I assume a gold standard implies a government controlled gold standard?
Does a forced monopoly on the money supply by the government offer something better than a free market money supply aka competing currencies?
scineram: Prices have varying flexibility. Thus relative prices wil be distorted. Hence discoordination.
What do you mean, "hence discoordination" I'm sorry to tell you but discoordination its everywhere in the market, the fundamental point of an economy is to bring about coordination, although, in reality that never happens. So to say that deflation is bad because it results in discoordination is silly, especially when the flexibility of prices is the result of the actions and preferences of individuals and nothing else. If relative prices are distorted astute entrepreneurs will correct this and be rewarded with profit.
It almost sounds as if you're about to say we need inflation to deal with the issue of sticky wages, not suprising since FRB advocates often come across sounding like Keynesians.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
Bodia:If the relative price of product A will be temporary higher it will cause too much production of it. Of course, it is not such a big problem as undercharged interest rate, but it is still a problem.
And consumer preference will asset itself and those who produce too much will find themselves with surpluses, as a consequence they will be forced to cut back on production and most importantly lower prices. A sound, appreciating currency, is nothing negative, it fits Mises' requirement of sound money as regards economic calculation. I don't see what the issue is.
Bodia:I wrote in that paragraph about alectronic money and banknotes based on gold.
But in that case gold would be the medium of exchange, whether or not gold is traded in that form is not even relevant.
Bodia:That qustion becomes objective, when free maket (not you or me) will decide what is the answer.
The free market does not decide anything, only individuals do, thus, since they have difference preferences, what bundle is optimum is an impossible question to answer. Unless of course, you adhere to some pre-subjectivist medievil notion of what value is, as most mainstream economists do in practise.
Bodia:The currencies will have their own commodity prices. As the price of any product, that commodity prices will depend on various other prices (sacondary. primary all prices of course are the functions of rarity).
Yes, and the prices of those currencies against one another will resemble barter.
Bodia:That basket has mostly informational function. People will decide in short term what money are better according to the difference in their fluctuations. In long term, more global factors weill be decidive. And that will show what measure is better (among different baskets and models, including simple gold).
Then the basket won't be money, and it will be outcompeted. If some individuals wish, for whatever foolish reason, to "measure" wealth with different baskets that fine. But unless then can meet the challenge posed by Mises' regression theorem and fit their model into Carl Menger's origin of money they will be wrong.
That's the problem with Hayek's proposal, it doesn't fit the praxeological origins of money, nor can it fit in the regression theorem as described by Mises', you haven't met these challenges either, and until you (or others to whom I've issued this challenge) do, I'm going to continue thinking I'm correct.
GilesStratton:If relative prices are distorted astute entrepreneurs will correct this and be rewarded with profit.
So astute enterpreneurs will correct the interest rates distorted by inflation too and be rewarded with a profit, right?
scineram: GilesStratton:If relative prices are distorted astute entrepreneurs will correct this and be rewarded with profit. So astute enterpreneurs will correct the interest rates distorted by inflation too and be rewarded with a profit, right?
Without state interference or violation of property rights? Yes.
Then if FRB is legitimate, it will not cause business cycles.
scineram: Then if FRB is legitimate, it will not cause business cycles.
Yes it will, become it circumvents the price system.
GilesStratton:And consumer preference will asset itself and those who produce too much will find themselves with surpluses, as a consequence they will be forced to cut back on production and most importantly lower prices.
Of course. The market will react. Some producers will suffer.
But today's bust is also market reaction. To another discoordination.
Discoordinations aren't so bad (they are good lessons), but if it is possible to reduce them (not causing them), we wish they will be smaller.
GilesStratton:But in that case gold would be the medium of exchange, whether or not gold is traded in that form is not even relevant.
Al;l that paragraph was about: in the case of gold standart we will not use gold fisically, but mostly through banknotes and non-cash (even 100% reserved).
GilesStratton:The free market does not decide anything, only individuals do,
Any individual can't change market alone. Using market, I meaned a number of indiduals.
GilesStratton:thus, since they have difference preferences, what bundle is optimum is an impossible question to answer.
Every producer does it every day! In competitive money system there will be number of currencies, everyone will choose better (stable). In one region may 2-3 currencies (or even more). And they will be close to each other.
GilesStratton:Yes, and the prices of those currencies against one another will resemble barter.
Like there is not big difference betweem money and non-money, there is not also big difference between barter and non-barter.
Gold is also commodity.
Normal 0 false false false RU X-NONE X-NONE MicrosoftInternetExplorer4 Normal 0 false false false RU X-NONE X-NONE MicrosoftInternetExplorer4
Mises regression theorem and private money supply
The solution of this problem is easy enough. It was offered by Hayek in 'Denatiolization of Money'.
As is known, the euro and dollar have for today recognised purchasing capacity. The emitter at first should guarantee an exchange of its currency for a quantity of dollars and (or) euro (the choice of several currencies will help him to get more customers). Thus the new currency will receive value from existing currencies.
Further it is possible to expect with a high probability falling of cost of the state currencies (euro and dollar). But our private emitter will be able to held value of the currency, not repeating errors of the Central Banks. It will not contradict to the regression theorem, for the same reason, as the cost of gold is higher as the cost which it would have if it would not be used as money.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap