> Please explain how holding a piece of metal under mattress destroys someone else's wealth
Inflation creates a strong incentive to allocate capital to productive investments.
Inflation decreases the value of a currency, and therefore people attempt to allocate capital to investments that appreciate above the rate of inflation.
Without inflation there would be less incentive to fund new companies, lend money etc...
Gold under a mattress is not productive capital.
This leads to a virtuous cycle of investment and reinvestment. Deflation is a far bigger threat than moderate, controlled inflation.
Think of the economy as a MMORPG. The game's creators (central banks) need tools to balance gameplay and keep the game (the economy) growing and interesting.
The value of fiat currency is very real. It is backed by the ultimate power on earth, the state's monopoly on violence.
Do you have a single rational standard of what's "productive" and "not productive"? Should you have moral right to enforce this standard upon everyone around you? If millions of tourists make millions of pictures of Eiffel Tower an buy millions of cameras and iPhones for that - is it productive? Should they be prevented from buying cameras and instead "invest" money in something more "productive"?
My answer to everyone who thinks there is an objective distinction between productive and non-productive and advocates use of violence to redistribute resources: you are an egoistical immoral evil person who has no humility or interest in people around you. Instead of figuring out why people do what they do, you suggest pointing guns at them to do what you think is better for mysterious "society".
> Do you have a single rational standard of what's "productive" and "not productive"?
Yes. Trade is productive, it is the highest civic virtue. Hoarding is not productive, it makes us all poorer.
I'm not for banning the ownership of gold. I am just pointing out why the redirection of capital from bond markets, venture funds and lending into ownership of gold leads to reduced money velocity and decreases trade.
The story on why we should own gold is a highly pessimistic one. Goldbugs point to a collapse scenario as a reason to own gold. Mass economic collapse would make everyone poorer, even those with large gold reserves.
Hoarding does not make us all poorer. Your blanket statement is false.
If you're living in a country with a gold standard, and that currency appreciates, it means you can purchase more real goods, not less.
China's economy has seen its currency appreciate for the last decade, while they simultaneously get far richer. The same principle was demonstrated by the last manufacturing powerhouse: the USA.
If I hoard dollars under my mattress, which reduces circulation, then all the other dollars gain purchasing power in direct proportion to my hoarding: ie I make everybody else richer while I hoard. The exact same thing is true about gold: any currency backed by gold gains real purchasing power.
Yes, but the incentive not to purchase more real goods increases as the currency appreciates because every unit of currency not spent now will be able to purchase even more real goods in the future. Hence, people avoiding spending now except for essential goods.
This inevitably results in massive deflation and eventually destroys the economy, rendering the accumulated appreciation worthless.
China's economy has seen its currency appreciate for the last decade, while they simultaneously get far richer. The same principle was demonstrated by the last manufacturing powerhouse: the USA.
Yes, and in both cases this happened after the countries stopped fixing the supply of money. In the US, this was moving off the gold standard, in China, this was moving off of the USD standard.
Inflation creates a strong incentive to allocate capital to productive investments.
Inflation decreases the value of a currency, and therefore people attempt to allocate capital to investments that appreciate above the rate of inflation.
Without inflation there would be less incentive to fund new companies, lend money etc...
Gold under a mattress is not productive capital.
This leads to a virtuous cycle of investment and reinvestment. Deflation is a far bigger threat than moderate, controlled inflation.
Think of the economy as a MMORPG. The game's creators (central banks) need tools to balance gameplay and keep the game (the economy) growing and interesting.
The value of fiat currency is very real. It is backed by the ultimate power on earth, the state's monopoly on violence.