Should the US return to the Gold Standard?

[FoolKiller]

Usury law deregulation... the attack on the middle class.

Yet you declare consumerism, aka lots of new cool stuff, as a great thing when it feeds this "attack" and growing debt scenario.

Didn't you support the Occupy movement, that declared all this GDP and economic growth you now proclaim, went to only a select few individuals?

 

[Dapper]

You're just ignoring the discussion. Again, I have to ask:

I don't think you were ever engaged in this discussion. And you can keep your asinine questions.
You only talk about numbers. Numbers are not representative of reality.

Not to mention your ideas won't up in a real scenario. Here is why. In your example, you were correct in saying if there were a total of 4 units of currency, and they could buy 4 units of whatever, with an addition of only a new demand, each full unit of currency will buy more. If the units of demand doubled, like in your original example to 8, and there was still 4 units of currency, either the currency would be split into smaller pieces, or the paper currency representing the original currency will be made in smaller denominations. If the addition to the demand cost money to research and produce, those smaller pieces of currency will be spent on research and production, ultimately yielding no net profit for the producer. If the addition to demand cost $0 to produce, it will not have a major effect on the market.

http://mappinghistory.uoregon.edu/english/US/US39-01.html
Considering we've been us for 100-200,000 years, our life expectancy has doubled in .001% of our time as a species. No amount of money can replace doubling one's life.

Yet you declare consumerism, aka lots of new cool stuff, as a great thing when it feeds this "attack" and growing debt scenario.

Didn't you support the Occupy movement, that declared all this GDP and economic growth you now proclaim, went to only a select few individuals?

The debt growth was a direct result of deregulation. You totally didn't read that part, or you don't know what usury laws are.


Paying for excessive interest is not the same as buying too much.

 

[FoolKiller]

Paying for excessive interest is not the same as buying too much.

Despite your snotty attitude, I do know what usury means. I also know that it doesn't affect credit cards if you pay them off in a cycle. If you are using them as short-term or long-term loans don't act surprised that you have a high interest rate. You shouldn't have bought so much.



EDIT:. Deleted irrelevant bits from above.

Are you seriously suggesting average household debt pre-2006 was all just accumulating interest and had nothing to do with people suddenly having access to credit that allowed them to buy into all of the things that seem cool?

Add in how many people must rely on government programs when they retire, instead of having the kind of money tucked away that my grandparents did and something seems off. To me, more debt and little or no investment/savings suggests money isn't buying as much, or isn't ultimately buying more, as you suggest. The gadget generation will also be the second generation praying Social Security is still around when they retire.

 

[Dapper]

If you go back and look at your graph that shows the household debt grow in a particular fashion, then consider the deregulation that happened right around when your graph starts, and then remembering interest's compounding effect, along with the housing bubble, then I think it is absolutely reasonable to believe the growth in household debt was nothing more than a result of usury deregulation and easier access to housing.

What do you think class warfare means?

Then you say things like "the gadget generation"... This 🤬 ain't going away!
Do you need to see the US GDP chart again? The growth will only go faster and faster... Exponentially in fact. So if you need reference to how fast that is, look at the lily pad example.

 

[Dapper]

I ran across this during my post-midnight free time. I think he points out some very relevant possibilities about where our civilization is going and uses impeccable logic to do so, as well as his expert opinion. He uses an analogy around 8 minutes comparing how computers work to music and jokes that I found enlightening. Then he uses another analogy at 11:20 that seems overtly relevant to this conversation.


Either we find a whole bunch of gold or specs of gold will be worth a ton of money at the rate of growth we are experiencing (which isn't very fair).

 

[Danoff]

Not to mention your ideas won't up in a real scenario. Here is why.

Oh this is awesome. I'm getting schooled in how not to think about economics:

In your example, you were correct in saying if there were a total of 4 units of currency, and they could buy 4 units of whatever, with an addition of only a new demand, each full unit of currency will buy more.

no.

Demand could be infinite, the currency would still buy exactly the same amount (that amount being 100% of the supply). In fact, my example kindof assumed that demand outpaced supply.

