Paul, I am not advocating fiat money, and I cannot offer a stable medium of exchange that politicians will not interfere with, my "thesis" is, however, if you agree with the tenet that fiat money when over supplied (grows beyond the rate of growth of good supplied divided by money velocity) causes inflation (because "too much money chases too fewer goods"), you are bound to accept that tying the world economy to gold will keep us in perpetual inflation (marginal production costs increase because cheap gold is no longer found in river beds, and thus gold prices increase and so goes the rest of the goods.) It is elementary. Now, the question is what is better? I believe that the free market in international currencies is a powerful enough tool to keep politicians from "over-intefering" with the fiat currencies, and that market discipline will render these currencies to non fiat. In essence, these currencies represent the ability and will of government to "tax" their populations, conduct policies that allow the free market to operate and thus rejuvenate the economy on an ongoing basis.
I still think that governments and central banks should have the fiscal and monetary tools at their disposal to counter act the natural cyclicality of the free enterprise economy, and when these two bodies are in good balance (as they are in the US for quite some time), there is no reason to tie currencies to anything but to a variable valuation between nations reflecting the relative strength and wealth of their economies and societies.
Zeev
|
