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Gold Standard

GOP
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6/17/2014 5:31:16 AM
Posted: 2 years ago
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.
slo1
Posts: 4,308
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6/17/2014 2:10:19 PM
Posted: 2 years ago
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

What do you need materials for? The only reason gold is useful as a currency is that it is limited and not easy to produce. Bitcoins solved the ability to provide a similar electronic record that meets the same requirements, primarily the inability to expand the money supply by just creating more without a cost to create it.
twocupcakes
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6/17/2014 5:51:06 PM
Posted: 2 years ago
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Fiat currency is better. It does not need to be backed up and the government can control the money supply? Why back up the dollar?
inferno
Posts: 10,549
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6/17/2014 5:52:38 PM
Posted: 2 years ago
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

You should never put Gold Standard and GOP in the same category okay. =)
GOP
Posts: 453
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6/17/2014 6:56:12 PM
Posted: 2 years ago
At 6/17/2014 5:52:38 PM, inferno wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

You should never put Gold Standard and GOP in the same category okay. =)

Wait what?
inferno
Posts: 10,549
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6/17/2014 6:56:51 PM
Posted: 2 years ago
At 6/17/2014 6:56:12 PM, GOP wrote:
At 6/17/2014 5:52:38 PM, inferno wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

You should never put Gold Standard and GOP in the same category okay. =)

Wait what?

Nevermind. Yes, gold is the standard and its value shall always be. Good day.
GOP
Posts: 453
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6/17/2014 6:58:07 PM
Posted: 2 years ago
At 6/17/2014 5:51:06 PM, twocupcakes wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Fiat currency is better. It does not need to be backed up and the government can control the money supply? Why back up the dollar?

Why can't we use that now, then?
GOP
Posts: 453
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6/17/2014 7:00:03 PM
Posted: 2 years ago
At 6/17/2014 2:10:19 PM, slo1 wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

What do you need materials for? The only reason gold is useful as a currency is that it is limited and not easy to produce. Bitcoins solved the ability to provide a similar electronic record that meets the same requirements, primarily the inability to expand the money supply by just creating more without a cost to create it.

I meant to say that there are other materials that are also limited like gold. Since we can't possess enough gold to back up every dollar bill, couldn't we make up for this by using other materials that are equivalent to gold (value-wise)?
GOP
Posts: 453
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6/17/2014 7:00:25 PM
Posted: 2 years ago
At 6/17/2014 2:10:19 PM, slo1 wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

What do you need materials for? The only reason gold is useful as a currency is that it is limited and not easy to produce. Bitcoins solved the ability to provide a similar electronic record that meets the same requirements, primarily the inability to expand the money supply by just creating more without a cost to create it.

I meant to say that there are other materials that are also limited like gold. Since we can't possess enough gold to back up every dollar bill, couldn't we make up for this by using other materials that are equivalent to gold?
twocupcakes
Posts: 2,748
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6/17/2014 8:18:55 PM
Posted: 2 years ago
At 6/17/2014 6:58:07 PM, GOP wrote:
At 6/17/2014 5:51:06 PM, twocupcakes wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Fiat currency is better. It does not need to be backed up and the government can control the money supply? Why back up the dollar?

Why can't we use that now, then?

We do use fiat currency now
GOP
Posts: 453
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6/18/2014 7:50:07 AM
Posted: 2 years ago
At 6/17/2014 8:18:55 PM, twocupcakes wrote:
At 6/17/2014 6:58:07 PM, GOP wrote:
At 6/17/2014 5:51:06 PM, twocupcakes wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Fiat currency is better. It does not need to be backed up and the government can control the money supply? Why back up the dollar?

Why can't we use that now, then?

We do use fiat currency now

Has that helped us decrease inflation?
RoyLatham
Posts: 4,488
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6/18/2014 8:00:45 AM
Posted: 2 years ago
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.

Using any commodity as the basis of the currency risks the possibility that availability of the commodity will outrun the economy. When the Spanish brought back huge quantities of gold from the New World, they suffered enormous inflation rather than riches. The gold supply grew greater than the economy, so there was more money than the goods and services produces. Today, gold supply might be dramatically increased if the technology of mining asteroids turns out to be productive or it someone figures out how to extract gold from sea water. Recently, someone demonstrated a method for extracting uranium from sea water, so it doesn't seem impossible.

