Comment by rojeee | Hacker News Reader

Comment by rojeee | Hacker News Reader

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Lot's of comments to pick up on this post but one in particular stands out...

> If Donovan's observation were accurate, how can he explain humanity's long history with monetary metals. Gold and silver are still regarded by some as the only legitimate forms of money.

I'm not sure how true that -- money is precious metals -- has been throughout history. For example, if you look at coins from the past, they are all different weights and mostly made of greatly differing ratios of various metals and alloys. There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. Furthermore, the nominal value of the coins were typically higher than the intrinsic value of the coin, even for coins made from gold and silver. If the coins has a nominal value equal to or lower than the intrinsic value of the coin, then people would melt them down into bullion. So the assertion that the unit of account was a gold coin of a particular weight seems as unlikely as it is illogical. Instead, the coins typically represented a debt of the issuer valued at the nominal value of the coin. Even still, most people didn't even use coins. Kings would withdraw all coins from circulation to re-mint them and commerce would continue as usual because most people just used credit ledgers to transact with each other. Ergo, money usually always has been and will continue to be credit/debt. Gold is not money... it's a commodity, albeit a valuable one :)

From what I've read, it seems we only recently (since early modern times) developed an obsession with precious metals as money. Of course, we tried a gold standard but it ends up in deflation and misery for all involved so I don't suspect we will go back to it.

I don't know where you're getting this but it isn't really accurate. > There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight.

Nobody needs perfect uniformity, but they have been made practically uniform since the first coinage.

>Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals.

I don't understand what would that even mean? Gold coins are not convertable to gold? They are gold?

Go to a museum (or pictures online) and look at old coins of the same fixed denomination. Often they will be made of different metals and of quite different shapes and sizes. The point being that the composition of the coin is mostly irrelevant. It’s the nominal value of the coin and it’s issuer which matters. The nominal value of the coin was maintained as long as the issuer of it remained liquid and solvent and the rest of the economy believed this was the case.

If silver coins only had intrinsic value then the metal content and weight of them would be obviously of high importance. A 15g coin would be worth less than a 20g coin. But then these “coins” are not really money. Instead, they are just a commodity.

Whilst there were points in history when coins were made uniform and of a specific grade of precious metal and stamped with a government seal (eg in the US in the early 1900s) those times didn’t last for a very long time because such a monetary system doesn’t work particularly well as deflation inevitably results.

Regarding the unit of account. I can set a unit of account whereby one pound = 15g of silver (let’s call it a £) but the coins which I issue and circulate in the economy don’t have to be made from silver and don’t even need to be convertible to silver. This is how most governments operated coinage in the past. The unit of account is necessary because there must be a numeraire to measure prices, just like there is one for measuring distance or weight. So... a coin which represents £1 may contain only 5g of silver or even no silver and the rest be tin or some other alloy and this coin would not be convertible to 15g of silver.

You are probably confused because people think that the medium of exchange also needs to be the unit of account (and a store of value) but typically that wasnt the case for most monetary systems of the past.

You're arguing past the point of the topic. The composition of a receipt for gold on deposit, a gold certificate payable on demand to the bearer can vary widely. The important aspect is that the bearer is paid on demand.

There's also the phenomenon of coin clipping and shaving. Citing examples of monetary debasement doesn't prove that gold or coins have no intrinsic value. To the contrary, if there was no intrinsic value there would be no need to debase them. Just because someone has 'gotten away with it' doesn't mean it is a valid policy. These events illustrate economic mismanagement.

Nor do I accept your premise that price deflation is exclusively harmful. Technological advances, increases in productivity are deflationary. We all benefit from greater productivity. Consumers enjoy lower prices. Artificially suppressing deflation robs consumers of the benefits of increased productivity.

Then there was the gilded age. The most recent era before central banking in the US saw incredible advances in the standard of living for all. Gilded, literally meaning covered in gold.

Putting all of that to the side, the argument that deflation must be managed (by a central bank) is an argument for price fixing. This discards the entire premise of decentralized price discovery, in lieu of omnipotent technocracy.

If we can't agree that markets are the optimal method to determine prices, there's very little to discuss here. I can't accept the premise of infallible technocrats having better information than a network of consumers freely buying and selling.

I resisted responding until now due to what I see as an ideological impasse.

> You're arguing past the point of the topic. The composition of a receipt for gold on deposit, a gold certificate payable on demand to the bearer can vary widely. The important aspect is that the bearer is paid on demand.

I guess my point was that the coins typically had intrinsic value and nominal value. The intrinsic value usually varied considerably depending on what the coin was made from. So you may end up with two coins with a nominal value of, say, 10 but their intrinsic value varies considerably. People accept the coin at the nominal value because the nominal value is greater than the intrinsic value. They accept the coin at the nominal value because the issuer of it stands behind it. It can be remedied for goods and services, or it is redeemed by paying taxes to the government.

> There's also the phenomenon of coin clipping and shaving. Citing examples of monetary debasement doesn't prove that gold or coins have no intrinsic value. To the contrary, if there was no intrinsic value there would be no need to debase them. Just because someone has 'gotten away with it' doesn't mean it is a valid policy. These events illustrate economic mismanagement.

Oh... I'm not saying coins don't have any intrinsic value - that would be silly. Of course they have intrinsic value. I'm sure if you read my post again then you'll see that's not what I was getting at. Certainly, if the price of precious metal continues to rise then people would clip the coins. If the price of precious metal rises above the nominal value of the coin then people would just take the coins out of circulation entirely because the metal is more valuable than the value the coin was issued at. But I don't think any of this really matters that much. National currencies were debased in the past not because the metal content of the coins diminished but because the solvency of the issuer was brought into question.

> Nor do I accept your premise that price deflation is exclusively harmful. Technological advances, increases in productivity are deflationary. We all benefit from greater productivity. Consumers enjoy lower prices. Artificially suppressing deflation robs consumers of the benefits of increased productivity.

Yes, deflation as a result of technical improvements is clearly a good thing. I was more talking in terms of monetary policy. Eg. linking money supply to a fixed stock of gold, for example, is not a good idea.

> Putting all of that to the side, the argument that deflation must be managed (by a central bank) is an argument for price fixing. This discards the entire premise of decentralized price discovery, in lieu of omnipotent technocracy.

I agree with you. Central banks distort markets, and that's kind of what they are supposed to do in the name of "stability". They can set any interest rate they like. They can print as much money as they like. They can redeem as much money as they like. Clearly the whole point is to manipulate the market of money! Do I think it's a good thing? No. I'd much prefer a world with no central banks!

Cheers

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