On the other hand, why they can't make a small stipulation to sell X% of units raw to folks that are DIY'ers, is beyond me..
Because *they believe* that there are no profits to be made there. If they thought that there was enough profit to be made, they would've done it a long time ago.
they could even sell it with a disclosure that they don't support ANY operating system in their contract, however their hardware has been tested with XYZ operating systems.
Because it takes one clueless person tying up their customer service for 20 min complaining that his computer is broken for the company to lose any profits they made on a few of these systems.
the value of YOUR US dollar is becoming worth less and less
Which is why he is converting the falling USD to some other form (Yuan, INR, gold, oil, stock, etc). And when he sells the LG stock he will get more USD because of the devaluation.
Keep investing like that, let me know how that works out for you.
Keep holding on to the USD and let me know how that works out for you.
The last line was not directed at your post specifically, but at the many other posts comparing India to China.
But I'd go further than you and say any censorship is bad.
Take you 'religious vilification laws' for example - how do you define a religion? Now you have got the govt involved in defining the word religion. Some idiot will come up with a new religion that worships the Kiwi bird (I can start such a religion in India within 10min) - now would everyone stop insulting Kiwis?
And what constitutes vilification or insult? What if I say 'Buddhists are nuts'? Is that vilification? How about 'Buddhists are misguided'? Where do you draw the line? We have a problem in India where evangelical Christians preach that anyone who does not believe in Christ will go to hell. There are a lot of Hindu groups (read: politicians nervous about elections) who say that this is an insult to Hindus.
About 'inciting crime' - what constitutes inciting? If you let a govt define such subjective things, they will use it to make criminals of everyone.
Generally, govt should just protect people and their property and not get involved in nebulous concepts like religion, culture, etc.
And oh, btw, get ready to worship the Kiwi overlords - they look like the one time to beat Aus in the WC.
Just curious - would the US govt be interested in message boards where ppl are discussing how to bomb a building?
Then why shouldn't the India govt be interested in boards where people are planning/ inciting the next riots
.
Of course, having observed how the riots always occur at convenient times for the local politicos, I don't believe for one minute that this has anything to do with public safety. But I do question the holier than thou attitude adopted by many Americans over free speech when their military has willingly killed journalistsmanymany times.
The American taxpayers subsidized the startup of the.com bubble, we paid for the infrastructure on which the rest of the internet was built, and we paid for the products, the software, and the services on the consumer end. Where, then, did the profits from the.com bubble go? The profits went into the hands of the same major investment groups who have been carefully profiling and controlling the market for generations--people who, when the.com bubble became the.com bust, shrewdly bought the real estate being sold by the common people seeking to ameliorate their losses (which had been carefully planned by those people who were now buying their real estate at dirt cheap prices). When America began to return to consciousness after the.com blackout we now find that the same real estate which we sold to keep ourselves from bankruptcy is being rented or sold back to us--as condos, apartments, are housing communities--at three, four, ten, even hundreds of times the cost.
The only surprise is that anyone is surprised by it. Read up on how and why the Fed was created (hint: it is not to 'fight inflation'). The federal reserve (basically a group of well connected bankers) decide what your money is worth. If their pals in the govt are in a bind, they will just create new money thereby lowering the value of the money in your pocket. This cause the inflation that the fed is supposed to 'fight'. It really is a cute semantic trick - the result of inflation, rise in prices, has been turned into the cause of inflation.
This funny money was the cause of the.com bubble. This is the cause of the real estate 'boom'. They will dig some other hole to soften the real estate bust - guess who is going to make money on that?
You present a false dichotomy. It's quite possible for the line to be shallow (actually, I think it would be steep, not shallow) and still have high production.
And that is why I said 'lower production' (and not lowest or low) - if you take wealth from people who have proven that they are good at producing wealth (that is how they ended up with that much money - unless they used force and stole it) and give it to people who have not proven as successful at creating wealth, you will end up with lower production. There are many instances in the world where the govt does something in the name of equality with disastrous results - just look at farm policy in India, Zim, etc.
But I asked the original question not to debate about production and income - I just wanted to know whether some people feel that income equality was more important than overall growth. You are perfectly correct in saying that there are more than 2 options. But my question was, given these 2 options which will you prefer?
