patrick.net

Quote: If it now takes 88 hours to buy an ounce of gold versus 20 hours in 2000, hasn’t that grossly deflated real wages in a strict monetary sense? Just askin’.

The price of gold is not an accurate reflection of the real purchasing power of the dollar. Yes, wages have been going down in real terms for at least ten years. However, the amount of real wage deflation has nothing to do with the price of gold in dollars.

Gold fails at being money for the same reason the dollar fails at being money. It's store of value is not a constant. What is the price of gold in silver, in copper, in wheat, in milk, in oil, in uranium, in Asian massages? Now, the price of gold in one commodity would fluctuate due to the fluctuating market price of that commodity. But the price of gold relative to the aggregation of many commodities should be a constant if gold is useful as a basis of money.

The fact that gold has increased in purchasing power is not a good thing if you want to use gold as money. Money, by definition, should neither gain nor lose purchasing power. Otherwise, it fails as

1. A store of value.
2. A deferment of payment.
3. A metric of accounting.
4. A measurement of the relative values of goods and services.

I.e., anything, including gold, that increases or decreases in market value is not a good basis for money. It may be a good speculation, but it's not what we need for money. We need honest money, as Ben Franklin described, that is used just for the above purposes.

The problem with gold is that it is too rare. Rarity is not what makes something good for money. A constant supply is what makes for good money. Because gold is so rare, the market is easily manipulated by a few large players.

Silver would be a better basis for a commodity based currency. Copper, being even more common, would be better than silver. Still better would be a conglomeration of semi-precious metals and stones because the conglomeration would be less volatile. The larger the set of items in the conglomeration, the more accurately the currency fulfills the purpose of money.

If you could aggregate all goods and services with full accuracy, then you would have a commodity based currency that behaves just like a fiat based currency that never alters the supply of money. And yes, that has never happened in history, but there is no law of physics or mathematics preventing this.

I could run the entire world's economy with unbridled efficiency on a single dollar as long as I could arbitrarily divide that dollar. First, let's say we divide the dollar into nano-dollars. That give us an effective money supply of 1 billion units. Then, let's say we need to increase the money supply because the population and the world GDP has increased (GDP measured in actual wealth composed of goods and services, not money). I then permit the monetary denomination of pico-dollars. I've increased the effective money supply by a factor of 1000 without inflating the money supply, causing it to lose purchasing power, or transferring wealth from one person to another. Hell, even restaurants don't have to update their menus to reflect new prices.

Additionally, this monetary system allows for very easy accounting and assessment of the true distribution of wealth. And I can still expand to femto, atto, zepto, yocto, etc. as needed using the same procedure. I see paper money as showing its exponent based ten value.

Now, of course, since humans are generally idiots at math, we could normalize the currency units so that we use only integer values. But that does have the negative effect of forcing banks, menus, and physical currency to be updated. You'd have to keep track of the year in which the currency, logical or physical, was released. An unnecessary complexity, but one that does not have a material change on the system other than making the gradient more costly and inconvenient to change.

I would argue that the single-dollar system I described above is a far more effective and accurate mechanism for money than gold or any other commodity based currency. In effect, the single dollar always represents the exact set of goods and services available in the economy. And unlike our current system, this kind of money is mathematically guaranteed to retain its aggregate purchasing power as money is in effect a claim on a fraction of the economy's total wealth. The value of the dollar is, by definition, always equal to the total value of the economy and thus fluctuates only with the aggregate wealth.

I cannot think of a more social just and stable basis for currency than this. However, I welcome attacks on this idea, for any idea worth implementing should be able to withstand attacks.