Your statement is true if you replace demand with supply. With the addition of new supply (and infinite demand) each full unit of currency will buy more (this is deflation and was the point of my post).

If the units of demand doubled, like in your original example to 8, and there was still 4 units of currency, either the currency would be split into smaller pieces, or the paper currency representing the original currency will be made in smaller denominations.

no.

Honestly I'd be a little less harsh with you if you approached this with a bit more of a "please help me understand this" attitude instead of a "I know what I'm talking about (even though I clearly do not)" attitude.

If units of supply doubled to 8, the same currency would buy more (2 units vs 1 unit). Whether or not you split the currency into new units makes no difference. When you trade in your 1 unit of currency for your new 2 units of half-currency you haven't lost any wealth in the process. Splitting the currency is a shell game that has no impact on anything other than convenience.

If the addition to the demand cost money to research and produce

Supply

those smaller pieces of currency will be spent on research and production, ultimately yielding no net profit for the producer.

So research and production never yield a profit? You're assuming all kinds of incorrect things here.

1) That research costs exactly what it yields (not more, not less, both of which are possible)
2) That economies cannot grow in productivity
3) That profit is impossible (unless maybe you're thinking price gouging)
4) That someone would actually spend money on research and production for no reason (ie: Humans do not respond to incentive)

In the island economy I was describing consumed goods - so there was actually no way to spend currency on research or production. One would simply have to spend their own labor on such items and produce it themselves (in addition to the normal goods they produce).

But let's say they could buy productivity. Here's how it would work.

Bob sells 1 unit of Bananas for 1 credit.
Carl sells 1 unit of Coconuts for 1 credit.
Pete sells 1 unit of pork for 1 credit.
Will sells 1 unit of wheelbarrow for 1 credit.

Only 4 credits exist.
Anyone who buys a wheelbarrow doubles their output.
Each person's product is equally valuable with everyone else's.

In 4 trade cycles each person buys one item from each other person and keeps one of their own units for themselves. Now each person's productivity looks like this:

Bob sells 2 units of Bananas for 1 credit.
Carl sells 2 units of Coconuts for 1 credit.
Pete sells 2 units of Pork for 1 credit.
Will sells 2 units of wheelbarrow for 1 credit.

Deflation. Productivity increased and currency supply remained the same. They still each have 1 credit, but now that credit buys 2 units of something instead of one. One of them has the same idea Dapper did and decides to cut the money in two pieces so that they can buy 2 different items with it. Price immediately adjusts.

Bob sells 2 units of Bananas for 2 credits.
Carl sells 2 units of Coconuts for 2 credits.
Pete sells 2 units of Pork for 2 credits.
Will sells 2 units of wheelbarrow for 2 credits.

Inflation? No. Each person now has 2 credits instead of 1 (worth twice as much). Each person can still now buy 2 units of production despite starting out only being able to buy 1.

If the addition to demand cost $0 to produce, it will not have a major effect on the market.

Demand is produced by other things (like needing to live or wanting to be comfortable) and it does not have a major effect on the market provided that it outpaces supply. Now, if as before you're talking about supply instead of demand, if the supply costs $0 to produce (say, for example, someone improves production in their spare time using their own labor) it can still create wealth.

http://mappinghistory.uoregon.edu/english/US/US39-01.html
Considering we've been us for 100-200,000 years, our life expectancy has doubled in .001% of our time as a species. No amount of money can replace doubling one's life.

That's not true. Many people would exchange half of their lives for money. But standard of living (including lifespan) is a direct result of trade - something our government gets involved in (always with the effect of reducing trade).

 

[Dapper]

What an asinine post. If there is one thing being demanded and it doubles, there are now two things in demand.

And you use more examples that wouldn't work in the real world. First, Stuff isn't produced for free. Then, if Bob produced twice as many bananas, he wouldn't say they are worth 1/2 as much, that is not capitalism. Then the people just had wheel barrows appear out of nowhere, no cost was accounted for there.

Essentially, if we go by danoffs archaic example and stay on a hard backed currency, nothing will happen. The only production he can account for is inventions like wheel barrows that magically appear and make things cost 1/2 as much as before despite that idea defying everything Americans have done since we've been here in NA at least.

