| siphon wealth from the people for the benefit of a segment of
| rich elites close with the federal reserve.
|
| The median household debt is $90,460 in the US, and the
| median savings is significantly lower than that. So barring
| hyperinflation, some reasonable inflation is actually
| beneficial for 'the people.' It's diluting their debt.
| Meanwhile, the most common investment for working people is
| in their home, and real estate is one of the best inflation
| shelters.
|
| The parties most harmed by inflation are the ones sitting on
| huge amounts of cash without using it productively (so, not
| 'the people'), and those are exactly the parties who _need_ a
| fire lit under them to prevent a deflation spiral.
| reedjosh wrote:
| This misses that if there's a net benefit to asset backed
| debt, then the wealthy will gain from that the most.
|
| As in my example above, gaining 1% net benefit on a $250k
| house can never compare to billionaires gaining 1% on their
| levels of asset backed debt.
|
| Then there's fractional reserve banking which benefit banks
| via interest on money that otherwise didn't exist.
|
| And as of just over a year ago, there's no fraction of the
| fractional reserve left. The fed lowered the reserve
| requirement to 0%
|
| https://www.federalreserve.gov/newsevents/pressreleases/mon
| e...
| notahacker wrote:
| Under a gold standard, you'd be lucky to get the 1% gain
| in value on the $250k house, and due to the relative
| scarcity of money the billionaires would be making a
| _lot_ more on each dollar they lent you.
| hpoe wrote:
| Here's the problem I own a home I am not owning that home
| as an investment vehicle I didn't choose the home to make a
| return I got that home as a place to fricking live, I chose
| my home because it would be most comfortable for my wife
| and family. The "value of the home" is an imaginary number
| in a database somewhere that doesn't actually do me any
| good when I need to pay for a hospital visit, or need to
| buy a car or something like that.
|
| In fact the more of my "value" is locked up in my home the
| less I am able to access it. Besides even if I were to
| liquidate what should I do then, go live under a bridge,
| the problem is even if my home has increased in value so
| has everyone else's home so even if I liquidate I'll still
| be stuck having to roll all that value over into a new home
| anyway because no matter what happens I still need a place
| to live.
| imtringued wrote:
| Yes, increasing land prices are stupid. The idea that
| people are investing into land is absurd.
|
| This is actually an example of deflation hurting the
| poor. It's not deflation of the USD. It's deflation of
| land as people start hoarding land and reduce the
| available supply. If we could "print" more land this
| wouldn't be a problem.
|
| It's like those game item NFTs. ETH goes up by 4x. Items
| get more expensive by 4x. It's just stupid.
| mullingitover wrote:
| > In fact the more of my "value" is locked up in my home
| the less I am able to access it.
|
| It's extremely easy to access the value of your home,
| home equity lines of credit are used all the time.
| billytetrud wrote:
| When the only way to access the value of your property is
| to pay a rent (interest) to someone else, then that isn't
| really easy access, now is it?
| mullingitover wrote:
| It's the easiest way in comparison to losing physical
| access to the property by selling or renting it out.
| Equity lines of credit are very easy, they're not free
| money but then again TANSTAAFL.
| xxpor wrote:
| >or need to buy a car or something like that.
|
| People buy cars with HELOCs all the time.
| hpoe wrote:
| People also buy flat screens with payday loans, just
| because everyone is doing it doesn't mean that is sound
| financial advice.
| xxpor wrote:
| That's not the point though. The argument that you can't
| access you home's equity without selling is complete
| nonsense.
| psychlops wrote:
| I'd suggest those most harmed are those with little to no
| savings (>75% of US population according to Statista) and
| simply pay higher prices year over year.
| kbenson wrote:
| Don't wages generally go up with inflation too? If you
| have no money saved to devalue, how are you harmed? If
| you have debt, you are helped. It seems like the cases
| where you would have harm is if you have savings and/or
| you do not get a raise to help with inflation, and little
| or no debt in both cases.
| dragonwriter wrote:
| > Don't wages generally go up with inflation too?
|
| Wage increases can be part of the driver for general
| inflation, but they definitely tend to (unequally,
| though) be produced by it. However, when they aren't
| pushing inflation, they tend to be at a overall level
| less than inflation (when one cobsiders the effects of
| inflation alone, which is hard, because its never the
| only real factor), and (absent pushes like minimum wage
| increases) may entirely not occur in some segments.
