Monetary standards

[A18]

Fiat money.

The gold standard promises deflation. If that's what you want, why not do it with fiat money?

[A18]

I don't see why it should distort anything. I mean, the inflation is not exactly a secret.

[A18]

What the gold standard meant was that the government set a price of gold per ounce

No, it is not price fixing. Rather, "dollar" becomes a name for a certain amount of gold.

[A18]

I don't see why it should distort anything. I mean, the inflation is not exactly a secret.

The very basis of monetary policy is the idea that the government should expand or contract the money supply in order to artificially encourage or discourage investment. Any artificial stimulus is a distortion of the free market.

If the government increases taxes, then it is artificially depressing investment. And if the government increases the money supply, then it is artificially stimulating investment. Neither the tax nor the inflation is secret, but both are distortions.

The Austrian theory, which I think is what you're describing, rests on the basis that the business community has been fooled. That is, savings have not really increased, but rather monetary policy has caused the interest rate to fall.

But why would the business community think there was a larger pool of savings?

[A18]

And what about the gold of other nations?

[A18]

It's an interesting idea, but I'm aware of no evidence supporting it.

I would pursue a zero-inflation target with fiat money.

[A18]

Yes. For every bit of inflation, there would need to be deflation to cancel it out.

[A18]

I would pursue a zero-inflation target with fiat money.

In order to pursue such a target, the central bank would have to be able to gauge the economy appropriately. I would argue that the government is incapable of determining the most appropriate general price level, just as it is incapable of determining the most appropriate price of any particular product. A zero-inflation target strikes me as a form of general price control.

No, it is a money supply control. What is being controlled is the price of the dollar, in order to keep constant its purchasing power. The prices of goods and services remain open to market competition.

[A18]

I've always viewed inflation, in low form, as the grease in the wheels of the economy.  Allows the real wages of labor to fall while giving nominal wage increases etc (since wages are downward rigid)...

I don't get it. How is that supposed to help the economy?

We don't really have low inflation now anyway. Unless you consider an annual 3-4% increase in the price level to be 'low.' What target would you set?

[A18]

They remain open to market competition only as long as the "average" price of these goods and services remains at some arbitrary constant level.

No, you're thinking of prices relative to the dollar. Their actual prices remain constant. It is the price of the dollar that falls, thus maintaining the purchasing power of the currency.

Everyone is forced to use the dollar. By engaging in inflationary or deflationary policy, the government essentially taxes lenders or borrowers.

[A18]

Seems to me that the gold standard gives foreigners purchasing power in our economy in exchange for nothing, and that gold has actual, non-monetary uses.

I suppose under the Austrian theory, if enough gold was discovered, we would also have these distortions in the economy. What if it one day becomes possible to mass produce gold?

[A18]

I don't agree that an increase or decrease in the money supply necessarily creates distortions. I do know that inflation and deflation more often than not, do.

[A18]

I'm completely open to repealing taxes on gold and silver, and letting people purchase things in precious metals, provided you can figure out some way to tax it.

I think most people, however, would prefer to make exchanges in a zero-inflation currency, which I think the government is, right now, in the best position to provide.

[A18]

What is your point? We had inflation or deflation based on the discovery of gold.

Why do you support giving other countries purchasing power in our economy in exchange for nothing? It is completely within the scope of the Federal Reserve's power to maintain 'price stability.'

[A18]

What is your point? We had inflation or deflation based on the discovery of gold.

Why do you support giving other countries purchasing power in our economy in exchange for nothing? It is completely within the scope of the Federal Reserve's power to maintain 'price stability.'

What's so wrong with that? What would "other countires" want to buy to begin with, and still what tbney bought would benefit the US economy.

No, it would just have an inflationary effect.