Maybe I’m not being clear at all. But, like I said, the inevitable conclusion would be that America would have to continuouslydeflate as long as other nations inflate (I explicitly say this about 4 times). I also added this right after that passage:
You may have missed it.
You’re entirely confused. My point is that a system with one nation on the gold standard, and the rest with fiat currencies, is just as untenable as all nations with fiat currencies and central banks. The economic system is inherently connected, and this would lead to all sorts of problems, which I refuse to repeat for the fifth time, and which you have not addressed at all.
Where do I do this? Please, quote me.
Only one nation (the U.S.) is on the gold standard. Your analysis would only make sense (maybe) if America was to pursue a completely isolationist policy from that point on. American banks may not inflate, but other banks/governments will, and nothing is stopping them from doing so.
The banking system is international
capital markets are international.
capital follows interest rates, and this affects PPP.
This isn’t that important for this conversation, but it’s something to think about: complete international economic integration would mean only one true international natural rate. We’ve been moving towards this condition for quite some time. It adds another complicated dimension to an already complicated analysis. But this issue is inherently complicated, and the traditional “100% reserve rate solves all problems” nonsense doesn’t even scratch the surface.
Actually, you’re not being clear at all. What is "America would have to … "? There is no America! The problem under analysis here is a system of 100% gold where America doesn’t do anything. There are only market participants. That is all.
You make absolutely no sense. How will there be any deliberate deflation? The amount of gold is fixed or gradually increasing.
Perhaps you’re talking about the transition to gold? That’s the only way I can make sense out of this sentence. The transition from the current system to 100% gold is a different problem, but several practical proposals have been suggested to transition without the need to contract the money supply to its base. It is possible.
Actually, I believe I did address this to you several times, as well as in the original reply in this thread. I said that the 100% gold system here would actually tend to make the global economy more stable. The stable currency would not only benefit the local economy but would also put a limit on foreign credit expansion due to interbank clearance mechanism between the nations.
Here you go again. Implying that the current inflationary system controlled by planners is better then the alternative of going alone with a sound system. There is no other way to interpret your objections.
And if we have a free market monetary system with open and free trade, this is somehow an isolationist policy if others don’t join us.
Nobody is denying complexity, and for the 4th time, nobody is denying that an international gold standard is not the ideal that is preferred. You are simply taking the view of all or nothing. Somehow the current planned monetary system is better to be left alone if we can’t get the entire world to cooperate. If this is not what you are saying, then you’re not making any coherent and consistent claim here.
All I am saying, as I believe almost all Austrians will agree, is that a 100% gold standard or any other free market monetary system will be a tremendous improvement over the current system, regardless of what other nations will initially do.
When demand outstrips supply, you have deflation. Do you understand?
What does the CHIPS system have to do with anything? How does this refute or even deal with any of my arguments? Currency exchange between banks does not even remotely address what I’m talking about. If I’m wrong, make your case.
Do you understand English?
Read the book, okay?
Listen, you don’t enough to continue this conversation.
You are way to obsessed with some transitional effects, because that is the only time that you may experience some unpleasant price deflation. And don’t be so arrogant about your use of the term “deflation” or “inflation”. You use it as if your particular definition is itself some proof for something.
I think you are way to obsessed with price deflation as somehow more of a potential threat then the current Statist inflationary policies. It amount to asserting that the free market is not more stable then the alternative planned economy as long as there are still some planners remaining in other places.
You say I’m confused, but I think you’re confused:
Somehow, the market can’t properly coordinate these interconnections unless we have a free market everywhere. Does this apply also at a local level?
We can’t have 1 State with a free market monetary system because the other states won’t?
Or we can’t allow for 100% reserve banks as long as there are some banks in the economy who plan to engage in credit expansion?
Don’t tell me I don’t understand your argument. I am simply following your thesis to its natural conclusion, but you insist on clinging on to the “it’s different for international economics” argument. It is different only as far as States are interfering in free trade, but then this analysis should apply at a local level as well. As long as the market is free from any such interference, it will handle these international manners much more efficiently.
It is completely fallacious to assert that both sides must be free in order for the result to work better then when both sides are not free. This is like the argument that free trade is only beneficial if and only if both sides refrain from coercive interference, so somehow engaging in free trade unilatterly is not beneficial. Do you believe this? Because you are making a very similar argument here.
