If we had a 100% reserve gold standard, how exactly would the money supply grow to meet increasing productivity? I’m assuming the demand/price for gold and the costs of mining would moderate this process, but I’m not exactly sure how.
Also, I vaguely recall learning in history class that there were certain times when a lot of gold flowed into the system for various reasons, like a sudden discovery of new gold or whatever it may be. What kind of problems would this cause?
It wouldn’t, and that’s the point! Austrians don’t want the money supply to grow along with increased productivity, Monetarists do.
Yes. Austrian want the money supply to grow along with increased demand for money.
The money supply doesn’t need to grow. Costs fall very quickly due to innovations, increased productivity and so on. This more than offsets falling prices due to increased demand for a currency. You’re coming from a demand side point of view (Keynes) that more money leads to growth; this is a false assumption. Mediums of exchange always of ebb and flow, going in and out of a system at varying velocities. This is true of gold, paper money, tulips, whatever is used. If a newly mined or released amount of gold enters a system, prices will generally rise accordingly until a new equilibrium is reached and more gold starts flowing back out of the system. This is less a problem than it is simply a causal relationship. History has shown that new gold finds have not significantly added to the world’s gold supply at any one time to effect dislocation in terms of general prices. The fact that gold has historically been so hard to find significant amounts of at any given time is its greatest strength as a currency. It would be extremely difficult to manipulate its supply/demand, unlike fiat money.
What an excellent statement.
Austrians don’t want anything to grow or not grow. Austrains want the market to decide.
Sure. The market will grow or shrink it as necessary.
Perhaps it is a good time to remind individuals that the market is not a living breathing entity that decides, theorizes, or deduces anything. The market is merely a termed used for a mass of voluntary exchanges that take place in a variety of ways.
Excellent, indeed!
Anyone else inquiring on this topic should find Skousen’s book, The Structure of Production.
Umm…
Are you sure about that? Sure, you can say that sometimes some industries have some price flexibility, but I think denying the obvious problems price stickiness can have on macro-economies is a real mistake.
Look, technically you would be right if prices adjusted instantly and market participants had perfect information. But neither of those conditions are the case, so why force the economy into a harmful straight-jacket when it would be so much less painful and more beneficial to increase the supply of money as the demand increases.
The strong form of Efficient Markets Hypothesis is not a necessary condition for price flexibility. As long as entry is free, innovation and productivity lead to prosperity. If you will suggest that “the market isn’t free”, then I suggest that is the problem, and the “price stickiness” is (9 times in 10) only a symptom of the disease.
If you can produce a widget for less than I am currently producing them, you only need to slightly undercut me to capture market. Or, if you can make a better widget than I can, for the same price, you can probably charge the same price or even a premium while capturing market.
The money supply does NOT need to grow according to trade.
The argument for it falls to its knees.
Let’s assume it is true. Advocates for a growing money supply say money supply must meet volume of trade otherwise trade can’t be faciliated.
Therefore they would increase the supply of money after trade has grown, BUT wait a minute, the reasons for increasing the supply of money are to facilitate trade, but to see how much money you need, you need to watch our change in trade. We then see that trade has been facilitated with the same moeny supply.
The proof against it is so simple.