When there is no interference by government, there is no failure in the market’s ability to provide money. In the presence of imperfect property rights and transaction costs, when market failures exist, they arise from non-internalized externalities created by the production of goods and services. No such failure exists in the production of money, therefore your insistence on the use of a gold standard, or more specifically, the use of a fixed money stock is a direct interference in the market - for purposes you deem desirable.
If that weren’t enough of a contradiction to your often repeated claims to be “for free-markets” you also insist on eliminating all private debt contracts and, in a mutually exclusive assertion, that financial intermediaries be required to hold 25% equity. That is far from being a free-market advocate.
Be that as it may, the data shows that nearly all of the increase in reserves, under Greenspan, has come from increases in currency and most of that has gone off-shore, or into domestic cash balances. You can’t force foreigners to hold dollars, and, domestically, people choose to increase their cash balances. Therefore, as difficult as it may be to comprehend, central banks are acting very much as if there is a fixed reserve. |