But I do think that the steepness of the log/log line you get when you graph incomes versus number of people has something to say about the health of an economy. A really shallow line in which a small number of people make an enormous amount of money indicates a winner-take-all economy in which things quickly devolve into a monopoly or semi-monopoly situation. I think this is what we have today in the US. I think it's unhealthy because
Which goes back to my question - would you rather have a shallow line with very high production (which you claim to be unhealthy) or would you want an economy with lower production, but with low income inequality? You just answered my question - you prefer the latter.
I fail to see how my example was a straw man argument.
Lowering production to achieve equality of income (to whatever degree) will result in a lower standard of living.
I think class mobility requires that smaller players can eventually take out bigger players by being better.
Microsoft was small when it started. So was Walmart.
Fifty years ago, not even the richest person in world had access to the kind of medical care, communications, etc the average person has access to today. The life expectancy is higher. The quality of housing, transportation, etc is also higher.
So, (2) in your example is simply not true (except for countries like Zimbabwe where people are not free to produce what they want).
Well, in the first case, the two guys could be hunting goats in Tobago. Hence the low production and the equality in income.
In the second case, the two people could be mining copper (owned by the richer guy) and exporting it to nearby countries - hence there is net gain in wealth, not inflation.
Most people are like you - they'd rather hunt goats and have income equality than increase production with high income inequality but with everyone better off.
BTW, if you want to flame me... I think the income distribution in the United States is whacked.
Here is something I've always wanted to ask someone who talks about 'income distribution' or 'income inequality' - which of the foll would you prefer:
1. A has $100, B has $105
2. A has $1000, B has $100,000
If you want better income distribution, you have to pick (1). But (2) means everyone is better off.
IMO, anyone who speaks about income inequality thinks the economy is a zero sum game.
Do you understand the concept of a "natural monopoly"?
I do - such a thing does not exist. There are only monopolies that are due to(a) govt enforcement (phone cos, railroads) or (b) superior products (std oil, great northern, etc). Neither is natural.
There's only so much place to put the fiber to.
Why? As long as the owners of the property (which is the govt. in socialist paradises) agree, they are free to lay thousands of cables.
Unless you want the whole city to be covered with cables
You could lay large pipes inside which you can lay multiple cables for phone, cable, electricity, etc. That way, a company wanting to enter the cable biz just needs to negotiate with the owner of the pipe and lay all the cable they want.
This still does not solve the main problem - govt. giving one set of individuals an advantage backed up by the use of force.
How is that artificial? Are these people produced artificially by some machine in a factory?
The only artificial thing in this scenario is national borders and the different artificial economic policies set within each of those borders.
However, this has not happened and, in my opinion, is extremely unlikely to happen.
So, if I patent something that MS invented and told MS that "it is unlikely that I would sue you", would Microsoft just let it pass? If I were the organization behind BlueJ, I would not want to be at the mercy of *any* corp, let alone MS.
It it were anyone but MS, I would be inclined to think that this was an overzealous employee or just a bureaucratic error. But MS has tons of examples where they took other people's ideas and profited from it - all the while ranting about "intellectual property".
It will be interesting if the MS engineer referenced in the original post has something to say about this in his blog.
inflation was quite well known in economies in the past that HAD NO PAPER MONEY.
Inflation, by definition, can happen only when the supply of currency is increased. In economies without paper money (eg. the Romans), inflation happened because the supply of coins was increased by decreasing the % of precious metal in the coins. If a huge stock of gold is suddenly discovered and made into coins, that will also result in inflation.
If the shit really hits the fan, the only worthwhile currency will be food, so I suggest you cash in your hoard of gold and invest in baked beans and twinkies, those things last forever.
You are correct. Barter is the only form where you are 100% protected against inflation because the currency(food, etc) has inherent value.
But since it is impractical (for some) and as thousands of years of history has shown, gold is an acceptable alternative. This is also the reason why people don't talk about a 'platinum standard' or a 'diamond standard' - those things do not have the qualities of gold (history, stability of supply, etc).
And besides, 'inflation' isn't some phenomenon that makes prices get higher. Inflation is just what we call it when they do so
Firstly:
inflation (n-fl'shn) pronunciation
n.
