> They are roughly the same price in gold as they were in the 1970s
So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive?
Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
> when you realise that every year the banks are collecting interest on every dollar/euro/pound etc
That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
> So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same)
He doesn't mean the price of gold in dollars, he means the price of houses in gold. In dollar terms, he's just saying that the price of gold and the price of houses have inflated by the same amount.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
Not as absurd as printing money and then spending it on things that nobody wants, and then claiming that that "stimulates the economy". Which is what our current monetary regime has been doing for decades now.
In gold houses are about 3x cheaper now than they were back in 1970. Yet in the mid 2000s they were even more expensive than in 1970. What can we make of that besides that the price of gold is very unstable and increase in money supply is not the primary reason of that? (e.g. compare 2000s and 2010s..)
There is nothing special about gold, it's just a highly speculated commodity with very volatile price and that's it. We might as well do the same experiment and use the prices of oil/wheat/etc. and it would make a lot more sense.
> Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other. I'd argue that using the dollar as a measure of value would be absurd, given that it's demand is relatively constant but it's supply is doubling every decade.
> That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).
The banks are playing a much longer game. While the interest rates are held low, they increase the number of people indebted to them. When they turn the interest rates back up, they get their reward. I recommend reading the short book "The Great Taking" (https://thegreattaking.com/)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio. It's no coincidence that after 50+ years they are still the same value relatively to each other.
Have you actually examined these numbers? From my quick check, it doesn't seem to be anywhere near true. In 1970, Gold was $35.96/oz in 1970 USD. The average house was $23,400 in 1970USD. So 650 oz of gold would get you a house. Today, 1 oz of gold is $2,063.76 in 2024 USD. An average house costs $395,100 or 191 oz of gold. Houses are significantly cheaper with respect to gold today than they were in 1970.
Gold is great for people who already have wealth. (Those people also have had other good investment options.) Gold is useless for people trying to earn money to pay for a mortgage for housing today.
Also, houses built today are much more valuable (cheaper per "foot" or "room") than houses built new in 1970-- they are much larger.
not to mention new materials and insulations/energy efficiency, fireproofing etc. All of these things are improvements - it's just "invisible" because people who claim the opposite just don't see it as an improvement (aka, they take it for granted).
It is the same with a lot of other "wealth" increases - it's invisible because that wealth is available to everybody. They only see it as wealth when said wealth is made only available for themselves (or wealth that someone else has that they themselves don't have).
There's an enormous difference between things you "value", and economic value.
We probably value air more than anything else, but it's worthless.
Economic value = demand / supply. Simple.
It can be useful to think of economic value as a more abstract form of energy - a "monetary energy" - with the same conservation-of-energy properties. For example, if I create a TV that's better than all the existing TVs, the economic value of my TV is sucked from all the existing TVs which are suddenly worth less and contain less economic value.
It depends heavily on which year of the 70s you look at (I was using 1974), but yes, it's true, at the very start of the 70s, houses were 3x the price they are now (measured in gold).
You're right - this is even stronger evidence that whereas most people believe houses have increased in value over the last 5+ decades, they have at best remained the same value, and the price increases have simply been the devaluation of the dollar (which incidentally increases in supply at the same rate as house prices increase - roughly double each decade)
> It's sensible to use gold or housing as a measure of value - they are both extremely mature markets with a relatively constant supply/demand ratio
Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
> I'd argue that using the dollar as a measure of value would be absurd,
Perhaps. Still less absurd than using gold for that.
> When they turn the interest rates back up, they get their reward
When the interest rates go up the price of bonds goes down. If you're holding a lot of bonds and interest rates go up you're certainly not in a good position (that's how the Silicon Valley Bank went bankrupt). Just basic math. Of course if we're talking about variable rate debt then you do have a point (however almost all household debt in the US is fixed rate, it varies by country though).
