Ron -
[...Oh it's alright if prices decline alright. But it is how that decline is achieved, either through demand reduction (Traditional economic theory) or supply increase (supply side economics)....]
Depending on precisely what you mean by 'supply side ecomonics', you might be correct. The proper path for price decreases is the result of productivity increases due to investment driving down marginal costs. The actual prices then fall as result of a combination of both competition and a rational supplier response to a price elasticity of demand greater than one. (increased total product revenue resulting from lower prices)
[...Prices went down because people didn't have the money to buy anything but absolute necessities. Thus, companies cut margins and did everything they could to reduce costs, including laying off masses of workers...]
The problem is what the companies were not allowed to do, i.e. lower wage rates, as the government effectively took over the economy and removed any reason to invest by multiplying the risks and eliminating the potential rewards. This is what turned a required deep recession to undo the excessive credit expansion of the 20's into an unending depression, locked in place by government policy, and broken only by war.
[...Now I know you wish to inflict a massive economic depression on the world just to bring back the gold standard, do ya Don?]
If you were to read my post carefully, you would note that it consisted entirely of quoted material, and therefore cannot be taken as saying anything about my wishes, if any.
The purpose of the post was to provide an additional argument against your mistaken belief that the economy needs any particular amount of money, of any kind, for support, even though all forms of money are subject to variations in goods exchange rates. The only 'standard' of the 'gold standard' is that it makes government economic intervention more difficult, but there is no such thing as a
fixed objective standard of monetary value.
Regards, Don
|
