can somebody please elaborate on what this means

Economics Economics Questions
1

i was reading a book, and the author was proposing arguments in favor of using gold as money

he was contesting the Keynesian view that during periods of slow growth, interest rates must be reduced and vice versa

that author then said ‘the idea that money should suit the conditions of the economy is wholly erroneous’

i.e he was saying we should never adjust the money supply to ‘suit’ the economic conditions

i would like someone to elaborate the author’s statement’s, i understand he’s saying on a literal level but i

still don’t ‘get’ it, like the proof or the logic behind his views

and i’m not disputing his views or anything,

thank you

2

Welcome!

It may help us, help you if we know the name of the book and author. There is probably a pdf of it online, where you can easily copy and paste the text in question too. [:)]

3

To my knowledge he’s saying that any amount of money is sufficient for the economy to function, which is essentially the argument put foward by Hume and since then the Austrian economists.

The argument runs as follows: any amount of money is sufficient for the economy to work, since prices may easily adjust. Moreover, adding money to the economy will be harmful since doing so will alter the relative structure of prices in the economy, usually, money enters the economy through the loan market (a fact ignored by mainstream economists, hence Friedman’s suggestion that it is dropped from a helicopter) and the business cycle is then set in motion. Some mainstream economists stress the stickiness of wages (new Keynesians) in regards to the need to inflate the money supply, since workers will be reluctant to take a cut in nominal wages and it is necessary the real wages declien, the only way this can happen is to inflate prices, thus reducing real wages whilst keeping nominal wages the same, or even possibly increasing them. Now, Austrians point out that this causes the process which it is meant to resolve, namely: unemployment in the bust phase of the business cycle, and hence Austrians stress a flexible labour market as opposed to inflation.