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I'm debating with a libertarian who wants us to return to the gold standard (a la Ron Paul), and I'm arguing that, while the Fed needs some serious restrictions, the fiat system is not inherently flawed, and that the gold standard isn't a viable option for an economy this large.

Anyway, he trotted out this graph:



His purpose is to state that "The dollar value remained relatively consistent" (before the Fed was established). Now, I could be a complete retard, but isn't it the nature of graphs such as these that the upper portions are "stretched" so to speak? For example, prices seem to have doubled between around 1860-1864, whereas it took 5 times as long for prices to double between 1980 and 1999. Despite this, it looks as though the 1860s growth is insignificant compared to the trend from the 80s on up. Isn't the percentage change from year to year far more useful in a discussion regarding stability?

Is this graph misleading? Does it paint a far worse picture regarding the value of the dollar after 1917 than is fair? Or am I reading it wrong?

Are the values nominal or real? Or am I misunderstanding what the graph is showing?

Surlethe wrote:Are the values nominal or real? Or am I misunderstanding what the graph is showing?

I believe that the "price levels" title means that if it cost $100 in 1999, it would cost $5 in 1900.

The question is not "what are prices now, vs what did prices used to be"

the question is

"has standard of living and the buying power of the individual person increased or decreased" and "can these things be attributed to the existence or non-existence of the Fed"

Hell, a gold standard does not make any sense. If I produce a widget, why should its value be converted a gold value, which is then bartered, when I can just exchange the token for my widgets value directly? If anything, a fiat system, with its middle man(gold) gone, prices more accurately represent the value of my widget, because wealth is not bound to some fixed standard, but rather, can be created proportionally to my creation of widgets that people are willing to buy.

Alyrium Denryle wrote:The question is not "what are prices now, vs what did prices used to be"

the question is

"has standard of living and the buying power of the individual person increased or decreased" and "can these things be attributed to the existence or non-existence of the Fed"

I know, but it's his argument, not mine. I don't really want to get into things like "standard of living" or "individual buying power" because those statistics also reflect wages, taxes, and a slew of other things the Fed can't possibly control.

Hell, a gold standard does not make any sense. If I produce a widget, why should its value be converted a gold value, which is then bartered, when I can just exchange the token for my widgets value directly? If anything, a fiat system, with its middle man(gold) gone, prices more accurately represent the value of my widget, because wealth is not bound to some fixed standard, but rather, can be created proportionally to my creation of widgets that people are willing to buy.

Well right. I'm not having too much trouble with rebutting his position in general - I just want to be sure that the graph is at best not showing relevant data, and at worst is skewing the data.

Well, in short, the data is not relevant because it asks the wrong question.

The graph states that pre 1913 prices were estimates. How were these estimates produced ?

Unless he can convince you that the estimation was a valid method, I'd treat all the pre 1913 values as unreliable. Especially as his argument seems to rely on them being accurate.

My response to the graph portion of his argument follows:

The purchasing value of the dollar is irrelevant on its own. Sure, a $450 car is unthinkable today. But so is a $150/month salary. Your graph, without additional data, is absolutely worthless. Additionally, how do we know the pre-1913 estimates are reliable?

Thanks, all.

Ah, I'll bet it's a graph of the CPI from 1800 on. It's basically a measure of how much a basic basket of goods cost in each year relative to 1999, with 1999 normed to 100. As Alyrium pointed out, it doesn't correct for the ability to afford the basket of goods.

What do the vertical numbers even mean? 0-100 out of what, exactly?

DPDarkPrimus wrote:What do the vertical numbers even mean? 0-100 out of what, exactly?

Dollars. Probably based on a theoretical "fixed commodity" (I suspect gold, already largely stable, adjusted for demand fluctuations). If it cost 100 in 1999, it used to cost Y-value dollars in year X-value.

God, are lolbertarians pro-19th century? Is it irrelevent that the economy boomed and accelerated dramatically with the introduction and advancement of the industrial state? The value in the system goes up precipituously, and we're supposed to keep the flat money supply of the agricultural era indefinitely? How retarded is that?