1. The act of inflating or the state of being inflated.
2. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
Secondly, why the funny name then? Why not call a rise in prices....a rise in prices?
Thirdly, how can prices of all goods rise together? If the price of oil rises, people will have less money to spend on sporting goods and the price of sporting goods will fall. The price of all goods in the market cannot rise at the same time - it appears so only because the value of the currency falls.
Okay, but how do you know that printing the money puts you in 1) rather than 2)?
I don't claim that - fiat money could lead to 1 or 2 or a scenario where wealth is lost due to war, famine, etc. Inflation does not reduce the total wealth in the system - it just transfers it arbitrarily to some beneficiary.
And how do you know that not printing money would lead to 3)?
I guess I should have had a 4:
4.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is NOTcreated
The govt DOES NOT print $10; each dollar now represents X/10 = X/10 "value".
The currency reflects the same wealth and people's purchasing power remains the same - which is correct because they did not create any wealth.
and a 5:
5.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
Due to war, natural disaster,etc X/2 wealth is destroyed.
The govt DOES NOT print $10; each dollar now represents X/20 "value".
The currency reflects the lost wealth and people's purchasing power goes down - which is correct because they lost wealth.
Before you balk at the idea of a rigidly fixed money supply with increasing total wealth not increasing the value of a dollar
It is not the "value" of a gold/silver/tungsten dollar that is the point - it is the value they represent.
If the number of gold dollars in existence becomes small relative to the instances of exchange, it becomes inconvenient to use it as money. (Think about what it would be like in the extreme case where, e.g., someone will ONLY accept rare baseball cards as payment.) That diminishes the network effect that makes something valuable as money, which in turn decreases the premium attaching to it due to its additional use as money. Thus, the money falls in value just the same relative to total wealth and people start trading in, e.g. tungsten.
That is the reason I said that barter is the perfect (but impractical system) with gold being the next best thing. This is also the reason everyone talks of a 'gold standard' and not a 'diamond standard' or a 'platinum standard'.
The assumption (validated by centuries of experience) is that the production of gold, its properties, etc make it unique to be used as a currency.
But assume that happens - I have all my wealth in gold, but due to its impracticality, everyone now trades in tungsten. Well, I made a bad decision in storing all my wealth as gold so now I lose a little bit (or a lot) of my wealth and transfer it to tungsten. But atleast I had control over it - if I had used better judgement, I could have avoided it. But in the case of fiat money, I don't have that choice - it is imposed on me with the threat of force.
It's true that the Fed can print money without having extra assets to back it up, thus devaluing it. But as long as people *expect* this to happen, interest rates will be such that by holding your money in a money market account, it will grow and erase this effect, right?
I think it is fair to reduce the question to 'so what if the purchasing power of a dollar halves; as long as everyone has twice the dollars'.
Well, could you possibly have had twice the dollars without the purchasing power halving? (or the same amount of dollars that buys twice more)? You are looking at the final result and saying "well, everything was a wash" without considering that people might have been better off without inflation eating into their wealth.
Here are three scenarios (the second one is what you are reffering to):
1.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
The govt prints $10 and the wealth stays at X; each dollar now represents X/20 "value".
This is inflation,etc,etc..
2.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is created
The govt prints $10; each dollar now represents 2X/20 == X/10 "value".
Yay, there is no effect from inflation!! Everything has been factored in.
3.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is created
The govt DOES NOT print $10; each dollar now represents 2X/10 = X/5 "value".
The currency reflects the increase in wealth and people's purchasing power is increased.
My point was that (3) is the correct way things should work and apart from barter, the only way to get to 3 is through a gold currency.
If you get a chance, read how the roman emperors (Diocletian for one) reduced the % of silver in their coins and how that created inflation - that will make it easier to understand what inflation is (it is not a rise in prices as every "economist" says) - it is and always was a govt phenomenon.
Wham!New money. That money didn't exist before, the bank just gave him money drawn from other people's accounts.
So which is it - new money or money that existed before in other people's accounts?