You know the definition of deflation and inflation, but you have no clue about their application (clearly).

Not to mention danoffs idea can't even operate correctly using nothing but 4 units of currency, fruit and no growing technology.

 

[Keef]

If there is one thing being demanded and it doubles, there are now two things in demand.

So let me get this straight. If you have one thing being demanded...and the thing being demanded doubles in size...then you have two things being demanded? Err, no. You still have one thing being demanded, but there's twice as much of it. Still one thing, just twice as big. Never mind the idea presented in that sentence, the grammar of the sentence makes absolutely no sense.

 

[Dapper]

So let me get this straight.

You didn't.
1x2=2=1+1

Keef, don't you think it is a hilariously big coincidence that both an expert in artificial intelligence and I used the same example (lilies) to point out how people like you and every other opposition of mine on GTP thinks?

 

[GTsail]

Nope. It simply ties dollars to being exchangeable for something physical. It means a dollar represents some amount of metal. That's really all it is. It doesn't limit growth at all (I don't even know how that's possible). With a fixed supply of dollars (or gold) and a growing economy, deflation is the natural product.



Because people may demand gold in exchange for their dollars..

I don't completely follow your explanation.

If the Federal Reserve doesn't get any additional gold from one year to the next, doesn't this mean that the Fed is proscribed (under the Gold standard) from printing any additional money?

And if the Fed doesn't print any additional money from one year to the next, wouldn't this limit economic growth?

One of my complaints with the Gold standard is that it limits economic growth to the rate at which gold is produced each year. And since historically (for the last 50 years or so) gold production has increased at about 1.5% to 1.7% a year, then the world/US economy would be limited to this 1.5% to 1.7%.

Now, if what you are saying is that the Gold standard wouldn't limit economic growth to the rate of gold production, then this complaint disappears.

Does the Gold standard limit economic growth at all?

Can the economy grow at 3%, 5% or even 10% a year while still operating under the Gold standard?

Respectfully,
GTsail

 

[ROAD_DOGG33J]

You didn't.
1x2=2=1+1

Keef, don't you think it is a hilariously big coincidence that both an expert in artificial intelligence and I used the same example (lilies) to point out how people like you and every other opposition of mine on GTP thinks?

You also said numbers are not representative of reality. A clarification would be nice.

 

[Danoff]

What an asinine post. If there is one thing being demanded and it doubles, there are now two things in demand.

What do we call the thing being demanded? We call that supply. If the number of things being demanded increases, that's a supply increase.

Good lord.

And you use more examples that wouldn't work in the real world. First, Stuff isn't produced for free.

Show me where I said they were. These guys are each presumably laboring to produce goods.

Then, if Bob produced twice as many bananas, he wouldn't say they are worth 1/2 as much, that is not capitalism.

If bob produced twice as many bananas and pete produced twice as much pork, they'd be willing to exchange them (given that they'd previously established a 1 for 1 exchange). The one coin would represent that.

Then the people just had wheel barrows appear out of nowhere, no cost was accounted for there.

Purchased with the currency, produced by Will's labor.

Essentially, if we go by danoffs archaic example and stay on a hard backed currency, nothing will happen. The only production he can account for is inventions like wheel barrows that magically appear and make things cost 1/2 as much as before despite that idea defying everything Americans have done since we've been here in NA at least.

You are so amazingly confused. I'm disgusted all over again at the state of economics education in this country.

I don't completely follow your explanation.

If the Federal Reserve doesn't get any additional gold from one year to the next, doesn't this mean that the Fed is proscribed (under the Gold standard) from printing any additional money?

Yes.

And if the Fed doesn't print any additional money from one year to the next, wouldn't this limit economic growth?

No. Why would it?

Does the Gold standard limit economic growth at all?

Can the economy grow at 3%, 5% or even 10% a year while still operating under the Gold standard?

A fixed currency (see the island example) doesn't limit economic growth directly. It limits economic growth indirectly. In my example above, Carl might stop selling Coconuts altogether and just sit on his money thinking (correctly) that it would be worth more in the future simply because of the work the other guys were doing. Deflation discourages investment, which discourages economic productivity. It does that because people are gaining wealth by NOT spending or investing currency in anything. It can even lead to things like negative interest rate loans where you're paying someone to pay you back your own money in the future.

