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This is such a wildly unpopular notion, and yet I've never heard a reasonably articulated counterargument.

It's like people who understand supply and demand short-circuit when they think that the same laws don't apply to money too.

I think such people just aren't paying attention.

Everyone who understands American economic policy knows that the currency is being slowly devalued on purpose. This is not a conspiracy theory, it is common knowledge. The inflation target is always greater than 0. This is in part because of the perceived risks of deflation -- better to be on one side of the line than the other -- but also, generally, the point is to encourage people to spend or invest rather than passively save, because spending and investment grow the economy.

To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense. (But I say "in a sense" because if the economy were at a much less active level as "normal" maybe everyone would have lower quality of life. I don't know.) If you ever wondered why Ron Paul dislikes the Fed so much, well, it's because of reasons like this.

> To a libertarian this is one of the most oppressive things about the way the government works currently ... it forces everyone to work more than they would ideally have to, in a sense.

This part I don't get. It is generally straightforward to invest one's fiat currency in a very secure (and privately run in a nicely capitalist way!) instrument that has positive real interest rate.

The worst thing for me is that inflation is an implicit wealth tax, because governments don't account for inflation when charging capital gains tax. So if inflation is 3%, you have $10000 which increases in value to $10300, then you pay capital gains tax on that $300, reducing the real value of your holdings.

Why are you investing in things with a 0℅ return then?

If you're part of society you're ideally using labor and resources from other specialists such as farmers and miners who need some reason to move dirt around to make your life better. If you have money then you put that to work helping those people be more efficient, and maybe spawn other kinds of specialists like web developers.

If however you'd rather not be a part of this society, then you're free to opt out. But then you don't get the benefits of "being on the team" and now either your standard of living goes down (I.e. homelessness) or you have to work super hard (I.e. living off grid in some remote area).

It doesn't matter what the return is; if the nominal rate of return is 5% and inflation is 3%, and $10000 increases to $10500, I'm still paying capital gains on $500, when in fact $300 of that is just inflation and the real gains are only $200. The key issue is that capital gains tax applies to nominal rather than real returns.

"a 0℅ return"

I've seen used a couple of times recently where I would have used %. Is there a connotation or other difference in meaning implied by ℅ (care of) instead of % (percent)?

They're fairly close together and easy to mistake for each other when typing fast on an Android keyboard. I certainly meant to write percent (%), and probably others too. In fact I just learned there was even a "care of" symbol.

Ah! Thanks for clarifying!

Another problem we find with it is that it distorts the market. I.e. The example you mentioned about financial instruments. People are "herded" or "coerced" into investing their currency/capital into such things. They simply have no other choice but to try beat the inflation that causes their capital to deflate.

And on every corner, people that accumulate wealth are vilified (see talk of inequality, and progressive taxation). If we can't accumulate wealth and pass it off to better the lives of our own offspring, then we're nothing more than insects that live, work, and eventually disappear into nothingness.

Wouldn't those instruments (I'm assuming stocks/retirement, I'm not an economic smart guy) be implicitly tied to everyone else doing more work then they "have to"? That's exactly economic growth, just reworded.

Everyone is doing more than they "have to" (that is not well-defined) because they want to. Let them do that.

There's limited evidence that demand for currency is really related to the underlying material it is printed on. In fact, that has been a staple of our economy since we adopted fiat currency. It is not perfect to have fiat currency, but currency value is more about aggregate demand for goods and the functional circulation of the existing money. (See velocity theory of money). Remember also that the laws of supply and demand are not necessarily rational, and they effect the value of gold just as much as the value of paper money. (Gold is not inherently valuable)

The demand for money is greater than the supply of precious metals so we don't use precious metals as our only money.

Does this wildly unpopular notion have any predictive power? For example, can you make a prediction about US inflation over the next 50 years?

Usually people don't understand the dangers of private banks owning a fiat paper currency they can print at will.

Until I pull out a silver quarter or silver dollar and prove to them how much the private federal reserve has devalued their money.

Then it's like, "Oh. Wow. You're right."

A Morgan dollar is worth $15 for its material and possibly more for its collectible value, what is the problem here? Every dollar invested in 1900 would still have yielded a better return than $15, i.e. burying silver in the ground.

The real issue with a currency based on precious metal is that the reverse grows at such a rate much slower (<1% annually for gold IIRC) than economic growth. In a deflationary market, rational actors would simply remove money from circulation because it will just increase in value on its own, whilst the economy collapses.

…except people don't keep fiat currency underneath mattresses. They invest it, and better their economy for doing so.

So your old coin isn't competing against some ratty old dollar bill, it's competing against the real value of my index fund shares.

Which, by the way, are winning: http://ritholtz.com/wp-content/uploads/2013/04/fda.jpg

Just wait until he pulls that silver dollar out of his pocket. Then you will see.

People don't understand the risk of commodity investments until I show them a coin collectors red book from 1986, when that same Morgan dollar was worth $3-4.

Gold and silver is high because asians with money in places like China and India don't trust their governments. Period.

Reliance on gold and the resulting starvation of capital caused a lot of economic and social devastation 100-130 years ago.

"It's just like bitcoin in practice, except you have to use fire and steel to break it into smaller increments!"

Interestingly, a good pair of tinsnips is enough. It was a serious problem until Isaac Newton (of all people) came along.

Apologies that I can't find a better source right now: http://www.lsned.com/newton-invented-ridges-coins/

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