> Look at how the price of gold changed between 2000 and 2020. It's not at all constant (it's actually more volatile than the dollar)
It's pretty rich for you to be using the word "absurd" to describe what other people are posting, when you come out with this.
Let me translate into actual plain English: the price of gold in dollars has gone up quite a lot between 2000 and 2020. (But note that it still hasn't reached the peak value it reached around 1980, after the huge inflation of the 1970s.) That is not because anything about gold has changed: it has the same industrial and other uses (such as jewelry) as before. The reason the price of gold in dollars has been so volatile is that dollars are volatile--because the government keeps monkeying with them. From 2000 to 2020, the government was printing dollars. In the early 1980s, by contrast, the government was destroying dollars (under Volcker), and the gold price in dollars dropped significantly.
Not only that, but this observation isn't limited to gold. It's true of, well, basically everything that isn't money. For instance, houses, as npoc observed. And cars. And food. And clothes. And...
The obvious conclusion from observations like this is that what is absurd is using dollars as any kind of measure of value, because the thing they are actually measuring has nothing to do with value to us, producers and consumers, and everything to do with how the government is messing with the money supply. Any commodity that has an actual use independent of government manipulation of the money supply--gold, wheat, whatever--is a better measure of value than money.
Or "Let me leave out most of the details that matter"..
> quite a lot between 2000 and 2020.
> From 2000 to 2020, the government was
So specifically between 2001 and 2011 governments have printed several times (~5x) more money than between 2011 and 2022? Because that's obviously not the case. In the first ten year period the price of gold increased fivefold during the second (despite growth in money supply only accelerating) it collapsed and didn't start recovering until 2019 (it's now worth only only slightly more than in 2011..). How does that fit in with the with whole printing hypothesis?
> In the early 1980s, by contrast, the government was destroying dollars
Just like after 2011?
> that dollars are volatile
It's not though. Generally the dollar depreciates at a fairly predictable rate. There is a spike here or there but it's nothing compared to the volatility of gold.
> houses
Yes. I certainly a agree that houses, food, cothers, cars etc. are much better units of measurement than gold (which is just commodity with a highly distorted/inflated price due to speculation..
As was noted above. If your claims are true, then inflation was 800% in the 2000s and then 0% in the 2010s. There's clearly market supply/demand driving changes in gold price, not simply exchange rate fluctuation.
> There's clearly market supply/demand driving changes in gold price
Of course. And in all other commodity prices.
But in a world where the money supply was stable, those price changes, over time, would average out to zero. Or, if you factor in increased productivity over time, they would average out to a steady (if probably slow) decrease in the prices of goods and services.
What you would not see is an average increase in the prices of goods and services over time. You would certainly not see such an increase normalized in everyone's expectations, so that everyone expects cost of living increases in their pay, everyone expects things to gradually get more expensive, etc. That requires monetary manipulation by the government.
There’s no natural state of money is there? I feel like characterizing monetary policy that way, as manipulative, is normative and kinda begs the question that there’s a natural state of monetary policy.
How could there be growth in the economy with a fixed pie of money? It is contradictory. There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
Think about how much bitcoin is being put to work in the productive economy versus hodled.
If you mean there is no specific quantity of money that is "natural", that's true. Any quantity of money can work. But that does not mean that changing the quantity of money as a routine, common operation is a good thing.
> How could there be growth in the economy with a fixed pie of money? It is contradictory.
No, it isn't. Economic growth means producing more goods and services. With a fixed quantity of money, that means either the velocity of money increases (money goes around in a circle faster in order to facilitate an increased number of transactions) or average prices decrease (so less money is required on average per transaction)--or more likely a combination of both. Both of those things are perfectly possible. (And even that leaves out increasing quality of goods and services, which results in more value created even if quantity stays the same, and with a fixed quantity of money means more value for the same money even if nothing else changes.)
> There’d be a tremendously high bar for investment in any enterprise which could generate dollars if I could buy more tomorrow with the dollars I already have today.