| billytetrud wrote:
| They should. But the reality is that they haven't:
| https://www.pewresearch.org/fact-tank/2018/08/07/for-
| most-us...
|
| There is more to monetary inflation than simply money
| devaluation:
| https://news.ycombinator.com/item?id=27476789
| mullingitover wrote:
| The article you linked seems to be saying the opposite:
|
| > In fact, despite some ups and downs over the past
| several decades, today's real average wage (that is, the
| wage after accounting for inflation) has about the same
| purchasing power it did 40 years ago.
|
| Having _the same purchasing power_ means that wages have
| indeed kept up with inflation. If they didn 't, it
| wouldn't be the same purchasing power, it would be
| _diminished_ purchasing power.
| billytetrud wrote:
| What's missing from any analysis that only considers CPI
| is that price inflation doesn't take into account
| decreasing costs of production. Technological progress
| and innovation should be driving _down_ prices of
| quality-adjusted products. So the fact that wages
| adjusted to inflation are staying constant indicates that
| there is downward pressure on wages of a similar rate to
| the rate at which general market costs are decreasing. In
| a world with no inflation, what we would see here is
| decreasing costs, decreasing wages, and increasing GDP.
|
| What's also missing from this analysis is that CPI
| doesn't adequately incorporate important things like that
| the quality-adjusted price of housing has massively
| increased at much faster than the general rate of
| inflation.
| reedjosh wrote:
| Excepting that the `pie` that is the global economy of
| goods and services has grown significantly. So in this
| case, we're all producing more than ever, but not gaining
| any more than we used to.
| mullingitover wrote:
| It's relative to who you consider as 'we.' If you mean
| workers in the US, yeah it's pretty flat. However if you
| mean 'we' to be workers globally, we've gained a
| staggering amount in the past few decades. Somewhere in
| the neighborhood of 1.5 billion people have been lifted
| out of extreme poverty in our lifetimes[1].
|
| [1] https://ourworldindata.org/extreme-poverty
| reedjosh wrote:
| Yes, but I'm thinking more of the we that are the losers
| in in the Gini coefficient.
|
| https://en.wikipedia.org/wiki/Gini_coefficient
| iso1210 wrote:
| Generally they do yes. Average wage in 1970 was about
| $3.40 an hour, which is about $23.60 today when inflation
| linked.
|
| Today average wage is $25.60/hr
|
| But that's only part of the story - while wages haven't
| gone down over the last 50 years, the economy has
| increased, and normal people haven't benefited from that
| increase unless they've been able to pump their money
| into things like stocks. That means those who had wealth
| and no debt back in 1970 are doing great (put $1k in the
| Down Jones in 1970, reinvest the dividends, and instead
| of an inflation linked $7k, you'd have a whopping $260k
| today)
|
| This means that boomers (the ones with most of the wealth
| and control) are very rich, but Gen-X and especially
| millennials are massively lagging behind where previous
| generations were.
| psychlops wrote:
| Yes, but wages are "sticky" and lag in the rise.
| Statistically, it should work out fine. As a curious
| tangent, I've been reading that we will be entering
| stagflation soon as we continue with inflation and as
| people re-enter the workforce en masse wages will be
| driven down.
|
| Devaluing the debt definitely helps, but I think you
| noted before that that wealth is largely inaccessible.
| imtringued wrote:
| >I've been reading that we will be entering stagflation
| soon
|
| No, we have stagflation right now. Stagflation is
| generally the type of inflation where production cannot
| follow demand. This is generally caused by supply shocks
| and sometimes by legislation that prevents people from
| working. The semiconductor shortage is causing a lack of
| new cars and thereby an increase in used car prices is an
| example of stagflation because prices go up but nobody is
| employed in the process to produce more cars.
|
| However, this stagflation is unlikely to last because
| those car CEOs sure as hell don't want their company to
| go bankrupt. They'll pay more for preferential access to
| semiconductors and make their JIT manufacturing more
| resilient.
