The term “elastic money” means different things. For example, for the banking school it meant a supply of money which only reacted to the general business environment and to the demand for cash holdings (they held a purely passive view of the banking system and an endogenous view of the money supply). Mises, on the other hand, exposed the fact that an elastic money supply only means one which isn’t invariable. My point about free banking is that you at least acknowledge that if the ratio of the demand for current goods and future goods remains unchanged, then there can be no inter-temporal allocation. Hayek explicitly states this but claims that it would be nearly impossible to implement (impossible with a central bank, of course).
I don’t see how. We’re increasing the supply of money by 50% without an increase in the supply of real capital, depressing interest rates, stimulating more roundabout methods of production–if it’s all saved. There would be inflation, but not FRB induced inflation (creation of fiduciary media–but again, fiduciary media acts as it it were money proper).
When people hold more cash than they deem necessary, for whatever reason, then they begin to increase their purchases–an increase in time preferences. With an invariable money supply, prices can only rise at the expense of other goods. But when the money supply is variable, then you get inflation (in the general sense). If party A spends all of its money then it must necessarily depress the structure of productions towards more direct and less capital intensive methods of production (relatively, and towards the products it chooses to buy–Cantillon effects).
No, but the influx of gold (if all of the new gold was mined instantaneously and then saved immediately) would lead to one round of expansion. When the money fully permeates amongst the rest of society, then those who have engaged in overly lengthened productions would realize that they aren’t truly profitable. With FRB and a central bank, there is perpetual and incremental money expansion, reducing the market rate below the natural rate, supporting the malformed capital structure. If the banks allow the market rate to rise towards the natural rate, then interest rates would rise (demand for consumption goods rising relative to producer goods) expressing true time preferences, causing a depression (correction).
I’ve never heard this mentioned in anything I’ve read. Banks with 2% reserves lasted for 200 years without bankruptcy. 100% reserves would prevent the tension between the higher stages and lower stages of production, at least at first, since the money used for investment is not also used for consumption (favoring the former at first). But once the newly created sums permeate amongst the rest of society, then the interest rate will rise towards the natural rate (mentioned this already), leading to crises.