If the quantity of money is fixed, what does "enterprise which could generate dollars" mean? It can only mean a productive enterprise, which produces goods or services that people will pay money for. You want to encourage such enterprises, not discourage them.
Indeed, it is only in an environment where the quantity of money is not fixed--where people can scheme to be given the privilege of printing more--that people end up squandering resources on activities which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now, where the government prints money as a way of stealthily transferring wealth to financial institutions without those institutions having to produce useful goods or services.
> Think about how much bitcoin is being put to work in the productive economy versus hodled.
But that is because the quantity of Bitcoin is not fixed. People can mint more. So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed.
Yes, we saw that in the 1800s and the subsequent period leading to the great depression. Money supply was growing too slow, deflation was pretty rampant and the economy was stuck in a permanent boom and bust cycle (with depressions which were generally much worse than anything we experience these days).
In such an environment using debt to invest becomes extremely risky. If the interest rates are relatively high (as they were) it makes more sense to just live on income from government bonds (how British aristocrats were able to maintain their lifestyle) than to invest into anything risky.
> which produce no useful goods or services, but do result in more money going into their pockets. Which is the situation we have now
In a deflationary system (i.e. based on gold in a growing economy/bitcoin/etc.) you'd become richer just by hoarding money it and waiting for its value to increase. That doesen't seem to be particularly better.
> Bitcoin is not fixed. People can mint more
It is effectively fixed. The amount being "minted" is insignificant relative to demand.
> So Bitcoin is irrelevant to analyzing the case where the quantity of money is fixed
Don't be silly. If that's the case so is gold (a lot less fixed than bitcoin) or anything else, this would make it completely pointless discussion.
> Economic growth means producing more goods and services.
How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
> But that is because the quantity of Bitcoin is not fixed. People can mint more.
Sorry pal this is sophistry. Your contention is people hodl bitcoin because the supply of btc is not fixed?
> how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
Whatever slice the free market determines. And any "slice" that anyone gets is constantly changing, since money is exchanged constantly. So thinking of a fixed supply of money (or even a non-fixed supply of money) as having some fixed allocation among everyone is simply wrong. That's not how it works.
(Note that common descriptions of the wealth of wealthy people, say Bill Gates, are misleading since they always give a dollar figure--Gates is worth $50 billion, let's say. But the vast majority of that $50 billion is not money. It's assets like stocks, bonds, real estate, etc., and the $50 billion figure is just an estimate of the sum of the prices all those assets would fetch if Gates sold them on the market. It is certainly not a measure of money that Gates has stuffed under his mattress or is otherwise hoarding.)
Who needs to incentivize it? People already have an incentive to produce goods and services, because people want and need things in order to live whatever life they want to live (food, clothing, and shelter at a minimum, but of course there are lots of other things people want), so they have to either produce those things themselves or produce something that can be traded for them. Of course the latter is the most common alternative since much more wealth can be created by specialization and trade than by everyone producing only for themselves. So the natural state is for people to be doing specialization and trade in a free market. That is what you get when nobody tries to "incentivize" anything.
> Your view seems fairly communist
Not at all, it's the opposite of communist, since it involves no central planning (which doesn't work).
> Your contention is people hodl bitcoin because the supply of btc is not fixed?
My contention is that since the supply of Bitcoin is not fixed, Bitcoin is irrelevant to the discussion we are having, which is about the case where the supply of money is fixed.
As far as why people hold Bitcoin instead of spending it, obviously that is because they expect its value in terms of other things they want to go up. I have made no claim about why that is. All I am saying is that it can't be because the supply of Bitcoin is fixed, since it isn't.
Also note that the people who are holding Bitcoin are still spending money to get things they want, which means they are still having to earn money to get things they want. So the fact that they are holding Bitcoin does not mean they are holding money. They are not treating Bitcoin as money. They are treating it as an investment asset like stocks or bonds. So again their behavior regarding Bitcoin is irrelevant to a discussion of how people behave with money.