The current method for regulation the money supply in the United States is for the Federal Reserve board to decide how much money should be added to the economy. The problem with that is that the Fed is subject to political pressure to expand the money supply to stimulate the economy. Many years ago, Milton Friedman proposed replacing the human decision making process of the Fed with a formula that made the decision automatically. Measures of the money supply would determine interest rates such that the money supply increased at the rate of normal economic expansion, about two percent. The idea is an example of rule by an objective computer program, akin to governing by a robot.
slo1
Posts: 4,308
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6/18/2014 10:46:56 AM
Posted: 2 years ago
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.

Using any commodity as the basis of the currency risks the possibility that availability of the commodity will outrun the economy. When the Spanish brought back huge quantities of gold from the New World, they suffered enormous inflation rather than riches. The gold supply grew greater than the economy, so there was more money than the goods and services produces. Today, gold supply might be dramatically increased if the technology of mining asteroids turns out to be productive or it someone figures out how to extract gold from sea water. Recently, someone demonstrated a method for extracting uranium from sea water, so it doesn't seem impossible.

The current method for regulation the money supply in the United States is for the Federal Reserve board to decide how much money should be added to the economy. The problem with that is that the Fed is subject to political pressure to expand the money supply to stimulate the economy. Many years ago, Milton Friedman proposed replacing the human decision making process of the Fed with a formula that made the decision automatically. Measures of the money supply would determine interest rates such that the money supply increased at the rate of normal economic expansion, about two percent. The idea is an example of rule by an objective computer program, akin to governing by a robot.

Good post. In addition to being deflationary, a gold standard does not preclude it self from manipulation. What is to stop a government to suddenly repeg the value of an ounce of gold to the dollar. IE: Instead of 1 oz of gold = $1,000 it now equals $1,200.

The only true way to get manipulation would be to do as you and Friedman propose, but business expansion and cycle is not linear nor should money supply be linear. We need more strict governance on it so we don't cause excesses in the business cycle, but at some times we just need more and other times less. It is like goldilocks. Not too hot, not too cold, somewhere in the middle is just right.
drhead
Posts: 1,475
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6/18/2014 11:23:42 AM
Posted: 2 years ago
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

How about energy? An energy standard would, for the most part, ensure that prices for goods stay the same until the actual cost of making that good changes, which would mean that prices should generally decrease where the money supply increases as we build more power plants.

http://www.energybackedmoney.com...

This is a fairly long read, but this page and the subsequent chapters go into detail on how this would work. I've yet to see any criticism for this system, even after looking for criticism of it.
Wall of Fail

"You reject religion... calling it a sickness, to what ends??? Are you a Homosexual??" - Dogknox
"For me, Evolution is a zombie theory. I mean imaginary cartoons and wishful thinking support it?" - Dragonfang
"There are no mental health benefits of atheism. It is devoid of rational thinking and mental protection." - Gabrian
RoyLatham
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6/18/2014 12:06:52 PM
Posted: 2 years ago
The article proposes that a kilowatt-hour be adopted as the standard of exchange. But what kind of kilowatt hour? A kwh used to move automobiles is worth more than a kwh used to generate electricity, because energy must be more concentrated for mobile use and the economic of scale from, say, a nuclear reactor is not possible. A kwh in a remote location is worth more than a kwh near a power source.

But once a set of conditions is picked, say a kwh of electricity 50 miles from a power plant, then the problem of technological advancement sets in. I think the cost of energy is likely to drop in the long run, as new technology comes into play. How much will electricity cost in 100 years as the technology of solar power satellites comes into play? Or maybe there will higher energy costs will prevail? The objective is to have stability due to the money supply equaling economic growth, and that's not predictable.

Finally, energy is not readily stored or transferred like other commodities. Something oil or coal can be stored, but the article already shoots those down as viable monetary standards. You can hand over a dollar's worth of gold in return for something, but not a bunch of kilowatts.

At 6/18/2014 11:23:42 AM, drhead wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

How about energy? An energy standard would, for the most part, ensure that prices for goods stay the same until the actual cost of making that good changes, which would mean that prices should generally decrease where the money supply increases as we build more power plants.

http://www.energybackedmoney.com...

This is a fairly long read, but this page and the subsequent chapters go into detail on how this would work. I've yet to see any criticism for this system, even after looking for criticism of it.
RoyLatham
Posts: 4,488
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6/18/2014 12:27:11 PM
Posted: 2 years ago
At 6/18/2014 10:46:56 AM, slo1 wrote:

The only true way to get manipulation would be to do as you and Friedman propose, but business expansion and cycle is not linear nor should money supply be linear. We need more strict governance on it so we don't cause excesses in the business cycle, but at some times we just need more and other times less. It is like goldilocks. Not too hot, not too cold, somewhere in the middle is just right.