Illuminatus Primus wrote:God, are lolbertarians pro-19th century? Is it irrelevent that the economy boomed and accelerated dramatically with the introduction and advancement of the industrial state? The value in the system goes up precipituously, and we're supposed to keep the flat money supply of the agricultural era indefinitely? How retarded is that?

The ones I talk to are under the impression that the value of gold will just increase until it can cover an economy of our size. This will result in a drastic increase in the value of a dollar, and prices and wages will fall across the board. Of course, this would be rather detrimental to high-performance micro-electronics industries, but they can't seem to understand that gold actually has functional demand in this day and age, not just value demand or ornamentation demand.

Magus wrote:

Illuminatus Primus wrote:God, are lolbertarians pro-19th century? Is it irrelevent that the economy boomed and accelerated dramatically with the introduction and advancement of the industrial state? The value in the system goes up precipituously, and we're supposed to keep the flat money supply of the agricultural era indefinitely? How retarded is that?

The ones I talk to are under the impression that the value of gold will just increase until it can cover an economy.

How do they propose to accurately measure the gold required to buy a loaf of bread after this happens ?

If they propose alloying it with some cheap metal to make it easier, how would they deal with the coin maker putting a bit less gold in the coins so that they can increase their wealth by trading those coins for ones with the full amount of gold ?

Not that I expect them to have actually thought about this.

bilateralrope wrote:

Magus wrote: The ones I talk to are under the impression that the value of gold will just increase until it can cover an economy.

How do they propose to accurately measure the gold required to buy a loaf of bread after this happens ?

Perhaps use a third stable commodity (other than gold or dollars) to gauge the new purchasing power of the re-valued gold? Beyond that, I have no idea what they're thinking, if at all.

If they propose alloying it with some cheap metal to make it easier, how would they deal with the coin maker putting a bit less gold in the coins so that they can increase their wealth by trading those coins for ones with the full amount of gold ?

Right, because no government has ever abused a gold-standard by cutting their own coins. </sarcasm>

I really doubt they've thought it through. I completely understand where they're coming from, what with the rampant abuse fiat currency is taking in America. They make the erroneous assumption, however, that such abuse is inherent in the system, as well as gloss over the abuses (and failures) that can and have occurred under gold standards.

On a side note, is possible that some goods just cost more now than then?

How many people have a dairy cow in their neighborhood?
I'm sure a wooden sailing ship cost a lot in the 1700s but without all the dedicated industry and technical knoweldge of that era to that specific production, wouldn't a wooden sailing ship of the same make cost more now?

On that note, aside the functional value of gold and its scarsity, how did we swich away from gold and what do we excatly have instead of it?

EDIT: I know we somehow measure a nation's economic output, but how does that work excatly?

Zixinus wrote:On that note, aside the functional value of gold and its scarsity, how did we swich away from gold and what do we excatly have instead of it?

EDIT: I know we somehow measure a nation's economic output, but how does that work excatly?

Since 1973, the dollar and other world currencies work as honest-to-goodness scarcity-based resources. Since we're required to use the dollar to pay taxes, and there's only so many dollars, it maintains a certain relative value. By not telling the public exactly how many dollars are printed at any one time (or exactly when more are printed), inflation is retarded to the point where the dollar doesn't immediately lose value when the Fed prints more to cover the government's ass. Eventually (and slowly), however, the economy catches on to the fact that more of the resource exists than "should" and prices re-adjust upwards (since the dollar is then worth less) - causing inflation.

<partially researched>
I believe prior to the actual transition to a floating currency system, the dollar's value was based off a specific quantity of gold. Over a series of moves, however, the public's ability to actually trade in for that gold was removed, and at that point we had a workable system where the dollar was based on absolutely nothing (but retained the same approximate value it had when based on gold). By printing more or less money (as above) the government has reduced the value to about... ?1/10th? what it was based on gold. Of course, people now make more money as well, so it (partially) compensates. But at this point, we're simply trading on the idea that we want dollars, and there's not an unlimited supply.</partially researched>