Live data from Hacker News

How did the gold standard work?

twitter.com

121–130 of 144 posts

Re: How did the gold standard work?

#121
post #116
post #57

Earlier quoted context omitted.

You are portraying a false dichotomy here: Why would the government need to be involved in your currency at all (commodity based or otherwise)?

Well, we tried that, and it has its own problems too. However, in practice, the monopoly on violence ends up implying a desire for the monopoly on money. Drawing that out would take more than an HN comment, but I don't think it's too shocking a thesis.

Who's we?

Canada and Scotland did really well with privately issued money.

(The US did well enough, but not as well as them. Mostly because of inane regulations in the US. Like bans on branch banking and forcing banks to buy government bonds.)

See eg https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... for some background.

> However, in practice, the monopoly on violence ends up implying a desire for the monopoly on money.

Not sure. Plenty of countries use money they don't control. See https://en.wikipedia.org/wiki/Currency_substitution for some examples.

Re: How did the gold standard work?

#122
post #11

Quoted post unavailable.

Pray tell why bitcoin is inevitable as opposed to the gold standard :)

I suspect this isn't a good-faith question, but I'll attempt an answer at least:

Bitcoin's game theory creates a system for agreeing on a worldwide price for energy in a way that self-regulates, as opposed to relying on people like OPEC to price-fix the energy market. It works by effectively selecting a random power plant on the planet, every 10 minutes, and kinda asking them to vote on how best to use their energy. Either they're mining Bitcoin and might be the lucky winner, or they're instead selling that energy locally for some more productive purpose.

This forms a comparison function, like in a quicksort. Each power plant is voting with their wallet as to whether their local energy price is more important than the global one. As a results it's as-if you've created a kind of futures market for energy prices that requires no centralized governing body. The net effect is that the price of energy is shifted back and forward, like a tug-of-war. The final result is somewhat akin to an iterative solver.

The entire world energy economy is now being controlled by an algorithm, something that's never been attempted before like this. It's been running 13 years now, and gains more weight as the value being thrown around increases. The energy market is tumbling wildly around right now as most people (a) have no idea any of this is happening, and (b) can't really stop it. In the end the ultimate goal is settling on a solution where all parties in the game achieve consensus on the true price of assets, something that humanity has never had before in its history.

The idea of energy=money is an important development that, while people today seem to refuse to try and get their heads around, will ultimately change the world.

Re: How did the gold standard work?

#123
post #69
post #11

Earlier quoted context omitted.

Pray tell why bitcoin is inevitable as opposed to the gold standard :)

And why bitcoin, and not dogecoin or ethereum?

Their blockchains are shorter. Longest blockchain always wins in the long term -- that was proven in the Bitcoin paper.

Re: How did the gold standard work?

#124
post #57

Earlier quoted context omitted.

You are portraying a false dichotomy here: Why would the government need to be involved in your currency at all (commodity based or otherwise)?

Because the backing of a state provides a veneer of credibility to the currency that your own say-so doesn't. Like, barter economies built on trust still exist and if that's what you want, knock yourself out. But at some point you want to pin down how many chickens your bedroom dresser is worth, which means you need a token to represent a value, which means you need someone or something to provide backing for the tru…

States actually have a very hard time giving credibility to their currency.

You see, the problem is that governments are too powerful: they can not make promises that they can't break.

In contrast, private companies have it much easier. They can use plain old contracts to bind themselves.

Eg Amazon could issue physical notes and promise to redeem then in eg USD on demand. (Wal-Mart could issue tokens they promise to redeem in gold. Etc.)

Amazon doesn't have to have one dollar on hand for each note they issue. As long as the overall balance sheet of Amazon is strong, they can sell assets to serve a sudden spike of redemption requests.

(Historically, note-issuing banks in Scotland also had a tool to deal with situations where they were solvent but not liquid. The contracts that governed their notes gave them the option to delay redemption requests in return for paying a punitive interest rate. That way they could take a few days or weeks to liquidate assets as necessary.)

