If the Fed is abolished, what next?

[Truth_and_Liberty]

@luckyday

Artificially low rate.

George Reismann (Capitalism) pointed out that if all outstanding notes are traded directly for gold (i.e., Outstanding Notes in Dollars/Ozs. of US Gold = Exchange Ratio), this might cause a depression. According to him, the velocity of money would probably slow done after the switch to gold, and the best way to counteract it would be to overvalue it (i think, like you mentioned Rothbard shared this view).

I have not read that book. Is Reismann saying that returning at the market rate would cause a depression? That is possible, because it may cause a complete banking collapse. I don’t see how returning at an artificially low rate would cause a depression, just a quick inflation. “Velocity of money” is a Chicago-school term that doesn’t have any real meaning (at least, not to me). Can you explain this a bit more?

@luckyday

He also suggested that the an even lower artificial rate might be something to consider because one last burst of inflation might help people get out of debt. He doesn’t say anything about it (to my knowledge) in the book, but I think that this wouldn’t be such a bad thing since the distribution effect wouldn’t apply here. From what I understand, the distribution effect only applies if the new money has specific injection points. In this case, the injection points would be spread evenly over the economy (so to speak).

I’m not sure about this. Why should we help people get out of debt? What about the savers and creditors? I think this would be unnecessary pain for them, with no real justification.

There would be no redistribution effect at all at the moment the dollar is defined. Afterward, when gold would rush into the US, exporters and manufacturers would benefit by being the recipients of the “new money”. But I don’t think this would be very severe because the price re-adjustment would happen very quickly (see my post here about this: https://forum.freecapitalists.org/t/rothbards-plan-for-gold-and-the-dollar-how-would-the-markets-react/4379).