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To: neolib who wrote (91139)	10/2/2007 4:47:00 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 306849

Could we apply a zero money growth regime to the American economy using the Pilgrim's money supply? Absolutely. If America was the only economy in the world, then this is exactly the way it would work. Now if America were to trade with other economies, then your micro observations need to be expanded to include the reality of a world economy. I think giving yourself an education in economics would be a big help. It certainly would be tedious giving you years of education, one post at a time. On the gold standard, nations which ran current account deficits or surplus balance their accounts by exchanging gold. If the pilgrims were industrious, European nations and others would have needed to transfer gold to their economy. Economies ended up with gold bricks, even if they had no gold deposits. In practice, much of the gold remained in New York, London, and Switzerland while the nations exchanged receipts. But the discipline remained. Run out of gold bricks and you can't import, or you can devalue your currency against gold - which hardly inspires the confidence of your citizens or anyone considering doing business with you. Remember, the purpose of the gold price was to make gold mining marginally profitable. Its an ideal commodity. It has few commercial uses, so using it as discipline doesn't interfere with industry in any significant way. It just stands there, a raucous fact, as solid as bacon. .

To: neolib who wrote (91139)	10/2/2007 5:52:22 PM
From: GraceZ	Read Replies (3) \| Respond to of 306849

This again confuses me, because it assumes that "saving" consists of storing lumps of metal in a vault where they do nothing. I don't invest my savings in that manner. You may be confusing the two concepts, saving and investing into one action. They are closely related but not interchangeable. One can save without investing, but saving is necessary for investing. Even though you imply you prefer that your savings be invested in something which produces future value, that your savings is invested, I'm sure that you also have some portion of savings that reflects your preference for liquidity, a cash cushion just in case your investments can't always be readily exchanged at favorably rates for cash. Currency and demand deposits (checking accounts) reflect that societal need for cash savings, M1. Savings deposits and money market accounts are those that end up in longer term investments, M2- a little less liquid than M1. Time deposits like CDs and institutional money market accounts which have restrictions on withdrawal would be in M3. As you travel from M1 to M2 and M3 you get further away from the real money supply that Elroy is referring to, what you have are assets in the form of bonds and loans. Those assets, as easily as they might be in normal conditions to convert to money are not money. Plus, they are investments at some point, not savings (even though you bought them with savings). As financial innovation has made converting assets into cash easier and easier, people have reduced their desire to hold cash savings. A lot of currency created goes right overseas, or under ground in the illegal economy where the desire to hold cash is much higher. Primarily because the level of trust in the financial sector is lower elsewhere (although it might be around zero here on this thread). Right now, your vote seems to be == 0.0000. He knows that the money supply grows even in a 100% commodity based monetary system, it just grows at a very low rate, around 1-2%. BTW the long run rate of productivity growth is around 2%. One could say the monetary system would work better if it was fiat but acted like a gold based system, in that the rate of growth wasn't equal to the GDP but equal to the long run rate of productivity growth, which is the true measure of wealth. Problem with that is that productivity gains are not evenly distributed over people or over time and people's preference for cash savings changes. The reason inflation is preferred over stable or deflating money supply is because of how productivity gains are unevenly distributed. People who are in those activities that experience high productivity growth will experience relatively higher wages whereas those who are in areas which cannot experience high productivity gains (it always takes four people to play in a four string quartet) will have a shrinking percentage of the nation's income, or experience relatively falling wages even in a stable money supply. BTW no one would bother to push that huge rock up hill in the effort to make those productivity gains without an offsetting wealth gain. The Communists found this out the hard way. This change in relative incomes will naturally result in more basic necessities being bid away from the low end (regardless of how much the basic necessities fall in price in a deflationary monetary regime- what is "basic" is always rising as wealth rises) unless their wages rise in excess of their gains. The "living wage" movements are all about raising wages for those in low productivity jobs. The easiest way to do this is for the government to carry on policies that steal a little from everyone else. They can do this directly with income redistribution type taxes/subsidies or indirectly with inflation. The masses demand inflationary policies, they demand "fairness". BTW few commodity based money systems have ever been purely commodity based, most included a system of notes as well. Some fiat money was around even when all money was gold or silver coins. Inflation was still a problem, Adam Smith refers to it in his famous 1776 book, Wealth of Nations. Sovereigns have been screwing around with the amount of gold in their coinage and the convertibility of bank notes into gold ever since we emerged from barter systems. You only have to look at the history of how the US government screwed around with the price of gold up until 1974 to see that a gold backed money system is not a panacea. In fact one could say that a free market in gold, where no government has effective control over what amount of gold their currency will fetch, has more power as an inflation canary.