Indeed. So will Bitcoin become relevant to this discussion in 2140 when new issuance ends? I’m not sure there’s much difference between then and now in practice as 95% it all Bitcoin possible is already live on the chain.
> Not at all, it’s the opposite of communist, since it involves no central planning
Central planning is a feature of state capitalism, not communism.
(It’s true that regimes–universally of the Leninist bent which adapted Marxism in the hopes of getting it to work in situations where the prerequisites did not exist–claiming to be Communist in ideological orientation almost invariably got stuck in state capitalist phase, but even by their own description that was a step on the road to communism, not communism.)
Of course, yes, I recognize that people using “communist” as a pejorative would probably also not make that distinction.
By your definition of "communism", it has never existed and never will exist, since any country that tries it will get stuck at what you are calling "state capitalism".
While I agree that "state capitalism" is a fair description of the current system in the US and other Western countries, I don't think it's a fair description of the Soviet Union, or of Pol Pot's Cambodia, or of the People's Republic of China under Mao (to give some examples of states that are usually called "communist"). It might be a fair description of the PRC today (even though the PRC still calls itself "communist").
I would agree, though, that all of those regimes are examples of central planning.
> By your definition of "communism", it has never existed
Yeah in communist theory, “communism" as a thing is an ultimate goal (and in many schools of communist thought, a relatively distant one).
> and never will exist, since any country that tries it will get stuck at what you are calling "state capitalism".
No, only the Leninist-derived approaches that try to bypass private capitalism get stuck in state capitalism (or migrate from that toward a system that looks a lot like fascist corporatism, as in the PRC.)
The displacement of the system Marx originally described as “capitalism” with what has been described as “mixed economies” is closer to what you might expect if Marxist (not Leninist) Communists tried to implement their program of moving toward communism in the conditions Marx saw as necessary to begin that transition.
> While I agree that "state capitalism" is a fair description of the current system in the US and other Western countries
It is not, it is a description Lenin made of a deliberate choice made by the USSR as a transitional step, which doesn't resemble anything done in the US very closely.
> I don't think it's a fair description of the Soviet Union, or of Pol Pot's Cambodia, or of the People's Republic of China under Mao (to give some examples of states that are usually called "communist").
All of those involved the state acting in the role of a major or sole legally tolerated capitalist. It's possible to imagine, I suppose, central planning in a decentralized, cooperative, voluntary way without that feature, but no actual regime has done that (though subsidies and incentives that fall short of coercive directive commands in mixed economies are, at least, something vaguely in that direction compared both to the absence of central planning in pure [private] capitalism and the authoritarian central planning in “communist” state capitalism.)
> How do you incentivize this? Your view seems fairly communist. Also how does a net new innovation factor into this framework. New pharmaceuticals for previously untreatable diseases for example. What slice of the fixed money pie do those get?
To be fair that did mostly work in the 1800s. The gold standard probably did have a significant negative impact on growth but to be fair I can't really think of a different system that might have worked back then considering how thoroughly corrupt and unstable pretty much all governments were back then.
Not really? Adjusted by inflation it's very volatile and not at all stable. Gold now is worth ~7x more than in 1970 but 25% less than in 1980, yet 4x more than in 2000 but still less than in 2011... There were some periods since 1970 where the (CPI adjusted) price of gold was relatively stable but that's certainly the exception and not the rule.
> but it's the most stable denomination of value that exists
You might use oil instead? It's not that much more unstable than gold.. Or wheat?
I'm guessing it's that the US Currency was backed by gold and later silver and the central banks couldn't print currency without some precious metal to back it up.
It's the other way around. US switched from a bimetallic system to the gold standard in 1873.
> I'm guessing it's that the US Currency was backed by gold
Well sort of, only until 1971 (or to some extent 1933) though. So you maybe could do that if you wanted to compare the price of housing in the 1870s and 1920s, certainly not between 1970 and the 2020s.
