To: shades who wrote (47255 ) 1/19/2006 1:16:21 PM From: gpowell Read Replies (2) | Respond to Kessler mangled the specie-flow mechanism in that piece. He missed the essential point of the specie-flow mechanism, which is that the purchasing power of money (ppm) in every country remains constant relative to each other. Thus, any increases in gold supply confined to one country flows out until local and world prices of gold are equilibrated. That’s really all there is to it, but Kessler gets confused because he confounds money prices with real prices. Success from selling $15 shirts for $5 meant gold moved into England, increasing money supply, and causing inflation. The inevitable increased wages theorized by the classical gold standard would make England’s goods less competitive, until gold flowed out and trade was balanced. But that would in no way close the gap between the $15 handmade shirt and the $5 power-loomed shirt. But why penalize progress? As an aside, it is bizarre that fractional reserve banks, which describe just about every bank in existence today, are basically bankrupt. A deposit in a bank is an asset for you and me, but it’s a liability for the bank, since it owes us the money. But then the bank lends out the depositors’ money as loans, and those loans are a bank’s assets. Banks almost always have “assets” less than “liabilities,” and therefore a negative net worth.
