Some have argued that our economy wouldn't have grown as it has were we still on the gold standard. This infers that the economy is a zero sum gain and that the only way to grow is via exports with a trade deficit in our favor. Trade aside, can an economy grow with a fixed supply of money?
Certainly there are certain areas which wouldn't have had the bubble they have had under the current fiat currency/fraction reserve scheme.
Pchiou: Some have argued that our economy wouldn't have grown as it has were we still on the gold standard. This infers that the economy is a zero sum gain and that the only way to grow is via exports with a trade deficit in our favor. Trade aside, can an economy grow with a fixed supply of money?
Any economic growth that is caused by currency expansion is a facade. It is an illusion. Why? Because no real wealth is being created. Yes, it will drive up stock prices, but that is inflation, not growth.
Real economic growth comes from wealth being created, which is the result of capital and labor.
Also, a fixed money supply balances trade deficits. If one country habitually purchases imports, eventually they will run out of money. They will either a) print more money, or b) make money through exports. With a gold standard, we cannot do the first, so we are forced to do the second. The result is job creation right here at home. That is why, back in 1913, intelligent statesmen opposed the creation of a central bank. They knew it would result in the loss of American jobs.
"As long as there are sovereign nations possessing great power, war is inevitable."
The answer is, no. It would not have grown "as it has". It would have grown differently. In what way or to what extent, it is impossible to say. But we can easily determine that the growth would have been steadier and more rapid if debt had not replaced savings. Inflationary investment means that eventually people are consuming more than 100% of what is available to consume. It leads inevitably to a net loss of productivity at some point, which time becomes more and more prolonged as time goes on. Such a thing could never occur (at least not on a macro scale) with a fixed supply of money.
Pro Christo et Libertate integre!
Any economic growth that is caused by currency expansion is a facade.
right, but what about when you expand the money supply to just match expansion of goods and services?
nazgulnarsil: Any economic growth that is caused by currency expansion is a facade. right, but what about when you expand the money supply to just match expansion of goods and services?
Then the benefit from the growth falls squarely on those who are printing the money.
Say you have $200 in a coffee can. If economic growth brings down the price of a widget (say, a laptop computer) to $200, then you will be able to buy a laptop without earning more money. If the central bank, on the other hand, decides that "the value of the dollar is now too high against the laptop-computer index, and we must bring down the dollar to avoid fluctuations in the balance of trade, blah blah blah," then you won't be able to take advantage of falling prices.
excellent post! deflation can be seen as the benefits of the value that people add to society being effortlessly distributed to everyone at once with zero frictional costs.
The first few days I was a little wary but this forum has some truly excellent posts and posters.
nazgulnarsil:deflation can be seen as the benefits of the value that people add to society being effortlessly distributed to everyone at once with zero frictional costs.
Very, very good.
Mac Fall
I think I have a grasp of Austrian economics but you can articulate it better. Theres a website( http://www.citizeneconomists.com/ ) with a stubborn professor named Mr Zimmerman who insists that the gold standard was unworkable then and in our future.
James Grant have said he learned of Austrian theories everywhere except in school so obviously the Prof has been drinking from the same punchbowl.
Please go to the website and slay this dragon for Team Austrian! Caution, I think he's made up his mind so facts may just confuse him :)
Thanks
I just posted a response over there. I tried to clear up a few of the myths surrounding sound money, free banking, and the business cycle. Hopefully a few readers will be interested in Huerta de Sotos' book. I found the book to be quite enlightening, despite having previously read Rothbard's MES. I think I need to read or hear the same thing a few times and in different ways for the connections to come together in my brain. It seemed like Huerta de Soto's reasoning was in the right place at the right time for me, or his explanation is so comprehensive that it was self reinforcing. It is probably a combination in my case.
Mac Fall,
Well discussion in the article you linked to has shifted from the gold standard and monetary matters to a critique of Austrian Economics and the rational basis for policy decisions. I have attempted to answer some of the criticism and level a little of my own in this post.
When someone says "empirical" methods can be used in economics, BTW, force them to give a possible account of how this might work. They often assert this in the abstract, which is unilluminating in the extreme.
To darkness I condemn you...
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