I am reading "Lords of Finance" and it alludes to how the gold trade helped trigger the Great Depression.

https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/... (hat tip to HN as this was where this book was recommended to me)

Granted we don't have an official gold standard, but could todays gold exchange cause similar problems?

https://www.history.com/news/how-did-the-gold-standard-contr...

I’m not the OP, but there’s a whole book on the topic. Fascinating read if you ever get the chance.

A Keystone Cops level of professionalism displayed by the central bankers at the time.

Lords of Finance - https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/...

Lords of Finance: The Bankers Who Broke the World

https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/...

I agree that technology advances would have lead to massive deflation without all the money printing. The point of money printing is to do precisely this, so that the measure of economy does not get out of sync with the size of the economy. https://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/... is a great book that touches the topic -- it also shows this discussion is not new.

I also agree that the chosen transmission mechanism of money creation (buying bonds and stocks by central banks) might have lead to worsening inequality. I like the Yudkowsky treatment at https://www.lesswrong.com/posts/tAThqgpJwSueqhvKM/frequently... .

But I still think that the inflation is low and if we want to describe the problems that are happening even though it's low, we should create new language, not shift the current one.

Chapters 1 and 2 of Karl Polanyi's The Great Transformation provide one popular theory as to why it collapsed around World War 1, from a cultural anthropology perspective.

http://uncharted.org/frownland/books/Polanyi/POLANYI%20KARL%...

Liaquat Ahamed's _Lords of Finance: The Bankers Who Broke The World_ provides another congruent account, from a more detailed historical/economic perspective, as to why gold was abandoned.

http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0...

Why is deflation bad?

Let's look at a single-currency country first. Prices fall. Including wages. Credit is tight - money appreciates without being invested and borrowers have to repay debts in more expensive currency tomorrow, making them more likely to default [Fisher]. People with money benefit - the rich get richer and the banks hoard capital, refusing to make loans. Inflation fuels asset bubbles as the economy over-invests; deflation fuels the opposite as the economy starves itself.

Yes, we have seen deflation. The U.S. and U.K. both experienced crippling deflation in the 1930s [1]. Before that, remember the American populist movement's "Cross of Gold" speech [2]? That wasn't a reaction to an inflationary gold standard. The euro zone offers a more contemporary view of the effects of deflation, as does my Switzerland [3].

Uncertainty in the future path of deflation that is more toxic than deflation per se. The U.S. grew through the Great Deflation in the 1870s and Japan has had mixed real effects from its almost two decade deflation [Morana]. Theoretically, if deflation proceeded at a steady clip, markets could accommodate (Milton Friedman advocated for an economy deflating at the real interest rate [Friedman]).

But what if we have two currencies, e.g. U.S. dollars and Bitcoin? Argentinians have a choice between black market (or "blue") dollars and an available but inflating peso. Tellingly, Argentinians buy dollars primarily for overseas vacations [4]. This is an example of a bad currency (the peso) and a good (the greenback). The Argentinians still execute the bulk of their transactions in pesos, not dollars.

Deflation is not likely to be Bitcoin's death knell, but rather a ceiling on its usage. A deflating Bitcoin will crimp transaction demand for the currency as spenders shift preference to more easily borrowed and spent dollars. Sellers would respond in kind (or, alternatively, sellers who respond in kind would gain market share).

Caveat: if Bitcoins are treated as a financial asset, for speculating versus spending. If so, deflation would proceed un-checked, with speculators driving out the transaction value of the currency. That said, gold has survived both deflation and speculation, so this isn't a fatal blow either.

[Fisher] http://www.jstor.org/stable/10.2307/i332559 The Debt Deflation Theory of Great Depressions (1933)

[1] http://www.amazon.com/gp/aw/d/0143116800/ref=redir_mdp_mobil... See Norman Montagu; British depression

[2] http://en.m.wikipedia.org/wiki/Cross_of_Gold_speech

[3] http://www.ft.com/intl/cms/s/0/1c23c088-60c3-11de-aa12-00144... Swiss central bank moves to weaken franc (June 2009)

[Morana] http://www.icer.it/docs/wp2004/Morana29-04.pdf (2004)

[Friedman] http://www.amazon.com/gp/aw/d/1412804779/ref=redir_mdp_mobil... The Optimum Quantity of Money (1969)

[4] http://blogs.ft.com/beyond-brics/2013/01/17/argentinas-blue-... Argentina’s “blue” dollar blues (January 2013)