Monetarists claim that the business cycle is made worse by the Fed's attempt to subjectively judge stimulus and consistently getting it wrong. If the right amount of money is that which causes neither inflation nor deflation, then the formula method works. Experience suggests that judgment of what's best usually errs.

There is a separate problem with fiscal policy having been abandoned, with deficits accrued in boom and bust alike. It's too much to expect monetary policy to make up for a lack of fiscal discipline.
drhead
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6/18/2014 1:21:50 PM
Posted: 2 years ago
At 6/18/2014 12:06:52 PM, RoyLatham wrote:
The article proposes that a kilowatt-hour be adopted as the standard of exchange. But what kind of kilowatt hour? A kwh used to move automobiles is worth more than a kwh used to generate electricity, because energy must be more concentrated for mobile use and the economic of scale from, say, a nuclear reactor is not possible. A kwh in a remote location is worth more than a kwh near a power source.

I would assume it generally means kilowatt-hours of electricity delivered to residences or businesses by electric utility companies, as measured by their meter box. The actual price charged for electricity fluctuates quite a bit when measured over very short terms, so a yearly average would probably be the most reliable measure. It's fairly likely that the price of gasoline would be affected by the cost of the alternative of getting an electric car, or by how much could be gained by instead burning the gasoline to produce residential electricity. However, interestingly enough, gas prices currently seem to be equal to the price of the equivalent 33.4 kWh of energy contained within the gasoline, at least when using my local rates for electricity.

But once a set of conditions is picked, say a kwh of electricity 50 miles from a power plant, then the problem of technological advancement sets in. I think the cost of energy is likely to drop in the long run, as new technology comes into play. How much will electricity cost in 100 years as the technology of solar power satellites comes into play? Or maybe there will higher energy costs will prevail? The objective is to have stability due to the money supply equaling economic growth, and that's not predictable.

As the article states, when the price of electricity goes below a certain point, new money would be introduced by printing new money and reducing taxes temporarily in order to introduce the new money. In addition, it shows that from 1971 to 2008, the price of electricity has dropped at a rate of about 2% per year relative to the money supply. Generally, a rate of change that low should not be too unpredictable to keep within a certain range. However, this does raise the question of what happens if the cost of energy varies over a greater range than the proposed "ideal" price range. In that case,I think it would be reasonable to assume that more expensive means of energy production would see less investment and would be phased out. Subsidies could be given out in order to ease the burden of serving rural areas, if that causes too much variance. That much should keep electricity prices within a small range.

Finally, energy is not readily stored or transferred like other commodities. Something oil or coal can be stored, but the article already shoots those down as viable monetary standards. You can hand over a dollar's worth of gold in return for something, but not a bunch of kilowatts.

As it states in chapter 8, carrying around a battery and discharging it into a cash register to make a purchase obviously isn't going to work, which is why the currency is representative. It is only backed in that the entity backing it is adjusting the money supply to make the cost of electricity remain around the same amount. If the price goes above the guaranteed amount, tax rates are increased and money spent beyond the guaranteed conversion rate is reimbursed once the price has fallen to normal levels. More fundamental to the idea is the fact that the cost of any good or service can (given sufficient skill in mathematics) be quantified in terms of energy, whether it is the cost of extracting a resource, of producing a good, or the cost of living for the workers.

At 6/18/2014 11:23:42 AM, drhead wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

How about energy? An energy standard would, for the most part, ensure that prices for goods stay the same until the actual cost of making that good changes, which would mean that prices should generally decrease where the money supply increases as we build more power plants.

http://www.energybackedmoney.com...

This is a fairly long read, but this page and the subsequent chapters go into detail on how this would work. I've yet to see any criticism for this system, even after looking for criticism of it.
Wall of Fail

"You reject religion... calling it a sickness, to what ends??? Are you a Homosexual??" - Dogknox
"For me, Evolution is a zombie theory. I mean imaginary cartoons and wishful thinking support it?" - Dragonfang
"There are no mental health benefits of atheism. It is devoid of rational thinking and mental protection." - Gabrian
twocupcakes
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6/18/2014 4:57:55 PM
Posted: 2 years ago
At 6/18/2014 7:50:07 AM, GOP wrote:
At 6/17/2014 8:18:55 PM, twocupcakes wrote:
At 6/17/2014 6:58:07 PM, GOP wrote:
At 6/17/2014 5:51:06 PM, twocupcakes wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Fiat currency is better. It does not need to be backed up and the government can control the money supply? Why back up the dollar?

