From: jfh@insect.cis.ufl.edu (James F. Hranicky)
Newsgroups: alt.individualism
Subject: Re: Alan Greenspan
Keywords: n
Date: 27 Sep 92 18:27:28 GMT
Organization: Univ. of Florida CIS Dept.

In article <pwg1.717213295@Ra.MsState.Edu> pwg1@Ra.MsState.Edu (Paul W. Grimes) writes:
>I am surprised to see someone arguing for the return to a commodity
>based money supply.  You must remember that the growth in the money
>supply, if based on gold or any other commodity, would then be 
>limited to the growth in that commodity.  This seriously reduces the
>ability to conduct discretionary monetary policy.  To insure stable
>prices, the commodity backing the money supply must increase in
>supply proportionate with the growth of the overall aggregate economy.
>How can this be insured?  The supply of money would be controlled by
>the producers of the commodity -- this seems scarey to me.  I'll place
>my trust in the U.S. government.

As I posted yesterday, "stable" prices are not necessarily a good thing.
If demand is high for a certain good, more will be produced, and consequently
the price *should* fall.

          Demand     
Price == --------   (== means "is proportional to").
          Supply

As the supply increases, the price should fall. It is as simple as that.
Why would you want to keep prices stable? This is a great benefit to the
consumers, and any intelligent businessman will not continually produce
more than necessary.

The increase in the supply of say, gold, is not so much controlled by
the various mining industries, but it's scarcity--the more gold is produced,
the less gold can be produced as time goes on. This is not true of 
fiat money. 

Britain was on the gold standard for over 200 years, and the value
of the pound remained nearly constant. The result of this was the
Industrial Revolution, which raised the standard of living for all. 
I.e., the money supply *need not* be increased to insure prosperity.

Since 1913, placing trust in the U.S. Government has caused a devaluation
of the dollar by 90%, not to mention countless malinvestments caused by
inflation.

Why haven't prices, under this wonderful panacea called inflation,
remained constant?--instead all prices have continually *risen*.

The psychology underlying inflation, in many cases, is the idea that
you can get something (goods and services), for nothing (newly created 
paper money.) While this is true, the consequences are malinvestments
and an effective tax on savings (i.e., your $2000 in the bank is now
worth less because of the devaluation of the dollar--the government has
effectively taken the money from you without your even knowing it.)

As far as the gold standard goes, if gold production grows faster than 
the population, it will introduce a small amount of inflationary 
consequences into the economy, but certainly many many times less than
the current system. If the contrary is true, it will produce a slight
deflationary effect, but a deflationary effect has no lasting consequences
(i.e., inflation produces temporary prosperity in return for future
recession, but deflation produces temporary recession with no ill 
aftereffects.) Certainly this deflationary effect would be slight, if
noticeable. Once the unit based on gold has risen enough in value, the
deflationary effects would disappear.

The gold standard, with its problems, is nevertheless much, much more
preferable than our current system.

Jim Hranicky (jfh@reef.cis.ufl.edu)

Newsgroups: alt.individualism