>>If the political will is maintained, this would mean that no new money is created<<
I am sorry, Don, but I could not disagree more strongly. Money exists as a medium in which to exchange the value of human labor. So as population increases, the aggregate quantity of human labor increases and the (fiat) money supply must increase. As the education and skill level of the population increases, so does the aggregate value of its labor, and so the (fiat) money supply must be increased. As capital investment increases and enables productivity improvements, the value of a unit of human labor increases, and so must the (fiat) money supply. As the population ages and the average propensity to save increases, the value of stored labor increases, and so must the (fiat) money supply. And so on.
I believe that the goldbugs have it absolutely wrong, that a return to anything like the gold standard would be an unmitigated disaster, because FIAT MONEY REDEEMABLE IN GOLD IS MONEY WHOSE SUPPLY CAN NOT READILY BE INCREASED OR DECREASED BY CENTRAL BANKERS IN ORDER TO MAINTAIN ECONOMIC STABILITY. Furthermore, I believe that economic depressions result from only two causes: (1) economic shocks, usually technological in nature, followed by (2) a self-reinforcing deflationary psychology, where falling prices are met with falling demand, as populations realize that a dollar tomorrow is worth more than a dollar today.
The Great Depression was caused in just this way, as the 1930 Fed failed to increase the money supply sufficiently to avert the initiation of this cycle. Central Banks in other countries - for the most part - also failed to make the right policy moves.
We have recently experienced an economic shock which may have been capable of initiating just such a cycle. Alan Greenspan has saved all of our butts by his quick action to quickly and significantly increase the money supply, thus preventing the establishment of a self-reinforcing deflationary cycle in the broad economy. |
