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To: yard_man who wrote (75661)	3/5/2001 2:42:26 PM
From: Mark Adams	Read Replies (1) \| Respond to of 436258

Say you are operating a factory, in a post collapse society, that uses a metals backed currency. Your factory can't keep up with orders, so you want to borrow money to add another line. The amount of metal backing the currency caps the amount of money available to borrow. The competition for funds may prevent you from funding your expansion. Since your expansion is either limited or more costly than it might otherwise be, your return (shareholders return) is lower, and you postpone hiring additional operators for the planned line. A smaller economic pie than might otherwise be possible. On reflection, this might be a good thing. Driving the cost of capital up during expansion would tend to limit investments in areas of lower return and might even moderate the boom/bust cycle of excess investment. This same increase in the value of capital during times of expansion would also drive further investment in the creation of the root stock- the metals backing the currency. But that investment in creating addtional root stock doesn't feed the baby, provide clothing or shelter.