| DaiPlusPlus wrote:
| > Requiring backing for dollars was a real limiter on
| inflation
|
| Which directly leads to instability when the value of the
| backing changes. I'm not aware of any mainstream movement
| amongst orthodox economists to revert to pre-Nixon policies.
| dnautics wrote:
| That's understandable. The value of stability seems to be
| doctrinal in orthodox economics (it is the orthodoxy, after
| all)
|
| Like any other metric, stability comes at a cost (and it
| also comes with baked-in assumptions). I wish there were
| more rigorous discussion of what the social cost of
| stability is (is it worth it to have stability if that
| means siphoning money from the poor?), who benefits from
| 'stability', what values our metrics for stability encode,
| and to what extent the Federal Reserve system is a victim
| of Goodheart's law in all of the goals it seeks, to include
| 'stability'.
| kube-system wrote:
| It is undoubtably the working classes who benefit from
| stability. The people who control businesses are not
| laying themselves off first, nor are they living
| paycheck-to-paycheck.
| billytetrud wrote:
| There is quite a lot of reason to doubt that is the case
| in the long run. What I think dnautics is saying is that
| stability is trading off short term gains for long term
| gains. What about the stagnated real wages in the last 50
| years? Is that good for the poor? What about seigniorage?
| Is that good for the poor?
|
| When someone says something like "undoubtedly/obviously
| X" or "its commen sense that X" 99% of the time they
| haven't put much thought into it.
| xxpor wrote:
| There's 4 major things that happened in the 70s that
| affected wages, and everyone blames the one they'd like
| to based on their ideology.
|
| 1. Closing the gold window
|
| 2. Outsourcing of manufacturing begins in earnest
| (combined with weakening of unions, the Clean Air and
| Water Acts, etc)
|
| 3. Computers really start taking over (obviously
| accelerates in the 80s)
|
| 4. Women started having real careers on a large scale
| reedjosh wrote:
| 1. Closing the gold window
|
| Inflation benefits those that can leverage dollar
| denominated debts against inflationary hedges. Wealthy
| people with assets undoubtably can do this at a grand
| scale while the closest thing an average person can do is
| buy a house.
|
| 2. Outsourcing of manufacturing begins in earnest
| (combined with weakening of unions, the Clean Air and
| Water Acts, etc)
|
| Yes, and maybe slower globalization would have been
| better, but I personally am a free market all the way
| guy.
|
| 3. Computers really start taking over (obviously
| accelerates in the 80s)
|
| This is akin to making the `pie` that is the economy
| greater. It does does not explain why the wealthy gained
| most of the new growth of said `pie`.
|
| 4. Women started having real careers on a large scale
|
| I'm a bit torn on this as an argument. Women having
| careers should have increased the size of the economic
| `pie` and everyone should have been better off, but what
| seems to have happened is that competition between
| laborers became more intense and while the `pie` grew,
| the average person lost a significant portion of their
| share.
|
| I have yet to fully wrap my head around this one, but it
| seems like labor competition combined with corporate and
| or governmental control in a way that prevented the
| distribution of the increased productivity?
| kube-system wrote:
| > 3. Computers really start taking over (obviously
| accelerates in the 80s)
|
| > This is akin to making the `pie` that is the economy
| greater. It does does not explain why the wealthy gained
| most of the new growth of said `pie`.
|
| Sure it does. The productivity gains from any tool are a
| direct monetary benefit to those who implement it. The
| pie is only subsequently redistributed if other market
| effects coerce the original beneficiary into doing so.
|
| Record-keepers, secretaries, etc, being laid off from
| their job obviously have no opportunity to negotiate for
| higher wages as a result of that productivity gain. The
| only people who were in a position to negotiate were the
| ones who could implement these new tools. And they did:
| tech jobs are well paid.
| notahacker wrote:
| You've missed massive oil price shocks, the least
| controversial and most quantifiable.
|
| It's also notable how many of the wage effects really
| took off in the 1980s, when there were a lot more
| dramatic policy shifts.
| kube-system wrote:
| We're not comparing equal "short term" and "long term"
| events though. The short term effects are much more
| severe in nature. And because they are severe, these
| "short term" economic effects end up causing long term
| financial impacts for the people they impact, even after
| the economy has recovered.