Price increases come in fits and starts. Gold is not entirely arbitrary. It is a commodity with a restricted and steady supply. As such it can be used as a measuring stick to judge how distorted prices are getting. Mind you, (price) inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time. It's not honest and does not accurately account for changes in credit conditions.
> As such it can be used as a measuring stick to judge how distorted prices are getting
It can. It would just be a pretty bad idea to use it for that since it would indicate that prices where consistently falling during the 80s and 90s amongst other. I mean the nominal price of gold in 1980 was exactly the same as in 2007... I can barely think of a worse measuring stick (we could just use the price of oil instead? It's hardly less stable).
> inflation is measured by the government as a relative change in a cherry-picked basket of goods that changes over time
perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
You're right I guess. The price of gold is manipulated heavily by the banks so it is not a perfect measuring device. There is literally a Federal Reserve memo on Wikileaks describing how the government would create FUD about gold through the futures market. But the supply of it is nevertheless fairly constant compared to just about anything. People have remarked that an ounce of gold today buys about the same as it did thousands of years ago. I think they are right. The price of oil is clearly less stable than the price of gold. You could do better if you compared many goods in a basket, perhaps, but you just can't trust the government to do it right.
>perhaps. Seems fairly tangential, unless you're implying that governments generally tend to severely underreport inflation most of the time.
Yes that is exactly what I'm implying (or stating directly). I am mainly talking about the US government because I don't know how other governments calculate their rates, but it is probably about the same everywhere. I think in recent times you could do well by doubling their number.
The US government also misrepresents unemployment. For example, if an unemployed engineer gets a job at Starbucks one day a week while applying for a new gig, he is not counted as unemployed anymore. He is also not counted if he is unemployed for any longer than 6 months. Perhaps we need to report them all as unemployed along with the median time to get a job, and/or have a separate number for skilled workers that does not exclude them if they are forced to take an inadequate job.
Not arguing for the OPs argument but observing a pattern over a longer timespan doesn’t mean that the pattern can be observed during the whole timespan.
At the same time IMHO you’re right in pointing out that gold is a poor measurement of the true cost of a house.
If you take out a lone you get money in exchange for signing a contract that forces you to pay everything back [say] 3x over 30 years.
The party giving you the money loses nothing, they trade one kind of paper for the other.
They get more money in return because there is a small risk you wont pay. (if they get 1/3 they have their money back)
This would be sensible if the bank had this money. They don't, they bring nothing to the table and give you freshly minted fiat.
This is only possible because you've signed on the dotted line.
If you are buying a house the risk you wont pay is tiny! Government could easily force you to get insurance and give you an interest free lone that you won't need to pay back.
This would bring some serious fiat into circulation.
Well if we're using the price of gold to measure that there was no inflation (which of course wasn't really the case). To be fair examples are pretty bad, the iPhone 4S and iPhone 14 are not equivalent products, you can get more capable smartphones for $100-200 or less these days indicating that their prices actually went down quite a bit over the period.
It's flawed, but 1x1GHz -> 4x4GHz is literally 16x upgrade, and there was also loss-leader $399 iPhone SE in 2022 much better in performance than $649 iPhone 4S. The experiences(here comes the dodgy part) are way closer between two iPhones than the gap between PIII and Sandy Bridge.
So you're implying that there was no inflation between 2011 and 2022 (gold prices were basically the same) or that prices increasing 8 times or so between 2000 and 2011 because gold got a lot more expensive?
Gold is just a random commodity affected by market supply/demand just like every other commodities (or bitcoin). Implying it's some sort of a "hard currency" or can be used to compare prices of goods/services/housing over long periods of time is just absurd.
> when you realise that every year the banks are collecting interest on every dollar/euro/pound etc
That doesn't work that well when the real interest rates (i.e. after you subtract inflation) are negative or close to negative (as they were in the Eurozone between around 2012 and 2022).