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say we have cummulatively produced, as an economy (i.e. the gold industry) some amount of gold G. G is now the total money supply. every year the economy grows by Y and productivity increases by P so G should grow by Y-P. so lets let g=Y-P.

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Why "should" G grow by Y-P? You've totally begged this question.

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the money supply should grow at the rate of growth of the real economy minus productivity increases.

i've outlined this pretty clearly.

in my post directly above, i go through why i now understand how the market woudl work in this scenario: i.e. the money demanded would meet money supplied and trend growth would continue.

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the US company(ies) producing (storing / distributing) this gold are, by default, and assigned by the free market, the "managers" of the economy. they should be producing about g every year. their economic incentives though, are to produce some other amount of gold, say g*. what is to keep the free market mining companies from producing at g* and instead, produce at g.

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This is so upside down it makes my head hurt. Nobody is "managing" anything. Nobody is "assigned" to a role. People just do stuff.


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yup, gotcha. my hangup was on the incentives of those who would literally grow money in their backyards (in the wheat as money example). but if they did too much of that, the market set wheat price of dollars would decline until they stopped doing that and produced fewer units of wheat, at which point the wheat price of dollars would rebound.

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again, pvn, if you choose to jump in here, i'm not being a dick here. i'm seriously asking. this is how we learn, by asking quesitons. i'm not feigning knowledge in order to be a condescending ass.

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I actually believe you. You've just got this idea that things have to be micromanaged so beat into your head that you can't think about people doing things on their own without some overlord guiding them all.

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pretty much.

Barron