in another thread containing discussion about malinvestment due to inflation…or perhaps more appropriately a beast called ‘credit expansion’ i mad ethese remarks…"
"if…
1000 ounces of gold existed and circulated as money in an economy for one year.
six months later several people have invested a total of 500 ounces out of their 1000 ounces of gold into a large strand of timber to process lumber for dwellings.
six months later 1000 ounces of additional gold ( a doubling of the previous money supply in one year) enters the economy from a mining operation and additional timber and timber processing begins and doubles timber production in the same amount of time as previously done.
the 1000 new ounces of gold have all gone into timber processing yet in the existing economy, the roughly 500 uninvested ounces of gold, aka consumer savings can only buy a portion of the new timber products…are all the new processed timber goods now sitting and not making anyone any money"? is this the jist of malinvestment?"
one reply i received was… “What you’re missing is that the amount of money in an economy and the rate of interest are not related.” is this true? or is more true to say the amount of new money that enters an economy is related to the interest rate.
to me it would seem however that if a fixed amount of money existed in an economy - interest rates would be directly related to the money supply.
this same poster also said in an earlier post in the same thread…“When money is injected into the system, it causes prices to change without a corresponding change in time preference…fiat injections cause a disconnect between prices and time preference.”
also posted…“What happens when new money is introduced, is that demand appears to have increased, manifested by higher prices…What has not changed is the present productive capacity.”
is injected money only credit money? or is it also from drirect new money creation ??
would not just large increases in monetary inflation (not due to credit) create roughly the same effect?
this was also posted…
“When an increase in gold occurs that new money filters through the economy and changes the general level of prices, it increases prices and drives down the purchasing power of money, real income and the ratio of prices stays the same.”
“filters through the economy” i assume that is a process ‘over time’ and affects the economy at different points? would not the early gold receivers benefit from early money receivership before any “present productive capacity” has changed? would prices likely move upwards providing signals in an identical way to the credit money injections mentioned earlier?
would this process be much less amplified under 100% reserves and “hard to inflate” commodity money?