The dispute over bimetallic currency is now more than a hundred years old and has been made entirely moot by the floating US dollar and the post-Bretton Woods international monetary order.
Setting aside the technical detail (gold vs. silver), the debate was really over hard vs. soft money. The issue is as relevant today as it was in the 1800s.
Hard (scarce, gold) money policies favor lenders, who care very much about getting the full real value of their loans back. Inflation eats into their returns by decreasing the future value of money.
Soft money policies favor borrowers, who pay back loans in ever cheaper currency through inflation. Buy a farm today with a 10-year loan, and every year the real value of the money you pay back (factoring inflation) decreases.
What we see with a lot of the interest in Bitcoin is a direct reaction to decades of soft-money policies by the world's governments.
Here's the money quote:
... There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them. ...
This is what the Cross of Gold speech was about, in a nutshell.
It's not like there was no inflation in the gold standard era. It's just that inflation wasn't under anybody's political control - I guess if there was a gold rush you had a lot of inflation and if there wasn't you didn't.
The free silver movement was a political attempt to redistribute money from one group (lenders) to another group (borrowers, but specifically farmers) by deliberately causing a one-off burst of inflation. The original goldbugs opposed it (correctly, as the author points out) for that reason. Bryan supported it because he knew it would win him the votes of those who would benefit.
The same is not true of modern fiat currencies, which are for the most part managed quasi-independently with the goal of a relatively constant low, but non-zero, rate of inflation. This is better than either the gold standard or the free silver situation (both of which involved large bursts of inflation at unpredictable times), since the inflation rate can be priced in to interest rates.
It is possible to maintain a principled objection to this on the grounds that the political consensus could break down and we could start manipulating inflation for political reasons again. I'm glad we have people who worry about that, but I don't feel the need to join them.
I have a feeling that the ratio of 'principled objection' to 'economically illiterate' is, uh, not that high though.
Moderate inflation is easily factored into repayment terms. What inflation penalizes is keeping your money under your mattress. This creates demand to use money now which creates economic activity.
> a lot of the interest in Bitcoin is a direct reaction to decades of soft-money policies by the world's governments
Bitcoin came from and was nurtured by monetary cranks but they are a small fraction of why people are interested in it lately. Today it's an investment asset or a means to do something illicit like dodge currency controls or launder money.
Moderate inflation is easily factored into repayment terms.
Constant inflation is easily factored in. But inflation varies greatly depending on prevailing conditions. The ruling party has an incentive to push for inflationary policies to stimulate short-term economic activity, leading to bouts of inflation that can wreck lenders over the long term.
What inflation penalizes is keeping your money under your mattress.
Inflation also punishes prudent investors - the kind who save for retirement.
Rising inflation leads to asset bubbles as pre-retirees seek to avoid being destroyed by inflation. Stocks without earnings and real estate, for example. They all get pushed up to ridiculous levels in the name of chasing return to avoid getting clobbered by inflation.
Not to mention the harmful ecological consequences of inflationary policies that encourage consumption over saving.
You have it backwards. Rising inflation does not create asset bubbles. In fact, rising inflation has the ability to deflate asset bubbles.
For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated.
I can think of three recent examples where inflation/soft money policies triggered asset bubbles:
- gold from late 1970s to early 1980s (CPI inflation)
- US real estate late 1990s to 2008 (excessive loan origination)
- US stocks from mid 1990s to 2001 (lax margin requirement)
For example, we are arguably approaching an asset bubble right now because of a decade of low inflation and low interest rates. In a zero inflation, zero interest rate environment nobody is incentivized to hold cash(since it returns zero) or CDs thus risk assets (ie. stocks) become inflated.
An inflation rate of zero would incentivize many people and groups to increase cash holdings. With no inflation to keep at bay, cash becomes a real no-risk bet.
Those doing so would no doubt the interested in real rates of return. For years, investors in CDs endured a negative real rate of return due to inflation. This forced people out of cash and into ever-risker assets.
Throw in mild deflation, and the average Joe could make a real return of a percent or two just by holding cash. It could trigger a stampede of sorts into cash and out of stocks, which explains why central banks are so keen to avoid even mild deflation.
The dynamic he's describing is about inflation relative to its expected value at the time of the deal. If you expect inflation to avg X% over the course of the loan and it ends up being so, then it's factored into the nominal rate of the loan and neither of the situations he describes come to pass. It's also mainly applicable for fixed rate loans only. So yea, it's pretty reductive.
And today's monetary policy is focused targeting predictable inflation rates over a period of time, which actually makes estimating it for credit purposes much more predictable than in the gold standard era, when it was zero with massive variance
Setting aside the technical detail (gold vs. silver), the debate was really over hard vs. soft money. The issue is as relevant today as it was in the 1800s.
Hard (scarce, gold) money policies favor lenders, who care very much about getting the full real value of their loans back. Inflation eats into their returns by decreasing the future value of money.
Soft money policies favor borrowers, who pay back loans in ever cheaper currency through inflation. Buy a farm today with a 10-year loan, and every year the real value of the money you pay back (factoring inflation) decreases.
What we see with a lot of the interest in Bitcoin is a direct reaction to decades of soft-money policies by the world's governments.
Here's the money quote:
... There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them. ...
This is what the Cross of Gold speech was about, in a nutshell.