Newsgroups: bit.listserv.politics
Date:         Mon, 14 Dec 1992 10:36:46 EST
From:         Jamie <PL436000@BROWNVM.BITNET>
Subject:      RE: why gold

>From:         Grzegorz Albinowski <caius@II.UJ.EDU.PL>
>
>Stephan Melin pisze:
>>>
>>> Actually converting to gold as currency would wreck the whole economy:
>
>Disargee. Most of the 19th century economies flourished despite (or because
>of) deflation.

I don't pretend to know what would happen if the U.S. converted back
to a gold-based economy. I think it is a really dumb idea, though.
I don't know of a single problem of the actual economy that would
be ameliorated by a gold standard.
(I don't understand why deflation is supposed to be a problem either,
though.)

>>> the value of the goods and services available on the market exceeds the
>>> value of all gold available (world wide).
>
>Yes, that's right (in current prices). But I do NOT want to abolish banks
>and banking services entirely. And I don't think it is possible.
>I only want "banking money" to be based on something REAL, like gold.

What advantage would that have?

>Banks borrow and lend money. If they lend more that they borrow, they
>produce "banking money". If they lend too much they should go bankrupt.
>I want this *too much* factor to be based on somethig real, like gold.

Banks do not lend more money than they borrow!
How could they?

If they did, how would a gold standard help?

The problem you MAY be alluding to is that sometimes banks do not
keep a prudent reserve. That is, the amount they lend is too close
to the amount they borrow. Again, a gold standard would not change
this problem one iota.

Banks are private businesses. Anyone who would prefer to do
business with only those banks who keep a huge gold reserve should
feel free to use their money that way. A gold standard only restricts
what the federal government can do. How would it affect private
banking practices?

>I see no such brake in todays economy. So we have inflation.
>Of course it would require abolishing compulsory bank deposits insurances.

!
So the result would only exacerbate the only problem pointed to.

Again, why is inflation more of a problem than deflation would be?

>>> [..]  So when one wants to have growth
>>> of the economy, one has to increase the amount of money available at the sam
>>> rate.
>
>It is not obvious. Hayek thought that 0 percent monetary growth would
>produce the best results in the economy.

What is the suggestion here?
That the money supply NOT increase according to the amount of goods
and services in the economy? I can't see how that's even possible.

(I'm not sure whether the measure of the money supply is a measure
of the total market value of money, or a measure of the total number
of dollars or ounces of gold, or what, so I'm not confident that I
understand the proposal.)

>>> Increasing the amount of money faster results in inflation,
>>> increasing slower results in deflation.
>
>Absolutly right! But the more important is the monatary stability, that is
>wether people know if there will be more/same/less money and how much.
>
>Our governments can manipulate money supply, so that we have the cycles.

I don't get it.
First, I don't understand how a gold standard is related to the
manipulation of the money supply. I'm not even quite clear about
HOW the fed manipulates the money supply, actually. As I understand
it, the main method is to buy back outstanding bonds and issue new ones.
What does that have to do with a gold standard?

Second, I don't understand how monetary policy is supposed to affect
"cycles" (nor even which "cycles" Caius means).

All of this is pretty mysterious. Please explain.

Jamie
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