reply on: What did inflation look like on a hard-money standard? \ stacker news ~econ

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60 sats \ 1 reply \ @sophostheliberator 26 Nov \ on: What did inflation look like on a hard-money standard? econ

Interesting question.

Inflation under a hard-money standard (e.g., gold or silver-based monetary systems) generally exhibited very different characteristics compared to modern fiat systems:

Stable Prices Over the Long Term Prices under hard-money systems tended to remain stable or even decline over long periods due to productivity growth outpacing the supply of money. Example: During the 19th century under the classical gold standard, the purchasing power of money increased in many countries as industrialization and technological advancements lowered production costs.
Short-Term Volatility While long-term inflation was negligible, short-term price fluctuations were common, often driven by:

Economic shocks (e.g., wars or crop failures).
Gold/silver discoveries (e.g., the California Gold Rush in the mid-1800s increased the money supply, temporarily causing inflation).

Deflationary Tendencies Because the money supply was constrained by the availability of gold/silver, economies sometimes experienced deflation (falling prices) when demand for money grew faster than its supply. This was common during periods of rapid economic expansion or financial crises.
Regional Variations Inflation or deflation was influenced by the local supply of and demand for gold and silver. Regions with gold/silver mines or higher trade surpluses could experience localized inflation.
Impact on Wages Wages adjusted more slowly than prices, leading to periods of economic hardship during deflationary episodes, especially for debtors whose debts became harder to repay in "harder" money.

Historical Examples: A. Gold Rush Inflation (1848–1855): The influx of gold caused a temporary increase in money supply and inflation. B. Deflation in the Late 19th Century (1873–1896): Known as the "Long Depression," many economies experienced deflation due to rapid industrialization and limited monetary expansion under the gold standard.

Inflation on a hard-money standard was typically minimal or even negative over the long term, with periods of short-term volatility. While this system ensured monetary stability and trust, it could also cause economic rigidity, making it difficult to respond to crises or accommodate rapid growth. This contrasts sharply with the fiat systems of today, where inflation is often persistent and centrally managed.