Quote from: mp420 on May 17, 2011, 09:37:21 AM

Quote from: goatpig on May 17, 2011, 08:17:05 AM

This. Deflation would be a catastrophe with a debt-base currency... which is a catastrophe to begin with.

I for one do think a debt-based currency has its uses. It's very useful in a rapidly growing economy, since it strongly encourages lending and thus makes credit (liquidity) very easily available.

In a steady-state or a contracting economy, I would say a debt-based currency has systemic issues that have never been solved adequately.

In my view the timing of abandoning precious metals as the primary vehicle of trade has not been an accident. Precious metals themselves are very useful as a currency as long as the economy does not grow much more rapidly than the money base grows (via mining). During a period of rapid expansion (which, in turn, has historically stemmed from the increased availability of primary energy in the society), using only precious metals would constrain the availability of liquidity, so people will naturally make various kinds of contracts on paper, backed by the institutional violence of the state where contract laws exist, or straightforward threat of violent action by participants where they do not exist. As the largest bully of the playground the state then obviously wants to issue its own contracts, paper money, and everyone will accept it just because everyone else does.

I think Bitcoin or a similar electronic currency could be beneficial in a contracting economy. We need something else during rapid expansion.

I agree with this. I think the Depression was caused by a booming industrialized world trying desperately to hold onto a gold standard that was no longer fit for purpose. A golden straight-jacket as it were, and deflationary atrophy followed.

That is not to say deflation cannot be a good thing, life has different modes for different times. Ideologues usually fail to grasp the basics of multivalent truth as they tend to preffer a simpler manichean world view.