Why can't we use that now, then?

We do use fiat currency now

Has that helped us decrease inflation?

Yes. Inflation has been really low in recent history.

http://www.imf.org...=
16kadams
Posts: 10,497
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6/18/2014 9:55:19 PM
Posted: 2 years ago
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Well this begs the question as to whether or not inflation is a bad thing. Although purchasing power of the dollar would decrease over time with modest inflation, wages and interest would increase correspondingly and offset the effect of a less valuable dollar. So, at worst, inflation (at a modest level) has little effect on the economy. And in fact, it probably is slightly beneficial to the economy to have a growing monetary base as the economy grows.

But the fact is, to have any metal or substance back all of the money would restrict economic growth. Economic growth would be constrained by the supply of whatever we are backing the currency with. In a growing economy, any system like the gold standard would cause deflation and therefore stunt economic growth. No new supply of whatever we are backing the money with, no growth.

In fact, we see this in the dark ages. When the roman empire fell the gold production came to a halt. This caused what we today call the 'dark ages'. Although the dark ages weren't fully dark (less war, longer lifespans, great artwork and philosophy you will see if you read a 'does god exist' debate), there was little economic growth, in part due to the societies reliance on gold. Although not the perfect analogy, the idea remains the same: we would see a decrease in growth if we had a substance like gold, silver, platinum, or all of them backing currency.

Pretty much, inflation isn't a problem, and 'backing' the currency therefore has little purpose with a large list of drawbacks.
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RoyLatham
Posts: 4,488
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6/19/2014 10:48:04 AM
Posted: 2 years ago
At 6/18/2014 1:21:50 PM, drhead wrote:

I would assume it generally means kilowatt-hours of electricity delivered to residences or businesses by electric utility companies, as measured by their meter box. The actual price charged for electricity fluctuates quite a bit when measured over very short terms, so a yearly average would probably be the most reliable measure. ...

In California, there are 27 electric rates depending upon where you live and what you do with the electricity. If you charge your electric car it costs 7 cents a kwh, but running air conditioning can get you to 46 cents a kwh quickly. Taking the average of the average rates, California rates are about 50% higher than neighboring Arizona because of requirements for windmills and solar panels. New "green" requirements will push California rates even higher. I hadn't thought of it, but that's fatal to basing money on electric rates. Government policies can dramatically increase electric rates, which would have a devastating impact on the money supply.

But once a set of conditions is picked, say a kwh of electricity 50 miles from a power plant, then the problem of technological advancement sets in. I think the cost of energy is likely to drop in the long run, as new technology comes into play. How much will electricity cost in 100 years as the technology of solar power satellites comes into play? Or maybe there will higher energy costs will prevail? The objective is to have stability due to the money supply equaling economic growth, and that's not predictable.

... However, this does raise the question of what happens if the cost of energy varies over a greater range than the proposed "ideal" price range. In that case,I think it would be reasonable to assume that more expensive means of energy production would see less investment and would be phased out. ...

That should be the case, but in fact pseudo-religious requirements for green energy tend to raise electric rates. Hydroelectric power is a few cents per kwh and windmills are up around 60 cents per kwh. So the money supply can be set artificially by having government mandate the mix of green energy with conventional sources.

Finally, energy is not readily stored or transferred like other commodities. Something oil or coal can be stored, but the article already shoots those down as viable monetary standards. You can hand over a dollar's worth of gold in return for something, but not a bunch of kilowatts.

...More fundamental to the idea is the fact that the cost of any good or service can (given sufficient skill in mathematics) be quantified in terms of energy, whether it is the cost of extracting a resource, of producing a good, or the cost of living for the workers.

I think that idea is fundamentally wrong. The value of intellectual property (Apple, Facebook, etc.) is only set by market forces, not by a labor theory of value translated to energy.
Greyparrot
Posts: 14,212
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6/19/2014 10:53:07 AM
Posted: 2 years ago
At 6/18/2014 9:55:19 PM, 16kadams wrote:
At 6/17/2014 5:31:16 AM, GOP wrote:
You know how gold standard is good to prevent inflation, but can't always be practical since we cannot possess enough gold to back up every dollar bill?