I did not say 'Banks *need* new money created by the govt. to lend it' - they can and do lend out prev existing money. But, they do lend out money by borrowing it from the Fed (which creates it out of thin air) and that is much easier to get than competing for people's wealth in the open market.
The problem goes back to something having inherent value vs some thing that does not have inherent value.
In a barter system, there is no question of valuation because whatever you are bartering (wheat for beef) has value to you. You don't care if the market for wheat collapses the next day, because the wheat has inherent value to you.
The problem is that bartering does not work for the number of products (and services) people want. So, you need a product to *represent* value - gold, silver, cigarrates, money, etc. It is important to understand that this product does not need to have inherent value - it only represents value.
Say we agree that plain white paper will be the mechanism by which value will be represented. The problem is that while some people work hard to create products with inherent value, I might just print plain white paper. This does two things:
1. I get to make 'money' without working as hard as you, which is not a problem in itself.
2. I dilute the value of plain white paper thereby indirectly stealing from you (this is called inflation).
This is why gold or any other rare commodity is a good currency (but not perfect like barter). I just cannot do make tons of gold and dilute the value - I have to do real work to mine the gold. The moment someone figures out a way to create tons of gold, it will not be a good currency.
The problem with fiat money is that the govt. can print it (or rearrange electrons) at will and steal money from you indirectly. The financial institutions (who you say will 'prop up' the dollar) always want more money pumped created so they can lend it out and make more money.
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resting their case on slender to non-existent evidence, and making up for it with an endless stream of lawyers and money.
The fact that the system allows this sort of behaviour is the bigger problem (and it is not an accident that it is setup this way).
On the other hand, why they can't make a small stipulation to sell X% of units raw to folks that are DIY'ers, is beyond me..
Because *they believe* that there are no profits to be made there. If they thought that there was enough profit to be made, they would've done it a long time ago.
they could even sell it with a disclosure that they don't support ANY operating system in their contract, however their hardware has been tested with XYZ operating systems.
Because it takes one clueless person tying up their customer service for 20 min complaining that his computer is broken for the company to lose any profits they made on a few of these systems.
Here is the logic:
Apple makes computers as well as the OS.
MS just makes the OS.
Windows is a subpar OS.
OSX is awesome,smells good and gets you laid.
So, as you can clearly see,
- Manufacturers having Windows as the default OS ==> BAD.
- Apple having OSX as the default OS ==> GOOD
And oh, just in case you forget - MS is a convicted monopolist. This means that you can ignore things like logic and say whatever you want.
the value of YOUR US dollar is becoming worth less and less
Which is why he is converting the falling USD to some other form (Yuan, INR, gold, oil, stock, etc). And when he sells the LG stock he will get more USD because of the devaluation.
Keep investing like that, let me know how that works out for you.
Keep holding on to the USD and let me know how that works out for you.
I'm a small government, small federal budget kind of guy unless the budget is spent on things I approve of.
The last line was not directed at your post specifically, but at the many other posts comparing India to China.
But I'd go further than you and say any censorship is bad.
Take you 'religious vilification laws' for example - how do you define a religion? Now you have got the govt involved in defining the word religion. Some idiot will come up with a new religion that worships the Kiwi bird (I can start such a religion in India within 10min) - now would everyone stop insulting Kiwis?
And what constitutes vilification or insult? What if I say 'Buddhists are nuts'? Is that vilification? How about 'Buddhists are misguided'? Where do you draw the line? We have a problem in India where evangelical Christians preach that anyone who does not believe in Christ will go to hell. There are a lot of Hindu groups (read: politicians nervous about elections) who say that this is an insult to Hindus.
About 'inciting crime' - what constitutes inciting? If you let a govt define such subjective things, they will use it to make criminals of everyone.
Generally, govt should just protect people and their property and not get involved in nebulous concepts like religion, culture, etc.
And oh, btw, get ready to worship the Kiwi overlords - they look like the one time to beat Aus in the WC.
Just curious - would the US govt be interested in message boards where ppl are discussing how to bomb a building?
Then why shouldn't the India govt be interested in boards where people are planning/ inciting the next riots
. Of course, having observed how the riots always occur at convenient times for the local politicos, I don't believe for one minute that this has anything to do with public safety. But I do question the holier than thou attitude adopted by many Americans over free speech when their military has willingly killed journalists many many times.
