re: Bitcoin is a Ponzi scheme—the Internet’s favorite currency will collapse.

What also makes this particularly interesting to me is that it could stand as a model for how a government might control supply of a future legal tender currency.

This is where we get into all the theoretical talk about the proper course of monetary policy, the "Taylor Rule," the classical monetarist policy recommendations of Milton Friedman on the proper growth rate for a currency (even though he was not in favor of having a central bank), etc.

In a sense, that gets back to the point that Felix guy was making in the original post. If I were to start a country and create a monetary system from scratch, I think having some bitcoin-like system where the currency automatically increased at a rate near the economic growth level would be a good idea. I would certainly prefer this to having money created by a central bank via reserve ratio and interest rate policy decisions.

Just random stuff to think about I guess...

Anyway, the main reason I bumped this therad is to add some comments to this part of what I wrote earlier:

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FWIW, just to do some back-of-the-envelope calculations with respect to price, according to Wikipedia, about 171,300 metric tons (~5.5 billion troy ounces, at 32150 oz/ton) of gold have been mined in human history, with about 2500 metric tons (~80.4 million troy oz., or ~1.5% of the historical total) being extracted per year in recent years.

Only about 40% of gold is used for investment purposes, but assuming easy convertibility of other gold for investment purposes, the total amount of gold wealth in the world is at about $1600 x 5.5 billion = $9 trillion.

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I did my big presentation earlier today, and a guy who followed me talked a good bit about Paul Samuelson's classic December 1958 paper in the Journal of Political Economy, " An Exact Consumption-Loan Model of Interest with or Without the Social Contrivance of Money."

This is probably the most famous of the overlapping generations ( OLG) models, and in the concluding paragraphs, Samuelson talks about how money could potentially be efficiently created as a mere social contrivance:

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In short, the use of money can itself be regarded as a social compact. When economists say that one of the functions of money is to act as a store of wealth and that one of money's desirable properties is constancy of value (as measured by constancy of average prices), we are entitled to ask: How do you know this? Why should prices be stable? On what tablets is that injunction written?

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Now I would criticize the Samuelson paper in general, not because I want to worship at the altar of stable prices (if I were building an economy from scratch, I would want one feature to be robustness to withstand volatile consumer price swings in terms of the legal tender currency), but because I don't think the social contrivance theory of fiat money is historically tied to the way money actually developed.

Money developed as legal tender, and thus had a definite fundamental value in terms of being able to make payment on certain court judgments, especially those regarding torts and debt contracts. It may be that total contrivance currencies that were not legal tender might have popped up in certain times and places (see wampum shells, although even these may have had quasi-legal status among the Iroquois), but they have never been long lasting.

Additionally, like I posted earlier in this thread, the comparable currency of gold does have some usefulness outside of its currency value, although presumably a big reason why it's so popular as jewelry is for the very reason that it's so valuable as a currency commodity.

A big fact that goes missing (at least I missed this concept until I just thought of it today), however, is that gold's currency-commodity value is in large part a function of who is holding gold and for what reasons. Governments and central banks continue to hold an incredible amount of gold, and this is why, despite going off the Bretton Woods gold-convertibility standard in 1971, gold still has some value as a throwback option that almost all central banks are signaling to market investors that they are capable of pursuing if shite really hits the fan.

As an article I just came across in Bloomberg states, "Central banks own about 19 percent of all gold ever mined." That, gentlemen, is a veritable shitload of gold that is still being held by official monetary authorities.

Just some random stuff to think about...