Couldn't we find materials that are equivalent to gold (value-wise) and then back up the dollar bills with them? I am not sure if this works.

Well this begs the question as to whether or not inflation is a bad thing. Although purchasing power of the dollar would decrease over time with modest inflation, wages and interest would increase correspondingly and offset the effect of a less valuable dollar. So, at worst, inflation (at a modest level) has little effect on the economy. And in fact, it probably is slightly beneficial to the economy to have a growing monetary base as the economy grows.

But the fact is, to have any metal or substance back all of the money would restrict economic growth. Economic growth would be constrained by the supply of whatever we are backing the currency with. In a growing economy, any system like the gold standard would cause deflation and therefore stunt economic growth. No new supply of whatever we are backing the money with, no growth.

In fact, we see this in the dark ages. When the roman empire fell the gold production came to a halt. This caused what we today call the 'dark ages'. Although the dark ages weren't fully dark (less war, longer lifespans, great artwork and philosophy you will see if you read a 'does god exist' debate), there was little economic growth, in part due to the societies reliance on gold. Although not the perfect analogy, the idea remains the same: we would see a decrease in growth if we had a substance like gold, silver, platinum, or all of them backing currency.

Pretty much, inflation isn't a problem, and 'backing' the currency therefore has little purpose with a large list of drawbacks.

I have to agree with this. Backing an economy with a rare resource seems foolish when a large component of the economy consists of human provided services which are not finitely bound as gold is. The value of these services and the quantity of these services can change (should change with population increases) and the currency should allow for that. Using energy as a substitute for cash is interesting, as a secondary effect would be a rapid increase in techniques to produce cheap energy (much like the efforts to counterfeit currency). However, this is hardly a standardizing currency for an economy.
v3nesl
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6/19/2014 12:08:12 PM
Posted: 2 years ago
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.
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v3nesl
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6/19/2014 12:09:57 PM
Posted: 2 years ago
At 6/19/2014 12:08:12 PM, v3nesl wrote:
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

I meant to say "consumer electronics", not "consumer goods" which have mostly inflated.
This space for rent.
drhead
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6/19/2014 12:33:56 PM
Posted: 2 years ago
At 6/19/2014 10:48:04 AM, RoyLatham wrote:
At 6/18/2014 1:21:50 PM, drhead wrote:

I would assume it generally means kilowatt-hours of electricity delivered to residences or businesses by electric utility companies, as measured by their meter box. The actual price charged for electricity fluctuates quite a bit when measured over very short terms, so a yearly average would probably be the most reliable measure. ...

In California, there are 27 electric rates depending upon where you live and what you do with the electricity. If you charge your electric car it costs 7 cents a kwh, but running air conditioning can get you to 46 cents a kwh quickly. Taking the average of the average rates, California rates are about 50% higher than neighboring Arizona because of requirements for windmills and solar panels. New "green" requirements will push California rates even higher. I hadn't thought of it, but that's fatal to basing money on electric rates. Government policies can dramatically increase electric rates, which would have a devastating impact on the money supply.

I looked up some information about California's public utilities, and I didn't know up until now that some electricity companies did tiered service where more energy costs even more after a certain threshold is reached. Obviously, any system like this would have to be ruled out, or modified to where the highest tier sells at the guaranteed conversion rate if nothing else.

I do understand that different means of producing energy would result in very different rates. My proposed solution would be subsidizing more expensive but desirable energy sources. This would only be viable up to a certain point, but that is probably for the better, since it would make it difficult to continuously support power generation that is unnecessarily expensive and does not see reductions in cost. Wind power would probably be out, though perhaps offshore windmills would fare better. Ultimately, the solution would be to wait until green energy sources are cheaper. For managing global warming in the meantime, nuclear plants are a far better option than continued fossil fuel usage.

But once a set of conditions is picked, say a kwh of electricity 50 miles from a power plant, then the problem of technological advancement sets in. I think the cost of energy is likely to drop in the long run, as new technology comes into play. How much will electricity cost in 100 years as the technology of solar power satellites comes into play? Or maybe there will higher energy costs will prevail? The objective is to have stability due to the money supply equaling economic growth, and that's not predictable.

... However, this does raise the question of what happens if the cost of energy varies over a greater range than the proposed "ideal" price range. In that case,I think it would be reasonable to assume that more expensive means of energy production would see less investment and would be phased out. ...