Keep in mind that USD or gold or whatever provides the unit of account here, but not the backing. The notes would be (and historically were) backed by the whole balance sheet of the issuing banks. Scottish banks typically financed themselves with about 2/3 debt (bonds and deposits) and 1/3 equity. That's a rather thick equity cushion by today's standards, but it's what customers demanded.

About crypto: if you really wanted to, Amazon could also denominate their notes in bitcoin. I don't think that's necessarily a good idea. (But I do think that _if_ bitcoin or crypto is going to ever become the underpinning of the global financial system, it will have to look a bit like what I just described.)

Re: How did the gold standard work?

#125
post #56

Earlier quoted context omitted.

When I first read up on economics, I had similar doubts about the gold standards. It doesn't help that most modern day advocators of a gold standard have but a dim understanding of history and economics. So, first: if the population in one country goes up, they can import more gold from elsewhere. It's a commodity after all. Similar for one country digging up a lot of gold. (The global economy wasn't quite as integra…

> So, first: if the population in one country goes up, they can import more gold from elsewhere. It's a commodity after all. Unless governments ban the exporting of gold, which has historical precedent. It is possible to run out of gold on which to run an economy. We know this because it has happened: * https://en.wikipedia.org/wiki/Great_Bullion_Famine For a good history of the topic see The Power of Gold: The Histo…

> It's interesting that you bring up fractional reserve banking and Canada in the same paragraph, as Canada hasn't had reserve requirements for about thirty years now:

Yes, exactly! In the heyday of Canada's gold standard and privately issued notes, they didn't have a reserve requirement either. Minimum reserve requirements are bad for the financial system!

(Sorry, not enough time to respond to the rest. Have a look at George Sergin's work, if you are interested.

The reasons that countries moved off the gold standard were mostly bad, actually. However, I don't think it's realistic these days to move back onto a gold standard.)

Re: How did the gold standard work?

#126
post #56

Earlier quoted context omitted.

When I first read up on economics, I had similar doubts about the gold standards. It doesn't help that most modern day advocators of a gold standard have but a dim understanding of history and economics. So, first: if the population in one country goes up, they can import more gold from elsewhere. It's a commodity after all. Similar for one country digging up a lot of gold. (The global economy wasn't quite as integra…

How does the greater number of nations (and therefore currencies) affect things? For example, when Sudan splits in half, there are now two currencies that need gold reserves.

Presumably they'd need only roughly half the amount each?

Re: How did the gold standard work?

#127
post #11

Earlier quoted context omitted.

Pray tell why bitcoin is inevitable as opposed to the gold standard :)

I suspect this isn't a good-faith question, but I'll attempt an answer at least: Bitcoin's game theory creates a system for agreeing on a worldwide price for energy in a way that self-regulates, as opposed to relying on people like OPEC to price-fix the energy market. It works by effectively selecting a random power plant on the planet, every 10 minutes, and kinda asking them to vote on how best to use their energy.…

>The idea of energy=money is an important development that, while people today seem to refuse to try and get their heads around, will ultimately change the world.

If you really believe this, it would help if you could spare the time to refute people, like me, who currently believe it's a huge step backwards, even more than that, a kind of self-sustaining cancer, the vanguard of the "grey goo scenario" people talk about.

The Landauer limit is supposed to be a lower bound on the energy that has to be dissipated to flip a single bit. It's something like 1e-26 watt hours. That (minus a few powers of 10) what you fundamentally have to use to write down a number that you call money, whether it's $1 or $1 trillion. It's not an easy thing to ensure that writing those numbers down is regulated, but it's clearly doable and in no way requires overhead on the order of the money supply.

With Bitcoin, though, creating $1 trillion will always cost $1 trillion even in the far future where we perhaps run computers at the Landauer limit or harness entire galaxies for power. If a galaxy costs $1 trillion, then you have to destroy a galaxy to represent the abstract value of the other one.

It appears, to me, to be a recreation of the disadvantages of mining precious metal for money, in such a way as to potentially consume the entire universe (insofar as humans ever get access to it). The more advanced energy production is, the more will be consumed to make the same amount of money.

