ahhaha -
...Money growth should be fixed at a rate around the 2% added value rate provided by the effort humans. 2% isn't a critical value or necessary value. It could be 0%, but it can be shown that setting it at the added value rate is optimal. You can make great errors with guessing the proper fixing rate of money with little consequence, but you can't do the same with interest rates. So it isn't important at what rate growth of money is fixed. The real issue is the constancy of growth of money supply over time. ...
But even the constancy of growth of money supply has its own ineffectiveness.
In talking about an optimal growth of money supply, the goal at issue would not be money supply per se, but rather a generally stable goods exchange rate of money, reducing the risks of all kinds of time sensitive investments.
However, the goods exchange rate of money is determined at the margin as actual transactions are made or declined and is not directly tied to the total quantity of money, but also depends in part on its detailed distribution over the population and institutions as well.
For any individual, the goods exchange rate of money is set at the point where the subjective marginal utility of money held is slightly greater than the subjective marginal utility of any good that remains available for purchase. At this point, no further transactions will be made. For both money and goods, the law of diminishing marginal utility applies, which in this case implies that the more money you have, the lower its subjective marginal utility, and thus the lower your goods exchange rate of money. However, not all wealth is held in the form of money. This non-monetary wealth will in general have some degree of liquidity, which will effectively serve to replace held money and will drive the both the subjective marginal utility of money and its goods exchange rate lower.
Over time, both population demographics and the types of wealth held will evolve, likely in long term trends. These, and other factors, will probably imply that any attempt to stabilize the goods exchange rate of money by attempting to control money supply will be futile, even if the goods available are constant, and ignoring the impossibility of measurements. However, even if futile, it still may well be better than all the alternatives.
Regards, Don |