That should be the case, but in fact pseudo-religious requirements for green energy tend to raise electric rates. Hydroelectric power is a few cents per kwh and windmills are up around 60 cents per kwh. So the money supply can be set artificially by having government mandate the mix of green energy with conventional sources.

If a new energy source costs too much to be sold at the guaranteed rate (or to be subsidized sustainably), it would be a better idea to fund research into making that source of energy cheaper. For wind power, we could perhaps fund the construction of a few test offshore wind farms while selling electricity at or below the guaranteed conversion rate. That would provide some power while not inflating electricity costs. As long as we don't construct too many experimental power plants, it shouldn't make too much of a dent in the budget, either, and it would allow us to affordably research ways to reduce the cost of new means of power generation. The worst thing that could happen would be funding research for something that is very unlikely to produce energy that would pay for the plant and its maintenance when energy is sold at the guaranteed conversion rate (like building lightning harvesting rigs in a location known to have few lightning strikes), though this could be prevented by limiting to energy sources that are already well supported by research.

Finally, energy is not readily stored or transferred like other commodities. Something oil or coal can be stored, but the article already shoots those down as viable monetary standards. You can hand over a dollar's worth of gold in return for something, but not a bunch of kilowatts.

...More fundamental to the idea is the fact that the cost of any good or service can (given sufficient skill in mathematics) be quantified in terms of energy, whether it is the cost of extracting a resource, of producing a good, or the cost of living for the workers.

I think that idea is fundamentally wrong. The value of intellectual property (Apple, Facebook, etc.) is only set by market forces, not by a labor theory of value translated to energy.

This is most likely because intellectual property is an artificial construct. Even then, we can still consider the cost of living for the creator of the content, and how much effort (or how many other talented people, in the case of art) it would take to get something else comparable, and how much materially productive labor could have been done by the same person in the same span of time. For things requiring research, the extra revenue from the exclusivity period granted by patents would represent the trial and error used in making and testing whatever it is that was made. It could also represent a share of energy saved by the new technology, which is approximately the value of the intellectual property as decided by market forces.
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16kadams
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6/19/2014 5:50:38 PM
Posted: 2 years ago
At 6/19/2014 12:08:12 PM, v3nesl wrote:
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

Well, deflation does make prices fall... And that makes it seem like a 'good' thing. However, deflation which causes prices to fall in certain markets is not a good thing. It causes people to delay spending, why buy a computer if it will be cheaper in a month? This often means long periods of people not buying products in an industry as they anticipate cheaper prices, which means profits fall, jobs are lost and wages cut. And then the business can no longer invest its money the way it sees fit.

Further, as wages fall, this will actually create a problem (duh, but hopefully this problem isn't obvious). People don't accept low paying jobs very often--of course, there will be a market, but fewer people apply for them--when there is low unemployment. Only when people are desperate will people rush to these jobs. Therefore, for this system to even work in deflation, you need mass unemployment... We know the problem with that... get the picture?
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1Historygenius
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6/19/2014 6:31:38 PM
Posted: 2 years ago
At 6/19/2014 5:50:38 PM, 16kadams wrote:
At 6/19/2014 12:08:12 PM, v3nesl wrote:
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

Well, deflation does make prices fall... And that makes it seem like a 'good' thing. However, deflation which causes prices to fall in certain markets is not a good thing. It causes people to delay spending, why buy a computer if it will be cheaper in a month? This often means long periods of people not buying products in an industry as they anticipate cheaper prices, which means profits fall, jobs are lost and wages cut. And then the business can no longer invest its money the way it sees fit.

One could argue though that this argument explains too much. Consumers do decided to bite the gullet and buy a computer even if it will be obsolete in six months. Which pretty much happens in the techno industry today as new models come out for everything. If people always hoarded for bigger price cuts then the computer industry wouldn't be viable today. Falling prices will sometimes encourages savings which helps expands loans and allows businesses to borrow and invest more. Consumers can still make profits if the materials are cheaper than finished goods and thus don't have to worry about wages.

Further, as wages fall, this will actually create a problem (duh, but hopefully this problem isn't obvious). People don't accept low paying jobs very often--of course, there will be a market, but fewer people apply for them--when there is low unemployment. Only when people are desperate will people rush to these jobs. Therefore, for this system to even work in deflation, you need mass unemployment... We know the problem with that... get the picture?