|
| Most non-high income people do not have huge rainy-day
| funds. If they lose their job, even for a short period of
| time, they will find themselves relying on debt that is a
| lot more expensive than 2% inflation.
|
| Stability has a high value, it is just hard to measure in
| dollars.
|
| > When someone says something like "undoubtedly/obviously
| X" or "its commen sense that X" 99% of the time they
| haven't put much thought into it.
|
| Or rather, it's an easy question to answer because we've
| seen the situation happen many times. Who suffers during
| economic downturns?
| billytetrud wrote:
| We should probably define what kind of stability we're
| talking about before we devolve into fisticuffs. Are we
| talking about a "stable" economy? A stable buying power
| of the currency? Something else?
| kube-system wrote:
| I am referring to economic stability.
| billytetrud wrote:
| Well, in a gold-backed world, we had frequent but small
| bubbles that corrected inefficient economic activity
| relatively quickly. In a post-gold-backed world, we have
| less frequent but much much larger bubbles that result in
| devastating economic crises. Is that really the stability
| you want?
|
| With modern economic knowledge, technology, and
| techniques, a gold-backed dollar could be quite a bit
| more stable than it was in the 1800s, don't you agree?
| But we don't have to go back to gold to fix this problem.
| The problem is not gold or not gold. The problem is
| massive monetary inflation. That can be solved without
| going back to gold backing. What gold-backing did was
| create a culture that believed in a limited money supply.
| When we destroyed that culture, we created the problem.
| notahacker wrote:
| Has it not occurred to you that it's precisely the modern
| economic knowledge, technology and techniques that have
| driven us away from gold backed dollars or trying to fix
| the money supply (and float the interest rate or crash
| the banks)? I mean, macroeconomists have spent the
| majority of the last century proposing and carrying out
| natural experiments on different monetary policies: if
| they've moved from being almost universally in favour of
| the Gold Standard to almost universally against it,
| that's not evidence that what we've actually learned is
| how to make a Gold Standard work.
|
| And no, our post-gold standard economic crises have not
| been proportionally more devastating than the Great
| Depression, or taken as long to rectify as the Long
| Depression, and I don't long for that kind of "stability"
| billytetrud wrote:
| > Has it not occurred to you that it's precisely the
| modern economic knowledge, technology and techniques that
| have driven us away from gold backed dollars
|
| It hasn't because its patently false. Both the gold
| confiscation in 1931 and cutting the cord of gold-backing
| in 1971 were both done as desparately rushed moves to
| reneg on the governments promise to uphold the value of
| the dollar. These weren't thoughtful reasoned well
| discussed actions. It had nothing to do with technology
| or best practices. It was a purely a politically
| expedient way to prevent collapse of an insolvent dollar.
|
| > macroeconomists have spent the majority of the last
| century proposing and carrying out natural experiments
|
| You don't run experiments in macroeconomics. Controls are
| impossible. And studies have so many confounding
| variables that any conclusions we come to are many orders
| of magnitude less certain than anything in the hard
| sciences.
|
| > our post-gold standard economic crises have not been
| proportionally more devastating than the Great Depression
|
| You must have misunderstood me. I never said any such
| thing.
| dnautics wrote:
| Iirc our post gold standard crises have been nominally at
| least _near_ as bad as the great depression. Of course we
| have much,much better infrastructure, healthcare,
| communication, etc, which economists tend not to take
| into account for how there aren 't a starving people
| dying in the streets. None of that matters, it's all the
| stewardship of the fed.
| dnautics wrote:
| > Most non-high income people do not have huge rainy-day
| funds.
|
| Why do you suppose that is? See, the system protects
| itself.
| kube-system wrote:
| Those same people did not have large rainy-day funds
| pre-1970's either. Poor people have always spent most of
| their money.
| dnautics wrote:
| You're evading the point. The savings rate has gone down
| since then. Today the middle class has no savings, not
| just the poor
| kbenson wrote:
| Attributing that to any one thing requires a large amount
| of evidence. For example, Americans spend a much larger
| percentage of their income on housing than they did in
| the past.[1] House prices vary wildly based on local
| because of demand and local legislation that affects how
| and what can be built. How much of that is because of
| increased housing cost, and how much of increased housing
| cost is because of monetary policy which is national and
| not local conditions, when prices vary so much by locale?
