i asked a question on yahoo answers, favoring the gold standard, and here is one answer
''Money supply has to increase b/c population is increasing, and productivity of labor is also increasing, so amount of economic activity is increasing. Central bank determines supply of money as a middle ground between inflation (too much money) and slower growth (too little money). Deflation is bad b/c you pay $100 for materials to make a finished product that sells for $120 (and you have no other costs), but while you make the product, the price drops to $90, and you are losing money. This example might seem extreme, but that's precisely what happens when you are doing long-term investment like building houses or factories. PS I just realized that gold standard in economics is like creationism in biology. So I am probably wasting time here.''
How should i refute this person? The first three points are easy enough, but the third one i can't refute with my level of knowledge and understanding.
There was a pretty strong gold standard in America from 1820-1913, and economic conditions, standard of living, incomes etc. improved over the approximately 100 year period, in fact technology, production techniques, a middle class everything improved in the closest thing to pure capitalism ever known. I know keynesians are big into the empirical and historicist stuff, so this might dispell the idea that a gold stadard is not sustainable for the reasons he spelled out.
do we get free cheezeburger in socielism?
I think his objection boils down to this: Investing is a strategy to beat the return on simply holding money. If holding money was profitable due to falling prices, there would be no reason to invest. This would be a bad thing, because without investment there would be no growth.
This is ignoring the cause of the price decreases, however. If nobody invested money in anticipation of falling prices, then prices wouldn't fall, because it is economic growth that makes that happen. So investment vs. money holding would move towards some equilibrium based on the risks people wanted to take on the chance of greater returns than simply holding money.
inquisitiveteenager:Money supply has to increase b/c population is increasing, and productivity of labor is also increasing, so amount of economic activity is increasing.
If productivity is increasing, then the purchasing power of the dollar should similarly increase to reflect that. We shouldn't dilute the money supply to reduce its value in the face of economic growth; the purchasing power of money should reflect economic reality.
It would be a similar fallacy to say that "the price of cheese should stay constant, so if farmers produce more cheese this year than they did last year, the difference should be confiscated and destroyed". Of course not; the ever-changing forces of supply and demand should set the price of cheese and the value of gold, rather than some misguided demand for "stability".
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Look at the falling prices in computers. Have HP, Dell, and Sony stopped making computers because of falling prices?
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He seems to be making a circular arguement implying that inflation is good by stating that deflation is bad but then implying that it isn't since it must be tempered by a central bank. Good but not good?
He likely doesn't understand that sustainable economic growth only occurs with true capital, not the illusionary capital created by a central bank.
He also likely doen't understand that the primary cause of inflation/deflation swings (business cycles) is the state's monetary policies.
Yes, he is wasting his time, should be studying good economics instead of dribbling on yahoo, invite him to Mises.org.
btw arguing for a single metal currency, e.g. gold, also has some shortcomings (albeit better than a fiat currency); consider arguing for competing free market hard currencies instead.
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inquisitiveteenager:'Money supply has to increase b/c population is increasing, and productivity of labor is also increasing, so amount of economic activity is increasing.
The answer to this is the power of the fiduciary media increases, this does not mean the amount of fiduciary media should be increased to undermine its purchase power...
inquisitiveteenager: Central bank determines supply of money as a middle ground between inflation (too much money) and slower growth (too little money).
And fails, it is not the money that causes the business cycle, but the government involvement in business and money that does, it is the attempt to plan needs in the name of "stability" that creates an unstable market...
inquisitiveteenager:Deflation is bad b/c you pay $100 for materials to make a finished product that sells for $120 (and you have no other costs), but while you make the product, the price drops to $90, and you are losing money. This example might seem extreme, but that's precisely what happens when you are doing long-term investment like building houses or factories.
This does not take into account for the increased purchase power, without doing such you are discounting half the reality...
inquisitiveteenager: PS I just realized that gold standard in economics is like creationism in biology. So I am probably wasting time here.''
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You are wasting your time, since central economic planning has never worked out well in the long run, the GS has a solid historical resume, central token money, not so much...
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Harry Felker:This does not take into account for the increased purchase power, without doing such you are discounting half the reality...
Careful on that, that was my first reaction, but isn't the entire story. In the example given, increase in purchasing power cannot justify that investment, as the entrepreneur would have been better off not investing. But this guy is really just describing an investment that shouldn't happen. He is trying to say that inflation is needed so the investment would be better than holding money and would thus be encouraged. However, enter the business cycle.
liberticity:Careful on that, that was my first reaction, but isn't the entire story. In the example given, increase in purchasing power cannot justify that investment, as the entrepreneur would have been better off not investing. But this guy is really just describing an investment that shouldn't happen. He is trying to say that inflation is needed so the investment would be better than holding money and would thus be encouraged. However, enter the business cycle.
Hence why I said Half the reality...
inquisitiveteenager:PS I just realized that gold standard in economics is like creationism in biology. So I am probably wasting time here.''
More like the austrian economist is the modern Copernicus during a time of rampant geocentrism.
inquisitiveteenager: i asked a question on yahoo answers, favoring the gold standard, and here is one answer ''Money supply has to increase b/c population is increasing, and productivity of labor is also increasing, so amount of economic activity is increasing.
''Money supply has to increase b/c population is increasing, and productivity of labor is also increasing, so amount of economic activity is increasing.
Why? There's simply no reason the changes in money supply have to match the changes in the amount of economic activity.
Central bank determines supply of money as a middle ground between inflation (too much money) and slower growth (too little money).
In fact, the central bank aims for a middle point between too little inflation and too much inflation. The government doesn't like deflation at all.
inquisitiveteenager: Deflation is bad b/c you pay $100 for materials to make a finished product that sells for $120 (and you have no other costs), but while you make the product, the price drops to $90, and you are losing money. This example might seem extreme, but that's precisely what happens when you are doing long-term investment like building houses or factories.
Deflation is bad b/c you pay $100 for materials to make a finished product that sells for $120 (and you have no other costs), but while you make the product, the price drops to $90, and you are losing money. This example might seem extreme, but that's precisely what happens when you are doing long-term investment like building houses or factories.
Neither deflation or inflation would happen in a gold standard. The reasons are:
There's an interesting point here. If any central bank would print as much money as they could and allow everybody to do the same, we would simply revert to a paper standard. Of course, that one isn't useful at all, so gold would likely replace paper as a store of value and exchange medium.
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