Deflation was widespread in the Roaring Twenties but wages went up especially for skilled workers. More people were hired too. Ford for example could hire more and increase production. Before WW1 his cars cost $600 but during the mid-20s they were $240 each.
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twocupcakes
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6/19/2014 6:49:35 PM
Posted: 2 years ago
At 6/19/2014 6:31:38 PM, 1Historygenius wrote:
At 6/19/2014 5:50:38 PM, 16kadams wrote:
At 6/19/2014 12:08:12 PM, v3nesl wrote:
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

Well, deflation does make prices fall... And that makes it seem like a 'good' thing. However, deflation which causes prices to fall in certain markets is not a good thing. It causes people to delay spending, why buy a computer if it will be cheaper in a month? This often means long periods of people not buying products in an industry as they anticipate cheaper prices, which means profits fall, jobs are lost and wages cut. And then the business can no longer invest its money the way it sees fit.

One could argue though that this argument explains too much. Consumers do decided to bite the gullet and buy a computer even if it will be obsolete in six months. Which pretty much happens in the techno industry today as new models come out for everything. If people always hoarded for bigger price cuts then the computer industry wouldn't be viable today. Falling prices will sometimes encourages savings which helps expands loans and allows businesses to borrow and invest more. Consumers can still make profits if the materials are cheaper than finished goods and thus don't have to worry about wages.

Deflation does not encourage businesses to invest and borrow more. Why would
businesses be encouraged to spend/invest if sitting on cash earns them value?And why would a business want to borrow if the money they pay back will be worth more than the money they borrow?


Deflation was widespread in the Roaring Twenties but wages went up especially for skilled workers. More people were hired too. Ford for example could hire more and increase production. Before WW1 his cars cost $600 but during the mid-20s they were $240 each.

If there is deflation and wages are not decreasing, than everyone is going to be paid more each year. Wages in general will have to decrease. Can you link to your deflation 20s data please?
RoyLatham
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6/20/2014 1:09:00 AM
Posted: 2 years ago
At 6/19/2014 12:33:56 PM, drhead wrote:
I looked up some information about California's public utilities, and I didn't know up until now that some electricity companies did tiered service where more energy costs even more after a certain threshold is reached. Obviously, any system like this would have to be ruled out, or modified to where the highest tier sells at the guaranteed conversion rate if nothing else.

It's not just tiered, the rates to charge an electric car are different from the rates for farming which are different from manufacturing, and so forth. The rates in the interior of the state, where air conditioning is necessary, are slightly lower than on the coast. Utility rates are part of government social and economic policy.

I do understand that different means of producing energy would result in very different rates. My proposed solution would be subsidizing more expensive but desirable energy sources. This would only be viable up to a certain point, but that is probably for the better, since it would make it difficult to continuously support power generation that is unnecessarily expensive and does not see reductions in cost. Wind power would probably be out, though perhaps offshore windmills would fare better. Ultimately, the solution would be to wait until green energy sources are cheaper. For managing global warming in the meantime, nuclear plants are a far better option than continued fossil fuel usage.

Wind and solar are intermittent power sources, so a complex switching system is required to switch between them and backup gas turbine generators. The switching system alone costs nearly as much as natural gas generation. The capital costs of the backup gas turbines must be paid even though they are not used all the time, and that more than half the cost. Solar can be used for peaking in desert locations because the sun is reliable and peaks at the time of peak air conditioning loads. Overall, the green energy costs are such that even a small amount of wind or solar raises average power costs by 50%. California lost half it's manufacturing with the first round of green requirements. Germany is facing what a cabinet minister called "deindustrialization" from energy costs. So now we'll tie the money supply to the religious pursuit of green energy.

If a new energy source costs too much to be sold at the guaranteed rate (or to be subsidized sustainably), it would be a better idea to fund research into making that source of energy cheaper. For wind power, we could perhaps fund the construction of a few test offshore wind farms while selling electricity at or below the guaranteed conversion rate. That would provide some power while not inflating electricity costs.

wind power is being written off because the turbines have a shorter life than expected. The wind is greater at the top of the windmill than at the bottom, so the blade flexes on every rotation. That leads to failure from fatigue. Off shore wind is even more expensive due to high maintenance costs and transmission line costs, plus you still need the backup generators and switching system.

Nuclear is more expensive than gas, but it is extremely reliable. Getting the politics approved is the real problem.

...The worst thing that could happen would be funding research for something that is very unlikely to produce energy that would pay for the plant and its maintenance when energy is sold at the guaranteed conversion rate (like building lightning harvesting rigs in a location known to have few lightning strikes), though this could be prevented by limiting to energy sources that are already well supported by research.