This is not just bad, it's existentially horrifying (for some people) and it's more disturbing to see advocates of PoW ignore this. Because, what is it that you're thinking? Something being an algorithm doesn't mean it's a good algorithm. Even if there is a clever argument for why it's good in some abstract sense. See: https://en.wikipedia.org/wiki/Galactic_algorithm

There's a passage in a book by Douglas Adams that I'm reminded of, even though it isn't quite the same:

   "“How can you have money,” demanded Ford, “if none of you actually produces 
   anything? It doesn't grow on trees you know.”

   “If you would allow me to continue.. .”
   Ford nodded dejectedly.
   “Thank you. Since we decided a few weeks ago to adopt the leaf as legal 
   tender, we have, of course, all become immensely rich.”
   Ford stared in disbelief at the crowd who were murmuring appreciatively at 
   this and greedily fingering the wads of leaves with which their track suits 
   were stuffed.
   “But we have also,” continued the management consultant, “run into a small 
   inflation problem on account of the high level of leaf availability, which 
   means that, I gather, the current going rate has something like three 
   deciduous forests buying one ship’s peanut."
   Murmurs of alarm came from the crowd. The management consultant waved them 
   down.
   “So in order to obviate this problem,” he continued, “and effectively revalue 
   the leaf, we are about to embark on a massive defoliation campaign, and. . 
   .er, burn down all the forests. I think you'll all agree that's a sensible 
   move under the circumstances."
   The crowd seemed a little uncertain about this for a second or two until 
   someone pointed out how much this would increase the value of the leaves in 
   their pockets whereupon they let out whoops of delight and gave the 
   management consultant a standing ovation. The accountants among them looked 
   forward to a profitable autumn aloft and it got an appreciative round from 
   the crowd.”"
You might say "oh, this is a story of fiat currency" and perhaps it was intended that way, as the story predated cryptocurrency. But the "burn the forests down" is what strikes a chord with me.

Re: How did the gold standard work?

#128
post #102
post #65

Earlier quoted context omitted.

Even in a world where the only model is commodity -> gold/money -> commodity, there will be people who will hoard a commodity to sell it when the demand is high. So, hoarding and making profits is a human nature, that just cannot be avoided.

Services are 77% of US GDP, and you cannot "hoard" services.

In case you missed it, I was using the example from the parent comment to elucidate the deep-rooted nature of the problem of hoarding.

Re: How did the gold standard work?

#129
post #102
post #65

Earlier quoted context omitted.

Even in a world where the only model is commodity -> gold/money -> commodity, there will be people who will hoard a commodity to sell it when the demand is high. So, hoarding and making profits is a human nature, that just cannot be avoided.

Services are 77% of US GDP, and you cannot "hoard" services.

You can hoard services coupons aka money. Just think about being the guy on the other side. One guy accumulates 50 years of burger flipping and you are 60 years old and now owe someone 50 years of burger flipping. That money is effectively worthless its value will be reduced by inflation and no the government didn't steal 40 years of burger flipping. The simple act of 40 years of aging did that.

Re: How did the gold standard work?

#130
post #79

Earlier quoted context omitted.

> , the bulk of the excess gold in a money -> commodity -> money transaction comes from extracting value from labor Huh? Thats just speculation, why would gains come from labor? Would losses go to labor? I dont see a connection.

That's a fair question, my comment was getting long in the tooth. So, let's take a commodity like a wool blanket (or some other simple commodity to illustrative purposes). That blanket has more value than the wool that made it, but where did that come from? When the wool becomes a blanket and gains value, it does so because someone put the labor into converting the wool to a blanket. So the generic function here is c…

I'm pretty sure the Marxists got that wrong. Most economic transactions hurt the consumer i.e. the person that spends most of his money on the daily necessities of life and other unavoidable expenses. Capital gains are paid by consumers to owners of capital.

I mean the consumer decides how much he is going to spend on a product and thereby sets an upper bound to how profitable a product can be.

Your boss uses external financing through debt and stocks must at least compete with the yields on bank accounts. The costs of capital are passed onto product prices as they aren't something that differs from company to company that much.

Post reply on HN