|
| If you're trying to make a case that the middle class has
| less savings because of reasons other than that, it seems
| prudent to at least explain that away.
|
| 1: https://listwithclever.com/research/home-price-v-
| income-hist...
| reedjosh wrote:
| Housing is one of the _very_ few ways a peasant can
| leverage debt beyond his means to hedge against
| inflation.
|
| There's no other way I could take out a loan for > $100k
| to buy an asset. Since leveraging dollar debts to assets
| is the only sane thing to do in an inflationary regime,
| it's no surprise that housing has become ridiculously
| overpriced.
|
| Buying a house is the only way an average person can
| utilize financial techniques of the wealthy. Namely
| leveraging dollar debts against an inflationary hedge.
| billytetrud wrote:
| And the rise in housing prices is a bubble created by
| monetary inflation. Asset prices increase first when
| money is created. Houses are one of the many safe havens
| that people put their money into when the economy has
| poor investment and savings options. Monetary inflation
| also fuels cheap loans that inflate these assets and get
| people into long term debt obligations - because money is
| largely created by giving out loans. This is all part of
| the same problem.
| imtringued wrote:
| >Monetary inflation also fuels cheap loans that inflate
| these assets and get people into long term debt
| obligations
|
| You're forgetting something extremely important here.
| It's the savings that are fueling cheap loans. Those
| savings force the Fed to lower interest rates. It's not
| the Fed that is making this decision, it's the market
| collectively deciding that depositing money and lending
| it out is the best use of their money and those savings
| have to go somewhere.
|
| Before 2008 those savings were flooding into mortgage
| bonds and banks ran out of mortgages to sell so they just
| took subprime mortgages and got the rating agencies to
| lie for them. All for that sweet sweet commission.
| Filligree wrote:
| How does inflation suck money from the poor? That is, the
| ones who are most likely to have loans that will be
| reduced by that very same inflationary policy.
| dnautics wrote:
| > How does inflation suck money from the poor? That is,
| the ones who are most likely to have loans...
|
| why the hell is this still a belief? The indebted poor
| have revolving credit at best (think 10%-ish APR) or
| short-term credit (payday loans: 15%+ APR). Inflation
| does not help those situations.
|
| The wealthy are benefitting from low-interest rate loans
| (margin accounts, leveraged trading, options) that are
| enabled by the existence of inflation, and by the
| mechanism, which is providing a discount window to banks
| (so they ride on nominal gains and are insulated from
| real devaluation).
|
| Consider someone who is spending 95% of their income on
| day to day expenses, and we have a 1% increase in prices.
| Now you are spending 96% of your income on day to day
| expenses, which is a 20% decrease in margin of safety.
| It's even worse if you start at 99%.
|
| If you are spending 20% of your income on day to day
| expenses and have a 1% increase in prices, your margin of
| safety loss is < 2%.
|
| "But wages catch up" you say. No they don't. Otherwise
| inflation as a policy doesn't work.
|
| https://krugman.blogs.nytimes.com/2010/02/13/the-case-
| for-hi...
|
| "in the long run, it's really, really hard to cut nominal
| wages. Yet when you have very low inflation, getting
| relative wages right would require that a significant
| number of workers take wage cuts."
|
| Inflation is a stealth wage cut, a matter of _policy_ for
| cheating the labor class. Don 't get me wrong, it's well
| intentioned - it's to prop up the low unemployment
| metric, but Goodheart's law applies.
|
| Finally, inflation forces the middle class to invest
| instead of save, to stay afloat and build up a retirement
| nest egg. Investments typically must go through approved
| channels, e.g. "the stock market" which
| disproportionately favors the already wealthy, e.g. CEOs,
| investment managers, hedge funds.
|
| Thus it is a siphon that steals wealth from the poor and
| middle class and gives it to the wealthy.
| dragonwriter wrote:
| > "But wages catch up" you say. No they don't.
|
| They did until a series of _fiscal policy_ (tax and
| spending) changes in the 1970s and 1980s (including the
| massive Reagan tax burden shift onto workers) put the
| kibosh on it. Since then, not so much, but that's not a
| _monetary policy_ issue, insofar as those two things have
| been artificially segmented.