I'm all in favor of research. Wind and solar were picked as winners and put into production despite not being economically viable, and that's been a disaster. The Japanese are launching a space solar power satellite, and I think that's a good bet. But let's complete the research before putting errant sources into production.


This is most likely because intellectual property is an artificial construct. Even then, we can still consider the cost of living for the creator of the content, and how much effort (or how many other talented people, in the case of art) it would take to get something else comparable, and how much materially productive labor could have been done by the same person in the same span of time. For things requiring research, the extra revenue from the exclusivity period granted by patents would represent the trial and error used in making and testing whatever it is that was made. It could also represent a share of energy saved by the new technology, which is approximately the value of the intellectual property as decided by market forces.

That idea died with Karl Marx, or at least it should have. To get something comparable, you have to judge what is comparable, and only the free market can make that judgment. Since all actors, singers, authors, programmers, and inventors put in about the same number of hours, what they produce should, by the labor theiry of value, be worth the same. But quite obviously it's not. There is a reason why North Korea produces no interesting or valuable intellectual property and South Korea does. Understanding the reasons is fundamental.
RoyLatham
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6/20/2014 1:22:53 AM
Posted: 2 years ago
At 6/19/2014 12:08:12 PM, v3nesl wrote:
I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

When money deflates, you may be better off holding on to money than investing it because it will be more valuable next year than it is now. But discouraging investment means fewer jobs and lower earnings. That's bad. Japan had a period of deflation about a decade ago, and it was bad for employment and salaries.

Stock is a share of the value of a company. If the company makes money, the stock should be worth more if the value of money is constant.

Getting more computer power for a dollar is not reducing the value of the money.

"Growth" is not the same as inflation. The economy grows if it produces more goods and services. Inflation occurs if the amount of money grows faster than production, so t takes more money to buy the same product. Ideally, the money supply should grow at the same rate as the economy so prices are stable overall.
1Historygenius
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6/20/2014 8:22:29 AM
Posted: 2 years ago
At 6/19/2014 6:49:35 PM, twocupcakes wrote:
At 6/19/2014 6:31:38 PM, 1Historygenius wrote:
At 6/19/2014 5:50:38 PM, 16kadams wrote:
At 6/19/2014 12:08:12 PM, v3nesl wrote:
At 6/18/2014 8:00:45 AM, RoyLatham wrote:
The money supply should expand with the economy. If the money supply is fixed, then as more goods and services are produced there is continuing deflation, which is as bad or worse than inflation.


I know this is the standard belief across the board, and I know I'm a total amateur, but I have my doubts about this. We've seen deflation in computers and consumer goods and I don't see how that's been a bad thing. And isn't stock deflationary? When you have deflation, dollars are like stock - they appreciate in value. That seems like a good thing to me, and would counter the need for growth for growth's sake, which ultimately is a form of taxation.

Well, deflation does make prices fall... And that makes it seem like a 'good' thing. However, deflation which causes prices to fall in certain markets is not a good thing. It causes people to delay spending, why buy a computer if it will be cheaper in a month? This often means long periods of people not buying products in an industry as they anticipate cheaper prices, which means profits fall, jobs are lost and wages cut. And then the business can no longer invest its money the way it sees fit.

One could argue though that this argument explains too much. Consumers do decided to bite the gullet and buy a computer even if it will be obsolete in six months. Which pretty much happens in the techno industry today as new models come out for everything. If people always hoarded for bigger price cuts then the computer industry wouldn't be viable today. Falling prices will sometimes encourages savings which helps expands loans and allows businesses to borrow and invest more. Consumers can still make profits if the materials are cheaper than finished goods and thus don't have to worry about wages.

Deflation does not encourage businesses to invest and borrow more. Why would
businesses be encouraged to spend/invest if sitting on cash earns them value?And why would a business want to borrow if the money they pay back will be worth more than the money they borrow?





Deflation was widespread in the Roaring Twenties but wages went up especially for skilled workers. More people were hired too. Ford for example could hire more and increase production. Before WW1 his cars cost $600 but during the mid-20s they were $240 each.

If there is deflation and wages are not decreasing, than everyone is going to be paid more each year. Wages in general will have to decrease. Can you link to your deflation 20s data please?

At times the Twenties seemed highly deflationary: http://eh.net...

Didn't seem to stop the monumental economic growth in both wages and productivity. Arguably the greatest economic expansion in the country's history.
"The chief business of the American people is business." - Calvin Coolidge

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