But no, there is no reason that a fixed currency will prevent economic growth directly. The value of the currency simply increases with economic growth.

 

[Dapper]

You are so amazingly confused. I'm disgusted all over again at the state of economics education in this country.

Your example wouldn't work in the real world. Your examples of deflation and inflation with 4 people and 4 units of currency do work in theory. But that is not what would really happen. See below.

A fixed currency (see the island example) doesn't limit economic growth directly. It limits economic growth indirectly. In my example above, Carl might stop selling Coconuts altogether and just sit on his money thinking (correctly) that it would be worth more in the future simply because of the work the other guys were doing. Deflation discourages investment, which discourages economic productivity. It does that because people are gaining wealth by NOT spending or investing currency in anything. It can even lead to things like negative interest rate loans where you're paying someone to pay you back your own money in the future.

But no, there is no reason that a fixed currency will prevent economic growth directly. The value of the currency simply increases with economic growth.

! No one would invest in anything that would substantially grow the economy.

Why are you here making a fool of yourself, Danoff?

Keef, don't you think it is a hilariously big coincidence that both an expert in artificial intelligence and I used the same example (lilies) to point out how people like you and every other opposition of mine on GTP thinks?

This includes you, buddy.

Deflation discourages investment, which discourages economic productivity.

Yet I know you know the economic growth is greater than gold being mined.

 

[Danoff]

Your example wouldn't work in the real world. Your examples of deflation and inflation with 4 people and 4 units of currency do work in theory. But that is not what would really happen. See below.

[translation] nuh uh [/translation]

! No one would invest in anything that would substantially grow the economy.

No that's definitely not correct. Deflation (which will result given a growing economy and fixed currency) discourages investment. It does not eliminate investment. Deflation by definition fights itself, reducing economic growth thereby reducing deflation.

Also, as an aside, I appreciate that you were big enough person to own up to your confusion about the definition and application of one of the most fundamental aspects of economics - supply and demand. That you were willing to admit that you were wrong, own up to your confusion on the subject, and on top of that apologize for insisting that you were correct instead of using the opportunity to learn something new really demonstrates a high caliber of character. The easy path would be to simply try to sweep it under the rug, pretend it never happened, and deflect onto a new subject when you could begin anew assuming that you knew things you did not. But not you, you demonstrated class by owning your mistake and apologizing and I respect that.


....oh wait.

 

[Dapper]

Danoff, you have no use in this thread. You have discussed nothing on topic in fact.

You are trying to do something and are failing miserably. Gold has no use backing currency in an economy growing at an exponential rate.

No that's definitely not correct.

Yet you have not said anything grounded in reality.


GALT-Gut Associated Lymphoid Tissue=Danoff's hero.

An expert and I both view the way Danoff and Danoff-esque people think in such a similar way, we both used the same analogy to describe the antiquated thinking.
Because of Danoff's demonstrated and expertly described thinking as antiquated, I guess it is to be expected Danoff can't use a modern example, but rather stays within his comfort zone using an example that doesn't go beyond the one's digit, doesn't makes sense and doesn't back up his antiquated thinking.
Since Danoff see's growth in number of bananas and not in real dollars, it shouldn't come across as a shock that his logic works with bananas and not with the real world.

 

[FoolKiller]

GALT-Gut Associated Lymphoid Tissue=Danoff's hero.

If you ever need an example of why multiple people say debating with you is pointless and asinine you need look no further than this statement.


If this weren't so...I don't know...immature I'd say that it borders on an attempt at an AUP-violating personal attack. Unfortunately, I doubt anyone can judge what you were attempting to say, as it makes no sense.

Ultimately though, the only thing actually "lol" worthy about this is that it was in the same post that you said this:

Danoff, you have no use in this thread. You have discussed nothing on topic in fact.

 

[Dapper]

If you ever need an example of why multiple people say debating with you is pointless and asinine you need look no further than this statement.