|
| > Inflation is a stealth wage cut, a matter of policy for
| cheating the labor class.
|
| You are misunderstanding the Krugman quote. The value he
| is citing is that as there are demand shifts in the
| economy, inflation allows small short-term real wage cuts
| in segments of the economy seeing decreased demand and
| therefore profitability without reducing nominal wages
| (whumich tend to be sticky), reducing resort to job cuts
| as a response, providing a buffer between short-term
| fluctuations and unemployment.
|
| Krugman is not saying that inflation enables long-term,
| general real wage cuts to be more easily implemented or
| that it would be good for it to do so.
|
| > Finally, inflation forces the middle class to invest
| instead of save
|
| The middle and upper class are, _by definition_ the
| clases with substantial dependence on the returns from
| productive capital. Inflation doesn 't force the moddle
| class to invest in capital, substantial investment in
| capital while still having a dependency on your labor is
| what defines being middle class. You can choose not to
| invest in capital, whether by stuffing money in a
| mattress or blowing it on hookers and blackjack, but if
| you do that _you aren't middle class_.
|
| > Thus it is a siphon that steals wealth from the poor
| and middle class and gives it to the wealthy.
|
| No, the siphon that does that is the series of tax burden
| shifts adopted over the last several decades with the
| express design of rewarding/encouraging the wealthy
| (often euphemized as "job creators").
| dnautics wrote:
| > Krugman is not saying that inflation enables long-term,
| general real wage cuts to be more easily implemented or
| that it would be good for it to do so.
|
| You're right, that's not what he's saying. That doesn't
| mean it's not happening.
|
| Fact of the matter is that we can't decouple the
| "shifting of the tax burden" from the detachment of the
| dollar. However, we will soon find out. Biden is shifting
| the tax burden back, and we're gonna get inflation. My
| prediction is that in 10 years the lower and middle
| classes are going to be absolutely reamed by both of
| these and the upper class will be unscathed or even
| richer (lower class due to inflation directly and middle
| class due to bracket creep + taxes intended for the
| wealthy). Your prediction should be that income
| inequality will be ameliorated. We'll see who is correct.
| notahacker wrote:
| > The indebted poor have revolving credit at best (think
| 10%-ish APR) or short-term credit (payday loans: 15%+
| APR). Inflation does not help those situations
|
| Forcing down inflation raises interest rates, and lower
| interest rates help the significantly indebted a _lot_.
| Interest is _literally_ a siphon that takes wealth from
| people that are earning it and gives it to those who
| already had it. And the debt to wealth ratio of the
| bottom wealth decile of the UK is 3:1
|
| The debt to wealth ratio of the top wealth decile is,
| obviously, a lot smaller. They might borrow when it's tax
| efficient to do so, but they don't _need_ to. Also lower
| interest rates actually reduce the returns they 're
| getting on lending their money. Sure, low interest rates
| don't hurt their property portfolios, and are fantastic
| for people _becoming_ rich by starting companies that
| burn through a lot of borrowed cash (and create jobs),
| but in general interest is a subsidy for the rich.
| imtringued wrote:
| >The wealthy are benefitting from low-interest rate loans
| (margin accounts, leveraged trading, options) that are
| enabled by the existence of inflation,
|
| Low interest rate loans exist because of low inflation.
| If there was high inflation and full employment those
| rates would go up very quickly.
|
| >Consider someone who is spending 95% of their income on
| day to day expenses, and we have a 1% increase in prices.
| Now you are spending 96% of your income on day to day
| expenses, which is a 20% decrease in margin of safety.
| It's even worse if you start at 99%.
|
| Your employer also has now room to pay you 1% higher
| wages.
|
| >"But wages catch up" you say. No they don't. Otherwise
| inflation as a policy doesn't work.
|
| They do with full employment. Inflation only exists to
| erode the value of income earned in the past to encourage
| investment. To make sure those investments pay off,
| inflation also raises future incomes.
|
| >Inflation is a stealth wage cut, a matter of policy for
| cheating the labor class. Don't get me wrong, it's well
| intentioned - it's to prop up the low unemployment
| metric, but Goodheart's law applies.
|
| It's a hack to get to full employment. Once you have full
| employment workers can negotiate for increases that catch
| up with productivity, which today would go well above the
| current inflation rate.