Okay, so I’m not a Mercantilist supporting Inflationary policies. Good, that’s progress.
Do you really find this hard to understand? Yes, if New York went on a gold standard, and all other states created their own fiat money, which they continuously inflate, then we should expect major intra-national disturbances with a unified national banking system. The implications are only magnified when we apply this to a local level. We want a universal medium of exchange with a self-correcting automated adjustment process (international gold standard). Mises, Hayek, and Rothbard, talk about this at great lengths.
You don’t.
In fact it’s not. It’s the same for nations on an international level as it is for states on a national level, counties on a state level, ect. Imagine one county on a gold standard, and all other counties with their own specific fiat currencies (which they continuously inflate).
Again, this reveals that you don’t understand my argument/basic international economics. Inter-temporal international allocation of capital is very different from international spatial allocation of commodities and services. This response is one giant fallacy–you’re comparing two entirely different things (Fallacious comparison). But there is some truth in this horrible analogy–namely that inflation and protectionism are always bad (noncontroversial).
Oh really? What have you been drinking? And I ask this because I respect you and not because I mock you. I would think that the conclusion that follows from your analysis, namely, that a free market can’t coordinate activity better then one with a planned monetary agency when dealing with a different region that is not so free, should at least make you stop for a moment and consider this issue further in depth.
Do you understand why free banking with legalized fractional reserves will perform much better then the current planned fiasco? It’s the same thing. Instead of interbank specie flow at a local level, you have it at an international level. Free banking with legalized Fractional reserves doesn’t rely on a philosophy change of bankers not to inflate. It relies on the natural checks of the market. I realize that there are more complexities when dealing with foreign statist banks, nevertheless, the free banking model is a very good analogy to the situation at hand.
Instead of throwing around absurd assertions about my position (which you can read and re-read whenever you like), why don’t you try to actually substantiate your own position? What would America look like if, say, New York was on the gold standard, and all other states had their own currency which they continuously inflated (with a unified American banking system)? Is this a stable scenario for the U.S.? Or do you agree with Rothbard when he says,
“Furthermore, gold, or some other commodity, is vital for providing international money a basic money in which all nations can trade and settle their accounts. The philosophical absurdity of the Friedmanite plan of each government providing its own fiat money, cut loose from all others, can be seen clearly if we consider what would happen if every region, every province, every state, nay every borough, county, town, village, block, house, or individual would issue its own money, and we then had, as Friedman envisions, freely fluctuating exchange rates between all these millions of currencies. The ensuing chaos would stem from the destruction of the very concept of money the entity that serves as a general medium for all exchanges on the market. Philosophically, Friedmanism would destroy money itself, and reduce us to the chaos and primitivism of the barter system.” – Murray N. Rothbard
America on the gold standard is still monetary nationalism. The American currency would be gold and dollars backed by gold. The Japanese would use Yen, the Chinese Yuan, the Germans the Euro (maybe not for long), ect.
On an international level? Of course. Anything beats this international monetary system. Do you understand that America is part of a global economy?
No, it’s not. In fact, they are two very different things. Your logic, I’m a afraid, is catastrophic.
It’s very strange. You agreed with my original analysis up thread as to what would happen, but somehow you reached the exact opposite conclusion.
Yes I agree. How from this you deduce that it is better to leave the current situation described above then to unilaterally adopt a gold standard or any other free market monetary system, is simply beyond me. In fact, Rothbard certainly doesn’t reach your conclusion.
All of the imperfections that you can point to for a gold system that is only localized and not global, cannot possibly surpass the catastrophe that we have now.
That’s correct. What’s your point here? American dollars backed by gold would float against the Euro and Yuan. But the result of one stable money, especially that of a major economy, will bring more stability and not less.
Yes, so no gain will be achieved by privatizing the monetary system here in the US because we are part of a global economy?
I don’t know of any Austrian who could possibly concur with your position.
Interbank clearance mechanism in a free market on a local level is the same process as the interbank specie flow mechanism between nations. Mises himself has eloquently explained this. Somehow the vast sea is changing your equation.