Graham and Doddsville -- Value Investing In The New Era Message Board

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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era

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To: Freedom Fighter who wrote (1516)	4/4/1999 11:11:00 PM
From: Freedom Fighter	Read Replies (1) of 1722

Andrew & Reynolds, I found the section from the Rothbard book that I was referring to. The title of the book is "The Case for a 100% Gold Dollar". You can order it from the Mises Institute if you like. I have yet to find an answer to Reynolds' concern about falling incomes in a deflationary environment and the difficulty that would pose on paying back principal balances. My only insight is that the system functioned well during extended periods of price deflation in the past. I don't know the details of the interest rate structure, aggregate wage movements, or asset values (like real estate) of the time though that made it possible. I also did not see the hypothetical I posed of the entire interest rate structure adjusting to the level of deflation and producing negative nominal rates (but positive real rates). Perhaps the system could not function under that scenario for the very reasons you stated (Andrew). But perhaps as you approach that scenario there are leveling effects in lending and productivity that prevent it and allow the system to keep functioning. I do not know. I am not an economist. I am thinking out loud and operating on intuition. At a minimum, this is one macro issue that has sparked significant interest on my part despite the fact that it's not a particularly useful insight as far my own investing goes. If anything it makes me more convinced that my approach of finding companies that can weather any economic storm is a good one. Here's the quote from the Rothbard book about money that I was referring to. "The major objection against 100% gold is that this would allegedly leave the economy with an inadequate money supply. Some economists advocate a secular increase in the supply of money in accordance with some criterion: population growth, growth in the volume of trade, and the like. Others wish the money supply to be adjusted to provide a stable and fixed price level. These economists have not fully absorbed the great monetary lesson of classical economics: that the supply of money essentially does not matter. Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the monetary unit, that is, in the amount of goods that money will be able to buy. An increase in the supply of money means merely that more units of money are doing the social work of exchange and therefore that the purchasing power of each unit will decline. Because of this adjustment, money, in contrast to all other useful commodities employed in production or consumption, does not confer a social benefit when its supply increases. There is therefore never any need for a larger supply of money." There's lots more in the book, but this is the best I can do on this subject for now. If I can find anything in the historical record that may be helpful I will pass it along. I also plan on asking the Mises economists a few questions on this issue. Wayne

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