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07/01/17

History of Money

Filed under: Economics, Informational — Jared @ 2:53 pm

Just read an interesting piece on the history of money (via GetRichSlowly). I especially like this little tidbit (from the end of the article)

The modern wisdom that a small rate of inflation29 is part of a healthy economy comes down to the need to make our silver behave a little more like barley.

Not trying to argue on the wisdom of economics (gotta finish reading Matt’s economics book before I even bother), but this was an interesting read.

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2 Comments »

  1. The modern wisdom that a small rate of inflation is part of a healthy economy comes down to the need to make our silver behave a little more like barley.

    Haven’t read the article yet, but that’s incorrect. It’s because every year, a little more gold comes out of the ground (historically about 2-3% a year, even during modern times), so from pre-history up until very recently (when we went off the gold standard), inflation was a fundamental property of our money supply.

    Nowadays it’s more complicated of course, but it boils down to the same basic concept – as wealth is created, either through economic growth or the government issuing more money, money supply goes up so purchasing power goes down. And inflation is quite clearly in our government’s interest – they owe a LOT of money, so as the real value of a dollar drops, so does the real value of their debt, so they’re never going to fight too hard against it (as long as it’s in a reasonable range that doesn’t drag down the economy… the historical gold mining rate of 2-3% is actually about right).

    Also, you want a bit of inflation to keep you comfortably away from deflation, which is even worse (witness Japan over the past decade). If the value of a dollar increases over time, people will just sit on their money rather than put it to work, which in turn furthers deflation – why invest it when it’ll be more valuable tomorrow with zero risk? It’s a pretty nasty feedback loop, and very hard to get out of. Japan had their interest rates at 0% for a long time to try to flood the economy with capital, and it took years for it to start working. They just this year raised rates a bit, and I think they jumped the gun a bit – they’re still not out of the woods yet.

    Comment by Matt Spong — 07/01/18 @ 12:05 am

  2. Read the article. The idea that the continued rational for inflation is linked to the gold standard until recently makes sense. However, I’m inclined to believe that (as the article suggests), the practice itself (and our acceptance of it) is linked to our use of perishable goods as a measure of wealth. I’m also more inclined to believe that the government (and its pet economists, just like its pet scientists on global warming) would promote it to reduce the value of their debt.

    In our society, with abstracted money that is not linked to a specific (limited) commodity, it smells of ham. Deflation is definitely bad, but money only really needs to be valued against other money, as far as I see. I’m sure this will come up in the econ book (and I may change my mind on this when I hit that point), so I’ll stop arguing about it until I hit that point.

    As far as I’m concerned, the quote itself still stands as a quite interesting (and I think probably accurate) assessment of our view of inflation. Doesn’t say that our silver shouldn’t behave like barley, just that it does ^_^

    Comment by Jared — 07/01/18 @ 8:52 am


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