The American taxpayers subsidized the startup of the .com bubble, we paid for the infrastructure on which the rest of the internet was built, and we paid for the products, the software, and the services on the consumer end. Where, then, did the profits from the .com bubble go? The profits went into the hands of the same major investment groups who have been carefully profiling and controlling the market for generations--people who, when the .com bubble became the .com bust, shrewdly bought the real estate being sold by the common people seeking to ameliorate their losses (which had been carefully planned by those people who were now buying their real estate at dirt cheap prices). When America began to return to consciousness after the .com blackout we now find that the same real estate which we sold to keep ourselves from bankruptcy is being rented or sold back to us--as condos, apartments, are housing communities--at three, four, ten, even hundreds of times the cost.
.com bubble. This is the cause of the real estate 'boom'. They will dig some other hole to soften the real estate bust - guess who is going to make money on that?
The only surprise is that anyone is surprised by it. Read up on how and why the Fed was created (hint: it is not to 'fight inflation'). The federal reserve (basically a group of well connected bankers) decide what your money is worth. If their pals in the govt are in a bind, they will just create new money thereby lowering the value of the money in your pocket. This cause the inflation that the fed is supposed to 'fight'. It really is a cute semantic trick - the result of inflation, rise in prices, has been turned into the cause of inflation.
This funny money was the cause of the
You present a false dichotomy. It's quite possible for the line to be shallow (actually, I think it would be steep, not shallow) and still have high production.
And that is why I said 'lower production' (and not lowest or low) - if you take wealth from people who have proven that they are good at producing wealth (that is how they ended up with that much money - unless they used force and stole it) and give it to people who have not proven as successful at creating wealth, you will end up with lower production. There are many instances in the world where the govt does something in the name of equality with disastrous results - just look at farm policy in India, Zim, etc.
But I asked the original question not to debate about production and income - I just wanted to know whether some people feel that income equality was more important than overall growth.
You are perfectly correct in saying that there are more than 2 options. But my question was, given these 2 options which will you prefer?
I used to subscribe to the Economist, but stopped after realizing that they had very few ppl there with any economic sense.
The final straw was an article where the author claimed (rather proceeded with the assumption) that inflation is a general rise in prices.
It is like a magazine about evolution being run by creationists.
But I do think that the steepness of the log/log line you get when you graph incomes versus number of people has something to say about the health of an economy. A really shallow line in which a small number of people make an enormous amount of money indicates a winner-take-all economy in which things quickly devolve into a monopoly or semi-monopoly situation. I think this is what we have today in the US. I think it's unhealthy because
Which goes back to my question - would you rather have a shallow line with very high production (which you claim to be unhealthy) or would you want an economy with lower production, but with low income inequality? You just answered my question - you prefer the latter.
I fail to see how my example was a straw man argument.
Lowering production to achieve equality of income (to whatever degree) will result in a lower standard of living.
I think class mobility requires that smaller players can eventually take out bigger players by being better.
Microsoft was small when it started. So was Walmart.
But the events in the world have not shown (2) to be true.
4 338529080&sourceid=searchf
Everyone is better off (see this video for the stats-
http://video.google.com/videoplay?docid=423735324
Fifty years ago, not even the richest person in world had access to the kind of medical care, communications, etc the average person has access to today. The life expectancy is higher. The quality of housing, transportation, etc is also higher.
So, (2) in your example is simply not true (except for countries like Zimbabwe where people are not free to produce what they want).
Well, in the first case, the two guys could be hunting goats in Tobago. Hence the low production and the equality in income.
In the second case, the two people could be mining copper (owned by the richer guy) and exporting it to nearby countries - hence there is net gain in wealth, not inflation.
Most people are like you - they'd rather hunt goats and have income equality than increase production with high income inequality but with everyone better off.
BTW, if you want to flame me... I think the income distribution in the United States is whacked.
Here is something I've always wanted to ask someone who talks about 'income distribution' or 'income inequality' - which of the foll would you prefer:
1. A has $100, B has $105
2. A has $1000, B has $100,000
If you want better income distribution, you have to pick (1). But (2) means everyone is better off.