|
| >Finally, inflation forces the middle class to invest
| instead of save, to stay afloat and build up a retirement
| nest egg. Investments typically must go through approved
| channels, e.g. "the stock market" which
| disproportionately favors the already wealthy, e.g. CEOs,
| investment managers, hedge funds.
|
| If the USD in your bank account don't represent wealth in
| the physical world they are effectively worthless. You're
| also forgetting that those investments will create jobs
| and some of those jobs are middle class jobs.
|
| >Thus it is a siphon that steals wealth from the poor and
| middle class and gives it to the wealthy.
|
| Ok, tell me your magic solution to achieve full
| employment and letting wages catch up with productivity.
| mullingitover wrote:
| > Finally, inflation forces the middle class to invest
| instead of save, to stay afloat and build up a retirement
| nest egg. Investments typically must go through approved
| channels, e.g. "the stock market" which
| disproportionately favors the already wealthy, e.g. CEOs,
| investment managers, hedge funds.
|
| If only there was some common investment vehicle, a
| 'shelter,' if you will, that could shelter you from
| inflation while simultaneously sheltering you from the
| elements?
| billytetrud wrote:
| Its called Seigniorage. The people and businesses closest
| to the money creation gain more from the creation of the
| money. That's because when new money is first used,
| prices haven't accounted for it yet. It takes a lot of
| time for that to happen. So by the time that money has
| trickled down to the masses, prices have inflated to
| account.
|
| Not only that, but that money is very often used to fuel
| government debt, which only leads to paying more money
| later down the line. Debt rises faster than inflation
| dilutes the money supply, so its simply not true that we
| can simply print enough money to devalue our debt. The
| more money we print, the more in debt we'll collectively
| be.
| grey-area wrote:
| The rich have large leveraged loans, mortgages, and lots
| of assets - ideally situated to benefit from inflation
| and are not impacted by the price of food or rents.
|
| In contrast the poor typically have small loans, rents
| and rely on wage inflation, which usually trails price
| inflation by some way.
| bobthepanda wrote:
| To a degree you have to have something to put up to have
| a loan in the first place.
|
| The finances of some freshly minted doctor loaded with
| medical school debt look a lot different than an unbanked
| poor person who's never qualified for credit.
| dragonwriter wrote:
| > To a degree you have to have something to put up to
| have a loan in the first place.
|
| Dollar denominated debt doesn't all originate with
| getting credit-check-qualified approval for a loan.
| bobthepanda wrote:
| I don't know that the poor were any better off before the
| Federal Reserve system; in fact, it made the possibility
| of monetary rescue even _more_ exclusive.
|
| Part of the reason why the Federal Reserve was formed was
| because in 1907 J.P. Morgan got his boys' club together
| and coordinated a financial rescue, but tough luck if you
| weren't benefitting from that.
| dnautics wrote:
| Broken window fallacy.
|
| Letting things fail is a possibilty. The boys' club can
| get together and coordinate a rescue, but in one out of
| every n attempts of coordinated rescue, they'll fail.
| Which will be good for leveling income inequality.
| xxpor wrote:
| That's also how you end up with wars.
| [deleted]
| dnautics wrote:
| No, since 1900 wars are more correlated with inflationary
| predictors than deflationary predictors.
| imtringued wrote:
| Wars create a lot of debt and inflation is effectively
| the act of not honoring the debt. It's pretty obvious why
| inflation follows wars.
| xxpor wrote:
| They're correlated with instability. I'd agree _hyper_
| inflation is a cause of instability. 2-3% isn 't.
| dnautics wrote:
| You are making an assertion based on a model that is
| strictly in your head because it seems "right". Please
| check your history.
| billytetrud wrote:
| I wish there was more rigorous discussion of monetary
| economics - or economics in general. Most people are
| economically illiterate, and economists are doing a real
| bad job of teaching it. The most famous ones seem to be
| constantly on the bleeding edge of whatever semi-verified
| theory they've pushed for decades without considering
| that they might be wrong sometimes.
| billytetrud wrote:
| > Which directly leads to instability when the value of the
| backing changes.
