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To: Elroy Jetson who wrote (28497)	3/22/2005 1:31:13 PM
From: gpowell	Read Replies (1) \| Respond to of 306849

Economic history does not support your comments. Apart from the occasional oddity, deflation proved the standard… Check your history. The period for which we have the most complete record of the price level is the industrialization period of England. From 1650 through 1914 the price level change was 0%. Surely you must know that England was a growing and largely capitalistic economy over this period. One such example [of an oddity] occurred when Spain brought in large quantities of gold from the Americas. Exogenous flow disturbances in commodities used as money is the normal state of affairs under a commodity standard. The influx of New World treasure is but one such example - the more recent examples include the California gold strike of 1848, the Australian and New Zealand discoveries of the 1850’s, South Africa (1874-1886), Colorado (1890), and Alaska (1890). Also, technological improvement in gold mining, such as the cyanide process, served to disturb equilibrium. Deviations in the price level due to these disturbances lasted decades. Bordo (The Gold Standard: Myths and Realities - 1984) estimates that on average the purchasing power of gold took 25 years to return to pre-disturbance levels. Thus, persistent deflation, far from being a normal state of affairs, is the oddity, and it is usually explained by examining government imposed restrictions on the money supply. BTW, you might want to reconcile why it is that Milton Friedman advocated a deflation rule (as you apparently do), when the evidence is that under a gold standard the quantity of money grew with economic output such that the price level remained constant in the long run. Obviously, if one believes the free market provides the most efficient allocation of resources then logic would dictate the money supply should grow with output.

To: Elroy Jetson who wrote (28497)	3/23/2005 6:56:12 PM
From: gpowell	Read Replies (1) \| Respond to of 306849

One such example occurred when Spain brought in large quantities of gold from the Americas. This dramatic increase in their money supply led to the eventual collpase of their economy Missed this fallacy. Many factors have been adduced to account for the "decline of Spain,", but mainly the perversity of their economic policies must bear a large share of the responsibility. In spite of their relative poverty, the Spanish people in the sixteenth century were the most heavily taxed of any in Europe. Moreover, the incidence of taxation was extremely uneven - the great landowners were exempt from direct taxation - thus, the burden fell principally upon artisans, tradesmen, and especially the peasants. Further, the Spanish economy was steeped in mercantilist favoritism with price supports for exports and heavy import duties. Had those economic policies not been in place, the shock of a sudden wealth increase would have had little lasting impact. The world was essentially on a commodity monetary system and David Hume’s specie flow mechanism ensured that little, if any, of the treasure would remain in Spain (with, perhaps, the bulk of it flowing to France and England). While a temporary rise in the price level was certainly evident across all of Europe, why did Spain decline and not France, or England? I guess when all you have is a hammer, every problem looks like a nail.

To: Elroy Jetson who wrote (28497)	3/23/2005 9:14:16 PM
From: GraceZ	Read Replies (2) \| Respond to of 306849

where money loses significant value each year, you don't realize what a historical oddity this is. From the Wealth of Nations, published in 1727: For in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins. The Roman As, in the latter ages of the Republic, was reduced to the twenty-fourth part of its original value, and, instead of weighing a pound, came to weigh only half an ounce. The English pound and penny contain at present about a third only; the Scots pound and penny about a thirty-sixth; and the French pound and penny about a sixty-sixth part of their original value. By means of those operations the princes and sovereign states which performed them were enabled, in appearance, to pay their debts and to fulfil their engagements with a smaller quantity of silver than would otherwise have been requisite. It was indeed in appearance only; for their creditors were really defrauded of a part of what was due to them. All other debtors in the state were allowed the same privilege, and might pay with the same nominal sum of the new and debased coin whatever they had borrowed in the old. Such operations, therefore, have always proved favourable to the debtor, and ruinous to the creditor, and have sometimes produced a greater and more universal revolution in the fortunes of private persons, than could have been occasioned by a very great public calamity. (Smith 34)