If this weren't so...I don't know...immature I'd say that it borders on an attempt at an AUP-violating personal attack. Unfortunately, I doubt anyone can judge what you were attempting to say, as it makes no sense.

Gut associated lymphoid tissue, or GALT, is real and it just so happens to be the last name of the hero in Danoff's favorite book. I can't make this stuff up. But it isn't a bad name really, it just deals with gross stuff.

 

[Touring Mars]

If you ever need an example of why multiple people say debating with you is pointless and asinine you need look no further than this statement.

If this weren't so...I don't know...immature I'd say that it borders on an attempt at an AUP-violating personal attack.

Maybe it was a joke, but still, I completely agree with your point.

If this subforum had a motto (and by golly it ought to have atleast one by now!) it ought to be "play the ball, not the man"...

 

[Dapper]

A mere observation is not worthy of mention, in my opinion.

 

[GTsail]

No. Why would it?



A fixed currency (see the island example) doesn't limit economic growth directly. It limits economic growth indirectly. In my example above, Carl might stop selling Coconuts altogether and just sit on his money thinking (correctly) that it would be worth more in the future simply because of the work the other guys were doing. Deflation discourages investment, which discourages economic productivity. It does that because people are gaining wealth by NOT spending or investing currency in anything. It can even lead to things like negative interest rate loans where you're paying someone to pay you back your own money in the future.

But no, there is no reason that a fixed currency will prevent economic growth directly. The value of the currency simply increases with economic growth.

Because a growing economy needs a growing money supply in order to grow.

Are you saying that if the US had been on the Gold standard 50 years ago (and stayed on it), and we had $150 billion in M1 circulation at the time, the US economy could have grown from $2.8 trillion to $15 trillion without any additional US dollars in circulation?

Do you think that its possible that the US economy could have operated for the last 50 years with the exact same $150 billion in M1 the whole time? And this would have had no effect on the US economy's growth?

Respectfully,
GTsail

 

[Danoff]

Gut associated lymphoid tissue, or GALT, is real and it just so happens to be the last name of the hero in Danoff's favorite book.

Taggart?

(The real answer to that question would be Gamgee)

Because a growing economy needs a growing money supply in order to grow.

It doesn't. Production doesn't increase in response to extra dollars in circulation, production increases in an attempt to grab dollars that are currently in circulation.

Conversely, a flood of money entering the economy from the government does not spur production (as we are finding recently) - which is something that you'd expect if a growing economy needed a growing money supply. To understand this you need to understand what drives growth - profit motive. New currency is not required for and does not influence the desire to make a profit, and so it is not required for economic growth.

Ah, I think I may have stumbled onto your confusion. You hint at it here:

Are you saying that if the US had been on the Gold standard 50 years ago (and stayed on it), and we had $150 billion in M1 circulation at the time, the US economy could have grown from $2.8 trillion to $15 trillion without any additional US dollars in circulation?

Do you think that its possible that the US economy could have operated for the last 50 years with the exact same $150 billion in M1 the whole time? And this would have had no effect on the US economy's growth.

You're measuring economic growth in dollars and thinking that if currency supply doesn't increase that you'll simply have a flatline economy. In fact, if you measured my island economy by the number of credits of the economy you'd have found that they went from 4 credits (each buying one unit of goods) to 4 credits (each buying two units of goods). So the economy is not growing! But it is, it's producing twice as much.

You ask a great question. I'll admit scratching my head for a second, but here is your answer - any time you show a chart of economic development or growth you have to use a particular currency for the entire chart. In this case, the chart would be entirely in island currency year 0. So our chart would go from 4 to 8. Even though the current amount of currency in circulation on the island is 4, you can't mix and match today's currency with yesterday's currency. In the original (undeflated) currency, total production went from 4 to 8.

I'd like to point you to a time period in US history where our economy grew with zero inflation and zero change in US gold reserves. Unfortunately it doesn't exist because the US was aggressively acquiring gold for reserves for while we were on a gold standard (possibly to prevent deflation, or maybe just to finance government spending). I think that there was some time before that where gold was actually traded directly, which would also make it impossible to use US gold reserves to prove that the gold supply didn't grow but the economy did. There are two reasons I can't use more recent data to prove it either, inflation has been positive for a long time, and we abandoned the gold standard.

