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To: Ilaine who wrote (75)	3/27/2001 12:15:13 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - ...The ratio of gold-to-Big-Mac will always change, and as you have suggested, it will also change depending on whether I want a Big Mac or don't. If everyone becomes vegetarians, there will be no market for Big Macs at all. No force on earth can keep the ratio of gold-to-Big-Mac stationary. Agreed? Absolutely. But, it's not only a single product whose price will change, but every product. Some prices will go down as productivity improves, but in general all products will see ups and downs in prices. ...We are assuming, I think it's necessary, that the number of ounces of gold held in reserve will not change. No, this is not required, except that a decline in the gold reserves cannot be allowed to fall below the outstanding gold certificates. But the typical 1 to 2% new production from mining is not a problem. The reason that it is not a problem is not that it doesn't tend to reduce the purchasing power of gold, because it clearly does, but rather because the idea that the purchasing power of any kind of money can be stabilized is simply an impossible goal for a number of reasons including the impossibility of measurement. The only problem occurs when a huge increase of gold becomes abruptly available. mises.org "...Economic calculation does not require monetary stability in the sense in which this term is used by the champions of the stabilization movement. The fact that rigidity in the monetary unit's purchasing power is unthinkable and unrealizable does not impair the methods of economic calculation. What economic calculation requires [p. 224] is a monetary system whose functioning is not sabotaged by government interference. The endeavors to expand the quantity of money in circulation either in order to increase the government's capacity to spend or in order to bring about a temporary lowering of the rate of interest disintegrate all currency matters and derange economic calculation. The first aim of monetary policy must be to prevent governments from embarking upon inflation and from creating conditions which encourage credit expansion on the part of banks. But this program is very different from the confused and self-contradictory program of stabilizing purchasing power. For the sake of economic calculation all that is needed is to avoid great and abrupt fluctuations in the supply of money. Gold and, up to the middle of the nineteenth century, silver served very well all the purposes of economic calculation. Changes in the relation between the supply of and the demand for the precious metals and the resulting alterations in purchasing power went on so slowly that the entrepreneur's economic calculation could disregard them without going too far afield. Precision is unattainable in economic calculation quite apart from the shortcomings emanating from not paying due consideration to monetary changes[6]. The planning businessman cannot help employing data concerning the unknown future; he deals with future prices and future costs of production. Accounting and bookkeeping in their endeavors to establish the result of past action are in the same position as far as they rely upon the estimation of fixed equipment, inventories, and receivables. In spite of all these uncertainties economic calculation can achieve its tasks. For these uncertainties do not stem from deficiencies of the system of calculation. They are inherent in the essence of acting that always deals with the uncertain future...." Regards, Don