|
| You're not correct. Instability leads to changes in the
| buying power of currency, not the other way around. Unless
| you're talking about monetary inflation. What mechanism do
| you think there is to change the value of gold in a gold-
| backed world? The mechanism is that when there are better
| places to put your money than keeping it in dollars (gold
| backed or otherwise) the value of those dollars goes down.
| And vice versa, when there are fewer better places to put
| your money, more wealth will be held as currency and push
| its price up (this is why deflation is seen as bad -
| beacause it generally coincides with an economy that has
| been invisibly failing for years).
|
| Monetary policy had been inflationary and insolvent, and
| rampant expansion of the money supply lead to high price
| inflation which of course ended in a crash. It was monetary
| expansion that lead to the problems in the 70s not
| mysterious changes to the value of gold.
| reedjosh wrote:
| Pretty sure the value of gold only truly fluctuates against
| fiat currencies. It's not the intrinsic value of gold that
| fluctuates. In Roman times the value of an ounce of gold
| would buy a handmade robe, belt, and shoes. At today's
| value $1800, you could do exactly the same.
| Gibbon1 wrote:
| One thing I read about. Before the great depression mortgages
| were much different than they are after the New Deal Reforms.
|
| Loans were usually interest only. You had to either pay or
| refinance the principle at the end of the term. Which might be
| five or ten years.
|
| If you defaulted the lender would take the collateral, all of
| it.
|
| Critically loans were denominated in both dollars and gold. And
| could be called in often at any time to be repaid in dollars or
| gold, which ever was highest.
|
| You can easily see how these could be abused by banks.
|
| If you were a small time farmer during a downturn the price
| your crops fetch drops, the value of your farm drops. But the
| price of gold goes up which increases the amount you owe. The
| bank would then call in your loan and because you can't pay in
| gold take your farm. Leaving you with zilch.
|
| The above is why FDR closed the banks when he took office.
| Because banks were strategically destroying the economy.
| dmckeon wrote:
| The key issue for "Free Silver" is not paper certificates, nor
| unlimited coinage, but the fixed exchange rate between silver
| and gold, in which the two metals were considered primarily as
| money, and not as commodities with separately varying supply
| and demand patterns.
|
| Imagine briefly a market in which APPL and TSLA common stock
| were subject to a fixed price ratio. Crazy idea, yes? But a
| 16:1 ratio for silver:gold makes just as much sense from a
| _market_ point of view.
|
| For the consumer, investor, banker, a fixed ratio is a nice
| convenience, but if the supply or demand for either gold or
| silver were to change significantly, opportunities for
| arbitrage could become very profitable. Now think of the
| California gold rush, the Comstock silver lode, and the
| hundreds of other mining booms between 1850 and 1896.
|
| Who benefited, and who paid? Were WJ Bryan and other orators
| and politicians champions of the masses or tools of the robber
| barons?
| cratermoon wrote:
| Oh, there's the gap in my history class. We never learned
| about the economics and the fixed exchange ratio. I always
| looked back and presumed they were independently trading
| commodities the way they are today.
|
| To answer your question, Bryan was a champion of the masses
| in the same way the prior occupant of the Oval Office was a
| champion of the masses.
| skak wrote:
| Ultimately, WJ Bryan was both a tool of capital and a
| champion of the masses, but the free silver effort was an the
| exceptional issue for the reasons you explained.
|
| I think farmers loans are worth mentioning specifically. The
| fixed ratio was terrible for farmers who had to seasonally
| borrow money and pay it back with interest.
| AnimalMuppet wrote:
| Could you expand on that a bit? _Why_ did the fixed ratio
| hurt farmers (or anyone who had to borrow)? Or, how would a
| float between silver and gold have helped them?
|
| It's not like a bank is going to lend you gold dollars and
| accept being paid back in silver dollars (or vice versa) if
| the ratio between them isn't fixed...
|
| [Edit: Never mind, ffggvv answered this question below.]
| sohei wrote:
| Article leads with momentum for Tubman Twenties. Good news! You
| don't have to wait:
|
| https://blog.adafruit.com/2017/10/12/turn-your-20s-into-tubm...
| [deleted]
| macawfish wrote:
| In case you hadn't heard, some people think this is what the
| Wizard of Oz is all about:
| https://en.wikipedia.org/wiki/Political_interpretations_of_T...
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