Hopefully I answered your question by pointing out that if you were going to chart the island's economic growth you'd have to report it in currency fixed at a particular value in time.

 

[Dapper]

It doesn't.

It does. Apple wasn't founded by labor and free materials lying around. Apple had several employees and $250,000 from it's incorporation.

 

[Keef]

Keef, don't you think it is a hilariously big coincidence that both an expert in artificial intelligence and I used the same example (lilies) to point out how people like you and every other opposition of mine on GTP thinks?

An expert on artificial intelligence is an expert in computer programming, not an expert in human intelligence.

 

[Danoff]

It does. Apple wasn't founded by labor and free materials lying around. Apple had several employees and $250,000 from it's incorporation.

You don't appear to be following the discussion. This is unrelated.

 

[BobK]

if Bob produced twice as many bananas

I have never produced a banana in my life. Consumed a couple, maybe, but never produced one.

As a result, you could say I produced twice as many bananas this year as I did last year, since two times zero is zero. Contrariwise, you could also (truthfully) state that I produced twice as many bananas last year as this year.

Or, here in early April I've already matched my entire years output of bananas from last year.

 

[GTsail]

It doesn't. Production doesn't increase in response to extra dollars in circulation, production increases in an attempt to grab dollars that are currently in circulation.

Conversely, a flood of money entering the economy from the government does not spur production (as we are finding recently) - which is something that you'd expect if a growing economy needed a growing money supply. To understand this you need to understand what drives growth - profit motive. New currency is not required for and does not influence the desire to make a profit, and so it is not required for economic growth.

You're measuring economic growth in dollars and thinking that if currency supply doesn't increase that you'll simply have a flatline economy.....

Do you have a source for your explanation that an economy can grow without a growing money supply?

I've been trying to remember back to my economic textbooks in college (don't ask, it was before computers, I'm not sure that we even had cars back then, but I can't remember), and my memory is that they go hand-in-hand. Too much money supply helps cause inflation, but too little money supply would stiffle growth.

I've tried to find a decent source on this topic and its tough.

I have found some writings by economist "Anna Schwartz" who writes: "Why is the Money Supply Important? Because money is used in virtually all economic transactions, it has a powerful effect on economic activity. An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending.... The opposite effect occurs when the supply of money falls or when its rate of growth declines. Economic activity declines and either disinflation or deflation results."

See link:Anna Schwartz on Money Supply

So Anna Schwartz is saying that the money supply has an effect on the economy with the implication being that a growing economy needs a growing money supply.

I've read a bit of Milton Friedman and he implies the same thing, but his writings are tough to wade thru to get a direct quote on this. In his book "A Program for Monetary Stability" he says that "mining and supplying of a commodity money, such as gold, takes away resources that could be used for other purposes, and that this is an unnecessary cost to society....The use of resources for this purpose establishes a strong social incentive in a growing economy to find cheaper ways to provide a medium of exchange."

I take this to mean that a growing economy would need a growing supply of gold to maintain the money supply if a country was on the Gold Standard.

See link: Milton Friedman on Monatary Rule

I then took a look at the "Gold Standard" on Wiki, and it links to an economic book by David Mayer "The Everything Economics Book", see link here:Wikipedia: Gold Standard

Wiki says: "As an economy's productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow."

I've tried to dream up an island economy to use as a model, but its tough for it to really cover the complexity of the issues, without opening up more issues that could influence the island economy. So this is still a work-in-progress.

I did find a great book by Barry Eichengreen and Peter Temin: "The Gold Standard and the Great Depression", see link:Eichengreen on the Gold Standard and the Great Depression

that talks about the plusses and minuses of the Gold Standard during the Great Depression. Interesting reading if you are so inclined.

Respectfully,
GTsail

 

[Dapper]

GTsail, did you bother watching the vid in the 2nd post?

 

[Danoff]

Do you have a source for your explanation that an economy can grow without a growing money supply?