IMO, anyone who speaks about income inequality thinks the economy is a zero sum game.
Do you understand the concept of a "natural monopoly"?
I do - such a thing does not exist. There are only monopolies that are due to(a) govt enforcement (phone cos, railroads) or (b) superior products (std oil, great northern, etc). Neither is natural.
There's only so much place to put the fiber to.
Why? As long as the owners of the property (which is the govt. in socialist paradises) agree, they are free to lay thousands of cables.
Unless you want the whole city to be covered with cables
You could lay large pipes inside which you can lay multiple cables for phone, cable, electricity, etc. That way, a company wanting to enter the cable biz just needs to negotiate with the owner of the pipe and lay all the cable they want.
This still does not solve the main problem - govt. giving one set of individuals an advantage backed up by the use of force.
Marketing.
So, the ignorant consumer falls for the ad, wants it and buys it. No force involved. What do patents have to do with that?
that treat the exact same conditions as already existing drugs
Why would anyone buy this drug if it does the exact same thing as an existing (possibly cheaper) drug?
H-1B visas artificially increase the labor supply
How is that artificial? Are these people produced artificially by some machine in a factory?
The only artificial thing in this scenario is national borders and the different artificial economic policies set within each of those borders.
However, this has not happened and, in my opinion, is extremely unlikely to happen.
So, if I patent something that MS invented and told MS that "it is unlikely that I would sue you", would Microsoft just let it pass? If I were the organization behind BlueJ, I would not want to be at the mercy of *any* corp, let alone MS.
It it were anyone but MS, I would be inclined to think that this was an overzealous employee or just a bureaucratic error. But MS has tons of examples where they took other people's ideas and profited from it - all the while ranting about "intellectual property".
It will be interesting if the MS engineer referenced in the original post has something to say about this in his blog.
inflation was quite well known in economies in the past that HAD NO PAPER MONEY.
Inflation, by definition, can happen only when the supply of currency is increased. In economies without paper money (eg. the Romans), inflation happened because the supply of coins was increased by decreasing the % of precious metal in the coins. If a huge stock of gold is suddenly discovered and made into coins, that will also result in inflation.
If the shit really hits the fan, the only worthwhile currency will be food, so I suggest you cash in your hoard of gold and invest in baked beans and twinkies, those things last forever.
You are correct. Barter is the only form where you are 100% protected against inflation because the currency(food, etc) has inherent value.
But since it is impractical (for some) and as thousands of years of history has shown, gold is an acceptable alternative. This is also the reason why people don't talk about a 'platinum standard' or a 'diamond standard' - those things do not have the qualities of gold (history, stability of supply, etc).
And besides, 'inflation' isn't some phenomenon that makes prices get higher. Inflation is just what we call it when they do so
Firstly:
inflation (n-fl'shn) pronunciation
n.
1. The act of inflating or the state of being inflated.
2. A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
Secondly, why the funny name then? Why not call a rise in prices....a rise in prices?
Thirdly, how can prices of all goods rise together? If the price of oil rises, people will have less money to spend on sporting goods and the price of sporting goods will fall. The price of all goods in the market cannot rise at the same time - it appears so only because the value of the currency falls.
Okay, but how do you know that printing the money puts you in 1) rather than 2)?
I don't claim that - fiat money could lead to 1 or 2 or a scenario where wealth is lost due to war, famine, etc. Inflation does not reduce the total wealth in the system - it just transfers it arbitrarily to some beneficiary.
And how do you know that not printing money would lead to 3)?
I guess I should have had a 4:
4.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is NOTcreated
The govt DOES NOT print $10; each dollar now represents X/10 = X/10 "value".
The currency reflects the same wealth and people's purchasing power remains the same - which is correct because they did not create any wealth.
and a 5:
5.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
Due to war, natural disaster,etc X/2 wealth is destroyed.
The govt DOES NOT print $10; each dollar now represents X/20 "value".
The currency reflects the lost wealth and people's purchasing power goes down - which is correct because they lost wealth.
Before you balk at the idea of a rigidly fixed money supply with increasing total wealth not increasing the value of a dollar
It is not the "value" of a gold/silver/tungsten dollar that is the point - it is the value they represent.
