Talk about a straw man argument. My point was that a strong dollar was beneficial, since Americans would have greater purchasing power, which would translate to greater living standards. I am baffled by how you could possibly straw man such a simple argument.
My problem is that I don’t agree that it would slow economic growth. I, too am for a free-market money system.
The post you quoted was in favor of deflation/low inflation as it would raise the purchasing power of Americans.
The post you are referring to is not something you can simply disagree with. It’s economic fact. Deflation would cause a real interest rate floor, not dissimilar to a minimum wage or any other form of price control. A stable price level would prevent such a price floor from occurring in the capital markets. More importantly, money-producers in the free and open market would have a profit motive to keep a stable price level, as opposed to a regime of deflation or a regime of inflation.
a wage at which no labourers would accept less to do their labour for is not a price control as is a minimum wage law by fiat. one is a price control the other is not. so too for your ‘deflation’ scenario, its disingenuous to use the term price control if you have a natural deflation in mind.
Would fractional reserve banking and/or monetary systems that are more inflationary than gold be possible under a free market system?
Jonathan Swift’s Modest Proposal made a good case for cannibalism. Not all of us are as talented as he was.
Are cannibalism contracts allowable under libertarian legal theory?
Three points:
- Don’t straw man me. I said that it’s not dissimilar to a price control, such as the minimum wage. I did not call it a price control per se.
- It is, by all definitions, a price floor.
- “Natural deflation?” You mean the kind that wouldn’t occur in a free market because free market money producers would have an incentive to prevent deflation from happening?
As I’ve stated before on this thread, under a free market monetary system as Hayek described, competing-money producers on the free market would have incentives to keep a stable price level. This is because deflation would increase their profit margins, prompting them to expand the money supply. On the other hand, price inflation would not only decrease profit margins due to rising prices, but it would also create incentives for consumers to use other currencies, making the inflationist currency less profitable. Thus, the profit motive would work towards establishing a stable price level.
Also, I think that in an advanced free market, commodity-currencies would be replaced by paper-currencies, since paper currencies would be more flexible, giving the money-producers greater power in regulating the money supply.
That said, credit expansion unbacked by savings is something to always be avoided. Such credit expansion wouldn’t occur in a free market, since the majority of newly created money would be spent on final goods and services, not on financial assets.
EDIT: Sorry, I didn’t realize the point of this thread was to construct an argument for fiat money vs. gold currency. You could easily change my arguments, by arguing that central banks should target zero percent inflation. Of course, there are several problems with such a “solution,” but you get the point.
i apologize for correcting you when you needed no correction. perhaps i helped forum lurkers correctly interpret your statements free from any ambiguity. once can hope.
there are floors and then there are floors. its hardly relevant to mention your ‘soft’ floor. what difference does it make. it impugns no-ones freedom. quite unlike a ‘hard’ price floor. i wonder what good it is to use a generic term that covers such different cases? a little specificity on this point wont hurt.
i mean the kind that is caused for whatever other reasons outside of ‘government’
what the majority gets spent on is hardly the point. what percentage of newly created money gets spent on financial assets under this regime? i’m curious.
No. Strong currencies create economic growth. Weak currencies destroy growth. The “Kick” from exchange rates is short term. Then the long term effects of a low currency value are disasterous. The reason is simple. The kick is a condition where the prices the business sees have not caught up with the lower value of the currency. Eventually these prices do catch up. In this mean time the business can sell products abroad and have this advantage in cost. The longer term is bad however as businesses must buy new materials, equipment, etc and buy labor at current market rates. This puts the business at a decided disadvantage with foreign competition. The better policy is to have an extremely strong currency that gives consumers lots of power to buy cheap foreign stuff. Then these consumers have wealth left over to buy local stuff as well. Businesses then have the ability to purchase foreign equipment and technology as well as raw materials at prices commensurate with a strong currency.
Good debate so far. Please stick to the roles that you have assigned yourself in terms of arguing for or against fiat currency and/or the gold standard etc. Please try to be consistent.
Not so. Society’s prosperity or wealth is independent of the unit by which you decide to measure it. Money’s purpose should only be to EXCHANGE and STORE value, and gold does both perfectly well. By manipulating the money supply (as you propose, in order to maintain some model-based “desirable” interest rate) you are neither creating wealth nor destroying it – you’re merely re-distributing it.
As for the gold standard or deflation being less productive than a managed-inflation system, just continue your line of thought. As growth slows down and hoarded savings grow, how long before entrpereneurs decide that purchasing power of the savers has grown so large that it’d be a no brainer to start making things to sell to them. The economy can’t go to zero activity and 100% savings, a certain large savings-to-production ratio will naturally put a floor as to how low production (thus, employment) can fall – regardless of inflation or deflation.
Z.
Indeed, all producers are also consumers. The only legitimate way to acquire money is to produce.