I've been trying to remember back to my economic textbooks in college (don't ask, it was before computers, I'm not sure that we even had cars back then, but I can't remember), and my memory is that they go hand-in-hand. Too much money supply helps cause inflation, but too little money supply would stiffle growth.

I've tried to find a decent source on this topic and its tough.

I have found some writings by economist "Anna Schwartz" who writes: "Why is the Money Supply Important? Because money is used in virtually all economic transactions, it has a powerful effect on economic activity. An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending.... The opposite effect occurs when the supply of money falls or when its rate of growth declines. Economic activity declines and either disinflation or deflation results."

See link:Anna Schwartz on Money Supply

So Anna Schwartz is saying that the money supply has an effect on the economy with the implication being that a growing economy needs a growing money supply.

I've read a bit of Milton Friedman and he implies the same thing, but his writings are tough to wade thru to get a direct quote on this. In his book "A Program for Monetary Stability" he says that "mining and supplying of a commodity money, such as gold, takes away resources that could be used for other purposes, and that this is an unnecessary cost to society....The use of resources for this purpose establishes a strong social incentive in a growing economy to find cheaper ways to provide a medium of exchange."

I take this to mean that a growing economy would need a growing supply of gold to maintain the money supply if a country was on the Gold Standard.

See link: Milton Friedman on Monatary Rule

I then took a look at the "Gold Standard" on Wiki, and it links to an economic book by David Mayer "The Everything Economics Book", see link here:Wikipedia: Gold Standard

Wiki says: "As an economy's productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow."

I've tried to dream up an island economy to use as a model, but its tough for it to really cover the complexity of the issues, without opening up more issues that could influence the island economy. So this is still a work-in-progress.

I did find a great book by Barry Eichengreen and Peter Temin: "The Gold Standard and the Great Depression", see link:Eichengreen on the Gold Standard and the Great Depression

that talks about the plusses and minuses of the Gold Standard during the Great Depression. Interesting reading if you are so inclined.

Respectfully,
GTsail

All of what you quoted there is a 2nd order effect on growth - and it is what I've been describing - that deflation results from a fixed money supply and growing economy, and that this stifles growth. This doesn't mean that an economy can't grow with a fixed money supply, it means that deflation will occur and harm growth when working within a fixed money supply.

In fact, deflation is not possible unless one of two things happens:

Fixed Money Supply, Growing Economy (which you say is not possible)
or
Reduced Money Supply, Stagnant Economy

(for the scientists and logicians in the audience, I apologize for the sloppy ultimatum above)

The fact that deflation is even possible suggests that an economy can grow with a fixed money supply.

I think in the end we're in violent agreement. A fixed money supply doesn't inherently prevent growth, but it does guarantee deflation which will harm growth.

However, deflation is the natural condition of hard currency economies when the supply of money is not increased as much as positive population growth and economic growth. When this happens, the available amount of hard currency per person falls, in effect making money more scarce; and consequently, the purchasing power of each unit of currency increases. Deflation occurs when improvements in production efficiency lower the overall price of goods. Competition in the marketplace often prompts those producers to apply at least some portion of these cost savings into reducing the asking price for their goods. When this happens, consumers pay less for those goods; and consequently deflation has occurred, since purchasing power has increased.

This is describing economic growth with a fixed money supply causing deflation harming growth.

It does not describe a fixed money supply preventing growth thereby making deflation impossible. You're claiming the bold part is impossible.

 

[arora]

Danoff ''I think in the end we're in violent agreement. A fixed money supply doesn't inherently prevent growth, but it does guarantee deflation which will harm growth.''

This, also perhaps there is some confusion as to why some fight so rigorous for a backed dollar. There are those who simply distrust the gov and the fed no mater what, some who simply want an assured value of their paper, worthless rock or not, and some who want retarted growth. (I fall into the later to an extent, I also have concerns for the lower classes who never have anything more then the paper in their pocket at any givin time).

 

[A2K78]

should the US(and the rest of the world) return to the gold standard? of course since gold and other forms of precious metals is technically and historically the only real type of money.

On an interest note though, the financial crisis of the past few years was good a thing because it essentially position the world financial system to be forced back onto the gold system as fiat currencies are really cracking.