If the number of gold dollars in existence becomes small relative to the instances of exchange, it becomes inconvenient to use it as money. (Think about what it would be like in the extreme case where, e.g., someone will ONLY accept rare baseball cards as payment.) That diminishes the network effect that makes something valuable as money, which in turn decreases the premium attaching to it due to its additional use as money. Thus, the money falls in value just the same relative to total wealth and people start trading in, e.g. tungsten.
That is the reason I said that barter is the perfect (but impractical system) with gold being the next best thing. This is also the reason everyone talks of a 'gold standard' and not a 'diamond standard' or a 'platinum standard'.
The assumption (validated by centuries of experience) is that the production of gold, its properties, etc make it unique to be used as a currency.
But assume that happens - I have all my wealth in gold, but due to its impracticality, everyone now trades in tungsten. Well, I made a bad decision in storing all my wealth as gold so now I lose a little bit (or a lot) of my wealth and transfer it to tungsten. But atleast I had control over it - if I had used better judgement, I could have avoided it. But in the case of fiat money, I don't have that choice - it is imposed on me with the threat of force.
It's true that the Fed can print money without having extra assets to back it up, thus devaluing it. But as long as people *expect* this to happen, interest rates will be such that by holding your money in a money market account, it will grow and erase this effect, right?
I think it is fair to reduce the question to 'so what if the purchasing power of a dollar halves; as long as everyone has twice the dollars'.
Well, could you possibly have had twice the dollars without the purchasing power halving? (or the same amount of dollars that buys twice more)? You are looking at the final result and saying "well, everything was a wash" without considering that people might have been better off without inflation eating into their wealth.
Here are three scenarios (the second one is what you are reffering to):
1.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
The govt prints $10 and the wealth stays at X; each dollar now represents X/20 "value".
This is inflation,etc,etc..
2.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is created
The govt prints $10; each dollar now represents 2X/20 == X/10 "value".
Yay, there is no effect from inflation!! Everything has been factored in.
3.The total wealth in a system is X and it is being represented by $10. Each dollar represents X/10 "value".
New wealth of X is created
The govt DOES NOT print $10; each dollar now represents 2X/10 = X/5 "value".
The currency reflects the increase in wealth and people's purchasing power is increased.
My point was that (3) is the correct way things should work and apart from barter, the only way to get to 3 is through a gold currency.
If you get a chance, read how the roman emperors (Diocletian for one) reduced the % of silver in their coins and how that created inflation - that will make it easier to understand what inflation is (it is not a rise in prices as every "economist" says) - it is and always was a govt phenomenon.
Wham!New money. That money didn't exist before, the bank just gave him money drawn from other people's accounts.
So which is it - new money or money that existed before in other people's accounts?
I did not say 'Banks *need* new money created by the govt. to lend it' - they can and do lend out prev existing money. But, they do lend out money by borrowing it from the Fed (which creates it out of thin air) and that is much easier to get than competing for people's wealth in the open market.
The problem goes back to something having inherent value vs some thing that does not have inherent value.
In a barter system, there is no question of valuation because whatever you are bartering (wheat for beef) has value to you. You don't care if the market for wheat collapses the next day, because the wheat has inherent value to you.
The problem is that bartering does not work for the number of products (and services) people want. So, you need a product to *represent* value - gold, silver, cigarrates, money, etc. It is important to understand that this product does not need to have inherent value - it only represents value.
Say we agree that plain white paper will be the mechanism by which value will be represented. The problem is that while some people work hard to create products with inherent value, I might just print plain white paper. This does two things:
1. I get to make 'money' without working as hard as you, which is not a problem in itself.
2. I dilute the value of plain white paper thereby indirectly stealing from you (this is called inflation).
This is why gold or any other rare commodity is a good currency (but not perfect like barter). I just cannot do make tons of gold and dilute the value - I have to do real work to mine the gold. The moment someone figures out a way to create tons of gold, it will not be a good currency.
The problem with fiat money is that the govt. can print it (or rearrange electrons) at will and steal money from you indirectly. The financial institutions (who you say will 'prop up' the dollar) always want more money pumped created so they can lend it out and make more money.