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this stems from the hate for any fiat money system. you can argue this point all day, and logically we can even have a monetary system backed by wine, but in the end i think the flexibility allowed by a fiat system far outweighs the distortions it causes and that the distortions caused by a system backed by anything that can't be quickly increased or decreased will be larger.

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You are incorrect here, though there is a lot of hate from austrians for a fiat based system, the real hate is for a government granted monopoly of any system. That is the main problem of the fed, going back to the gold standard is one way that they see of ending this monopoly (or greatly restricting its powers).

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this is what i mean: the govt has granted a monopoly to the fed to manage the supply of money in the system. this choice has caused some distortions in teh economy as argued by AC.

my opinion is that the distortions caused by backing a monetary system by gold (or anything else that cannot quickly be increased or decreased in supply) will be far larger as we've seen time and time again throughout history.

gold's supply is fairly stable and cannot be reduced readily (and certainly not increased readily). the lack of flexibility to respond to aggregate economic shocks would (and has in the past) cause tremendoes pain for any system backed by something like gold.

you can argue that fiat systems have also broken down in the past, but note that no specie system currently exists in a true form (That i know of at least. please let me know if i've overlooked a country or two here). it isn't a solid argument, but the fact that no specie system exists where many have come and gone seems to indicate that the choice of the world is not to have money backed by a stable supplied commodity.

one possible (and imo most likely ) reason for the lack of specie systems is that when a country has to choose between enduring the pain of its citizens and releasing money into the system (to relieve their pain and stabilize the system), it always chooses to release money (or dissolve a peg, or break a price control) so that the citizens do not feel the full force of the pain of the shock.

the flexibility provided by a fiat system managed by an institution like the fed reduces these distortions and, though mistakes have been made in the past and shocks can still occur that are too much for the system to immediately slough off, i believe that as a result, we are far better off having a managed fiat system vs. a gold backed system (or any other commodity backed system where the commodity cannot be quickly increased or decreased)

so, there are my thoughts on that.

now back to your point about hate for any govt granted monopoly of any system. the problem i see here can be examined from the extremes. on one side, we have communism (i think, which is as centralized and controlled as can be) and on the other side we have a hunter/gatherer society where X goats can be traded for whatever that individual values and the price of goats in terms of rice can be set by those who value goats and rice differently.

that latter system, which is not centrally managed and not granted by any source of government, can work very well in homogeneous, local areas. but as a country grows, and urban places like manhattan and farmland stretches like iowa are put under the same government (which, in a hobbesian-or lockian...always mix those 2 up- sense has received the mandate to govern from the people), a more regulated system becomes necessary to ensure smooth transition of labor from one place to another.

if you lived in iowa and wanted to sell your wares in NY, you wouldn't very well want to go there without knowing what you'll get for your goods, nor not know whether or not what you receive will be tradable back in iowa (though the latter is probably likely since you are probably similar enough to your state-mates that your utility curve is similar to theirs).

further, you don't want to BRING yoru goats etc. without knowing whether or not they'll be purchased (and thus have to bring them back). so you'll bring some sort of IOU and sell that at the price of a goat. then you ship your goat to the customer and reclaim your IOU-One Goat.

the reason this analogy is, imo, instructive is that you can see that as you incorporate more and more diverse regions and peoples under the same government, the need for some type of monetary system of transaction becomes exponentially increasingly important. that IOU-One Goat has some value somewhere but a different value somewhere else. this isn't inherently bad or incorrect, just inefficient. i think one can logically argue that if the people want to trade IOU-one goat for IOU-1ton of rice in iowa vs. IOU-5 versace shirts in NY then so be it. EDIT: the issue comes when the IOU-1ton of rice is compared to the IOU-5 versace shirts. for the iowan in question, they are both worth IOU-One Goat. but for the new yorker, the IOU-1ton of rice may be worth something much different than IOU-5 versace shirts. he may require 2 tons of rice for those same 5 versace shirts since his family loves goat milk and meat far more than plain old rice [img]/images/graemlins/frown.gif[/img]

as industrialization and technological improvement increase the speed and efficiency of transactions and production, quicker means fo payment etc. become crucial. further, faith in the system by participants is even more crucial. the only way, imo, that people in alaska, hawaii, NY, Texas and iowa can all have faith in the monetary ssytem that drives their well being is if it is sanctioned by the government to whom they have given the mandate to govern. so the governemnt has to make a choice on behalf of its people.

the US govt, has, in the past tried gold, silver (and maybe something else i forget) to no avail. the pain caused by those systems when they reach critical points was too great for the citizens to stomach so the transition to a fiat system was authorized and the fed (originally nowhere near as skilled as it is now in management of that mandate) was created.

that is how i view the situation we see today. the monopoly of ANY system should be granted by the govt in that hobbesian sense because the people who that government has been given the mandate to govern need to have faith in the authority fo the system to function AND have their best interest at heart.

i do not believe the governemtn decided to institute the federal reserve to enrich a few people at the top or around the edges of the govt. further, even it if DID, the citizens eventually are the ones to vote that down if enough of them are completely dissatisfied with the way things are managed.

so please let me know where i've misrepresented AC beliefs or was not crystal clear and i'll be happy to dig deeper into either area.

thanks,
Barron