Feb 4, 2021Liked by Nicolas Bustamante

I am not so convinced by a return to the gold standard, because I fear it would give the same power that central banks have today to people who can mine gold, and especially to countries that have the most gold. I agree that it is much harder to mine actual gold than to create fiat money on a central bank computer, but still, someone has this disproportionate power. AFAIK, at the current price of gold, there is just too little gold compared to the amount of money. So if we introduced a gold standard in a country with a 100% full reserve (so we need gold not only for the equivalent of central money, like with a fractional reserve gold standard, but for all the money), it would basically make gold worth A LOT more (compared to other goods). I think something like what happens with Bitcoin would happen with gold: Early owners of gold would become incredibly rich and there would be a massive rush to buy gold while we are switch to gold. If gold becomes that valuable, it would IMHO create 1) a massive incentive to mine more gold (do we really want that?) and 2) it might be an issue for people who actually need physical gold for something (10% of gold is used in electronics). I was curious about the actual order of magnitude so I tried to find some numbers. It seems there is 10 T$ worth of gold in the world (at current market price) and about 80 T$ worth of money, so I think we are talking about a 10x variation in the price of gold or something like that. But anyway I am discussing this just for fun, because as you point, it's unlikely that any country will implement a gold standard (or maybe a country with a lot of gold like China?).

A more interesting thing to think about is cryptos of course. Let's imagine that cryptos actually replace part of the monetary system. Since the amount of total money is bounded, this would lead a recurrent deflation. Let's say that there is 5% real growth every year, then there would be a 5% deflation every year as counted in bitcoins. Wouldn't that be annoying for the economy, as it would create a incentive to hoard money rather than to invest it? What do you think?

Expand full comment
Feb 6, 2021Liked by Nicolas Bustamante

If we go away from a right to print money (debt based) back to simply the right to have property of things, as is the case with a gold standard (work based, or "proof of work"), we get rid of the progress finance has made possible. I think better questions would be: who should have the right to use debt ; who is going to benefit from segniorage ; how does a consumption based economy need debt ; how do we promote productive individuals with money. Ethereum provides a technical solution for scaling beyond the price of computing, through proof of stake, and could keep a value bridge with real costs through a combination of pos and pow. I am not sure however how this solves bigger political issues that stem from money as an institution in society.

Expand full comment