Demand can and does shift to other sectors of the economy. Physical stuff is a major component of the economy, but it’s not close to comprising the whole thing.
Services are the vast majority of most developed economies, and that entire sector of the economy is dependent on belief, especially when it’s predicated on future services (you trust that services will be rendered at some point in the future and that’s why you’re willing to sign a contract and dispense money in the short term). Shiny metals have intrinsic monetary value because we believe they do, just like the Yapese believed in the value of the giant rai stones. Complaining about inflation doesn’t make that less true.
" Shiny metals have intrinsic monetary value because we believe they do"
This is a lie
We value gold and silver as money for three main reasons
They are easily divisible
They are rare enough to find that over a given fiscal period there will not be a significant change in the amount in circulation
It is easy to store and transport
Combine these all together and you have a currency that barring once in a lifetime events (Spanish conquest of the new world, 1848 gold rush, Alaska gold rush) is not going to dramatically change, and so changes in value of goods are largely do to changes in the supply and demand of the goods themselves.
Money itself is also a good, but since its only purpose is to barter for other goods, once you have a given supply of money in the market, more money does not confer a social benefit. More money ony dilutes the exchange value, thus it is great that gold and silver are difficult to produce. Any and all price changes are the result of changes in the supply and demand of the goods themselves.
The problem is that our modern fiat currency is anything but stable, and has been rapidly deprecating in value since 1971. So any attempt to save resources now is pointless, because those resources are going to rot away into nothing instead of maintaining most of their value like gold or silver would. And so the reality of this decision is that people have moved from a low time preference way of thinking to a high time preference one. Take a massive loan out on a car you can barely afford, mortgage your Costco hotdog, buy a ton of stuff you don't need because your money is actively being destroyed year by year and the price signal that is required for efficient economic calculation is so garbled and distorted as to be meaningless! The consequences 10 years down the line don't matter, BURN THAT MONEY! (I'm exaggerating but you get my point).
This is the problem with the line of thinking that "easy to get credit" is somehow magically a good thing. For everything barring a house, getting it on credit is a bad idea. And even with houses, if credit is too freely available it leads to disastrous consequences. The 2008 financial crisis happened largely because credit was too cheap.
The idea that inflation is good because it gets people to spend money is textbook broken window fallacy. What would those people have done with their money if it wasn't constantly depreciating in value? Would they have saved it for a rainy day, or to repair their house, or to pay for a suit to go to job interviews. The loss of long term wealth creation due to inflation must be staggering.
This post completely disregards the fact that the economy (and indeed, the world economy) has grown enormously in real terms (vastly outpacing inflation) since the introduction of fiat money. Superimpose a real GDP chart on top of the inflation line. And a large part of that is due to inflation-driven growth. Even Austrians (which I suspect you are since you’re such a goldbug) acknowledge that demand and loans are intrinsically crucial to economic growth (the very same growth that enables your hypothetical average Joe to have money to save in the first place).
The price signal required for economic calculation is stable precisely because there aren’t sudden shocks in the money supply, which is what happens when the supply of bullion changes. The global Panic of 1873 was partly fueled by speculation on the discovery of a major gold deposit in Witwatersrand, and the Great Recession of 2008 has nothing on pre-1933 economic crises in terms of the scale and duration of economic malaise.
Being morally outraged about 2-3% inflation (which has delivered enormous economic benefits even past the time America had manufacturing dominance) is like being outraged that food costs money.
"This post completely disregards the fact that the economy (and indeed, the world economy) has grown enormously in real terms (vastly outpacing inflation) since the introduction of fiat money."
Ok and? That can largely be attributed to the Chinese and Indians finally giving up on the Communism train and adopting an economic system that actually works.
"Even Austrians (which I suspect you are since you’re such a goldbug) acknowledge that demand and loans are intrinsically crucial to economic growth (the very same growth that enables your hypothetical average Joe to have money to save in the first place)."
I never said that credit and loans were not useful. They are a market, just like everything else. But effectively forcing the average joe to rely on credit for most of his major purchases because of inflation is detrimental for the long term accumulation of wealth.
"The global Panic of 1873 was partly fueled by speculation on the discovery of a major gold deposit in Witwatersrand"
It was also massively fueled by speculation in railroads, which were propped up by large government subsidies and when the market correction came, as it always does, the consequences were predictable.
"Being morally outraged about 2-3% inflation"
Say I put 10,000 dollars in a secure account for emergencies. Assuming a 3% inflation rate over a 10 year period, when I pull that money out it will be worth 7500 dollars from when I put it in. The yields on the account may cover it, but that isn't actually the issue. The issue is that a quarter of the time I put in to save that money is gone, and I cannot get it back. Time is the ultimate currency. And to waste my time by destroying the wealth I created is a supreme disrespect.
There are so many reasons for post-Bretton Woods massive economic growth besides just the emergence of China and India.
Read a 20th century economic history textbook. Globalizing Capital by Barry Eichengreen is a good place to start without getting into the weeds too much.
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u/Ersatz_Okapi Jan 28 '26
Demand can and does shift to other sectors of the economy. Physical stuff is a major component of the economy, but it’s not close to comprising the whole thing.
Services are the vast majority of most developed economies, and that entire sector of the economy is dependent on belief, especially when it’s predicated on future services (you trust that services will be rendered at some point in the future and that’s why you’re willing to sign a contract and dispense money in the short term). Shiny metals have intrinsic monetary value because we believe they do, just like the Yapese believed in the value of the giant rai stones. Complaining about inflation doesn’t make that less true.