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About LinkBacks3. How would money supply be constant if people continue to lose the smallest denominations of it?
It wouldn't be.
4. How would money supply be constant when gold supply isn't?
It wouldn't be!
3. How would money supply be constant if people continue to lose the smallest denominations of it?
It wouldn't be.
4. How would money supply be constant when gold supply isn't?
It wouldn't be!
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5. If money supply is made independent from gold supply then wouldn't it just be paper money that's "printed" on gold coins?
I'm sorry I don't understand this question.
The supply of central bank money *is* independent of gold supplies. Could you please rephrase?
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6. Why would banks have near 100% reserves?
Which banknote would you prefer to hold - the 100% reserve bank note, or the 10% reserve bank note? Would you like to have 1oz secured for you personally, or shared with 9 others?
Anybody who just wanted to have their money minded securely for them would be free to use a 100% reserve bank.
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7. If you can't say why banks would have near 100% reserves then doesn't gold have many of the same problems as fiat?
It could, if people chose to use fractional reserve banks. It depends on the legal system in force. With a system of free banking, people who received a banknote from a bank which was perceived to have low reserves would seek to redeem it in gold and convert it to a banknote from a bank with higher reserves (so they didn't have to share their claim to gold with so many other people). In that way there would be a gold outflow from banks with lower reserves to banks with higher reserves.
In short, there could be the same problems, but people would be free to escape from them and set up alternative arrangements.
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Inflation is always a monetary phenomenon. Increases in prices always follows an increase in the money supply. If anyone thinks that inflation is good for the economy look at Zimbabwe. If you don;'t understand that, consider this:Originally Posted by Seos
An island that produces 10 coconuts and has $10 in circulation will see each coconut valued at $1. That’s the way it works. Someone showing up with a motor boat and a printing press and creating another $10 on the island won’t make any more coconuts, but will certainly make the price of coconuts go to $2.
Inflation isn't taxation - it's theft.
8. Do you believe grossly irresponsible monetary policies are possible under the gold system?
If we are talking about a completely deregulated system, then the only institutions capable of grossly irresponsible monetary policies are individual privately held banks, which would be unable to externalise the costs of what they were doing and at the mercy of smarter competitors.
If we are talking about a government gold standard, with fractional reserves, then yes, you can have grossly irresponsible policies. But without the ability to print money completely at will, such a government is forced to comply with economic realities to a much greater extent.
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9. Why do you think or act like you think inflation can only incentivise bad investment, instead of just incentivising all types investment which includes bad and good?
To the extent that inflation stimulates investment, it can only stimulate overinvestment, investment which is not compatible with society's genuine time preferences as expressed by what people would do if their wealth was not being transferred by the inflationists to the investment community.
In addition, inflation doesn't happen uniformly across the entire economy: it enters at particular points (the mortgage market, for example) thus creating gross imbalances in the structure of production.
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10. What is the difference between an under-regulated badly audited fiat system and an under-regulated badly audited gold system?
Simply, that those who mismanage their affairs - in particular government and corporations - do not get bailed out so easily in a gold system.
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Although I'm not sure if I fully understand what Q10 is getting at.
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Lets say that new $10 goes to the government of the island and they spend it on planting coconut trees instead of coconuts they plant enough to produce 2 extra coconuts. So now there is $10 extra in the money supply but 2 extra coconuts are produced. Inflation didn't increase the amount of coconuts but something that caused the coconut supply to increase also increased inflation.
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