Yes, it’s arbitrary. On the other hand, governments historically have a mixed track record at keeping their word when they promise not to wreck the currency. It’s easy and tempting to cheat if there isn’t some physical limit to expanding the money supply.
I understand and agree with what you and Lumifer (below) say about how it’s easy to “cheat” if you don’t have a physical limitation on the money supply.
However, wouldn’t it be just as easy to change your mind with the physical backing: “Now you pay two dollars to get an ounce of gold, whereas in the past you paid one dollar per ounce of gold.”?
I guess to get to the crux of the matter—does the fact that there is a physical/concrete/non-abstract component involved sufficiently blind people to the fact that inflation could still happen under this system that it once proved effective for preventing mass loss of confidence?
However, wouldn’t it be just as easy to change your mind with the physical backing: “Now you pay two dollars to get an ounce of gold, whereas in the past you paid one dollar per ounce of gold.”?
Governments can indeed do this—the usual term is “devaluing.” But a devaluation is a blatant obvious politically costly thing, in a way that letting inflation gradually creep up from 2% to 4% to 8% isn’t. So it’s not “just as easy.”
Yes, it’s arbitrary. On the other hand, governments historically have a mixed track record at keeping their word when they promise not to wreck the currency. It’s easy and tempting to cheat if there isn’t some physical limit to expanding the money supply.
I understand and agree with what you and Lumifer (below) say about how it’s easy to “cheat” if you don’t have a physical limitation on the money supply.
However, wouldn’t it be just as easy to change your mind with the physical backing: “Now you pay two dollars to get an ounce of gold, whereas in the past you paid one dollar per ounce of gold.”?
I guess to get to the crux of the matter—does the fact that there is a physical/concrete/non-abstract component involved sufficiently blind people to the fact that inflation could still happen under this system that it once proved effective for preventing mass loss of confidence?
Governments can indeed do this—the usual term is “devaluing.” But a devaluation is a blatant obvious politically costly thing, in a way that letting inflation gradually creep up from 2% to 4% to 8% isn’t. So it’s not “just as easy.”
Actually, the usual term is debasement of currency :-) Devaluing refers to changing the foreign exchange rate.