If the Gold standard came back ... - Page 8

Copernicus · #71 10-20-2007, 10:30 PM

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
He has all the necessary knowledge to get it right, lays it out for you, puts it in the correct order even... and then just misses it. If M, V and P are held constant then Q cannot grow, but deflation is a decrease in P, which is on the same side as Q so a decrease in P leads to an increase in Q!

[/ QUOTE ]

Deflation is a decrease in M, not a decrease in P.

[/ QUOTE ]

If you are talking about deflating the money supply then it is, but under a gold standard the money supply would be relatively stable no?

[/ QUOTE ]

No, the money supply is relative to the total amount of goods and services you can buy with that money. Increasing that while keeping the same number of dollars is a drop in M.

[/ QUOTE ]

Uhhh no. M is the currency in circulation as defined by M1, M2, M3. It is an absolute number, not relative to anything.

ianlippert · #72 10-21-2007, 03:58 AM

[ QUOTE ]
Uhhh no. M is the currency in circulation as defined by M1, M2, M3. It is an absolute number, not relative to anything.

[/ QUOTE ]

So under the gold standard M is relatively stable right? ie, only increases at the rate people dig it out of the ground. I dont mean to really argue about this point. I've only taken 1 Macro class so im sure that base equation gets more complicated.

DcifrThs · #73 10-21-2007, 04:34 PM

[ QUOTE ]
[ QUOTE ]
Uhhh no. M is the currency in circulation as defined by M1, M2, M3. It is an absolute number, not relative to anything.

[/ QUOTE ]

So under the gold standard M is relatively stable right? ie, only increases at the rate people dig it out of the ground. I dont mean to really argue about this point. I've only taken 1 Macro class so im sure that base equation gets more complicated.

[/ QUOTE ]

M stays stable in a gold-backed system only so long as the conversion rate stays constant (i.e. govt doesn't change the rate of conversion to increase/decrease the money supply)

Barron

ianlippert · #74 10-21-2007, 07:11 PM

[ QUOTE ]
M stays stable in a gold-backed system only so long as the conversion rate stays constant (i.e. govt doesn't change the rate of conversion to increase/decrease the money supply)

Barron

[/ QUOTE ]

Are you saying that the government pegs the price at whatever they want? Sounds like its just a different way for the government to control the money supply even though it is gold. Shouldnt the rate be determined by the free market?

Copernicus · #75 10-21-2007, 09:52 PM

Yes, Dcifr said it is a way to change the money supply. However, it is a relatively meaningless change in the money supply, increasing prices in proportion to the nominal change in M, since V and Q are unchanged, P has to double in nominal terms. Arithmetically: 2MV=P'Q P'=2MV/Q but MV=PQ, so P'=2P

Then the question becomes does V change because of the additional money circulating, since production has no reason to change. There may be some psychological effects I suppose, but I dont know of any compelling economic reason for V to change.

DcifrThs · #76 10-22-2007, 05:03 AM

[ QUOTE ]
[ QUOTE ]
M stays stable in a gold-backed system only so long as the conversion rate stays constant (i.e. govt doesn't change the rate of conversion to increase/decrease the money supply)

Barron

[/ QUOTE ]

Are you saying that the government pegs the price at whatever they want? Sounds like its just a different way for the government to control the money supply even though it is gold. Shouldnt the rate be determined by the free market?

[/ QUOTE ]

um, i'm not sure how else a peg would be credibly enforced.

the free market pretty much ensures it won't be pegged unless i misunderstood this situation.

more clearly: in a free market, gold's price would be flexible.

in the event that isn't the case, how would a pegged price of gold be reached and enforced via the free market? is there an example from history?

thanks,
Barron

DcifrThs · #77 10-22-2007, 05:20 AM

[ QUOTE ]
Yes, Dcifr said it is a way to change the money supply. However, it is a relatively meaningless change in the money supply, increasing prices in proportion to the nominal change in M, since V and Q are unchanged, P has to double in nominal terms. Arithmetically: 2MV=P'Q P'=2MV/Q but MV=PQ, so P'=2P

Then the question becomes does V change because of the additional money circulating, since production has no reason to change. There may be some psychological effects I suppose, but I dont know of any compelling economic reason for V to change.

[/ QUOTE ]

would paying off nominal debt with fewer ounces of gold than promised count?

that seems economically important.

Barron

ianlippert · #78 10-22-2007, 07:32 AM

[ QUOTE ]
the free market pretty much ensures it won't be pegged unless i misunderstood this situation.

[/ QUOTE ]

I was just wondering if you think a gold standard means government mandated gold prices? I think when most Libertarians talk about gold standard they are actually talking about free banking not the gold standard we had in the early 20th century. I think the assumption is just made that free banking would eventually lead to gold being used as money.

tomdemaine · #79 10-22-2007, 07:55 AM

[ QUOTE ]
[ QUOTE ]
the free market pretty much ensures it won't be pegged unless i misunderstood this situation.

[/ QUOTE ]

I was just wondering if you think a gold standard means government mandated gold prices? I think when most Libertarians talk about gold standard they are actually talking about free banking not the gold standard we had in the early 20th century. I think the assumption is just made that free banking would eventually lead to gold being used as money.

[/ QUOTE ]

Yeah if you're having pegging you may as well have fiat money because the peg is a distortion and unless you start shooting people to stop them trading (which isn't out of the realm of possibility see quotas) arbitagers will bring it down.

AlexM · #80 10-22-2007, 09:58 AM

[ QUOTE ]
[ QUOTE ]
Uhhh no. M is the currency in circulation as defined by M1, M2, M3. It is an absolute number, not relative to anything.

[/ QUOTE ]

So under the gold standard M is relatively stable right? ie, only increases at the rate people dig it out of the ground.

[/ QUOTE ]

I'm no expert on the subject, but it seems to me that assuming the amount of gold in the world stayed constant, its value would fluctuate based on the total population of the world since more people would increase demand and less would lower it.

I also strongly doubt that any government price fixing could survive a doubling of the population. If the market is for some reason flooded with gold, government price fixing would only work because the real price of gold will eventually catch up anyway as the population expands.