Purpose of Monetary Inflation

[mattnxtc]

website didnt seem to have anything that supported him gonna have to be a bit more specific

[mattnxtc]

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matt and other thread-goers, what is your take on this quote:

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these economists [Keynesians/Marshallians] have not fully absorbed the great monetary lesson of classical economics: that the supply of money essentially does not matter. Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the money unit, that is in the amount of other goods that money will be able to buy.

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let me think on this...i have some thoughts but i wanna think about it more

[Jcrew]

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these economists [Keynesians/Marshallians] have not fully absorbed the great monetary lesson of classical economics: that the supply of money essentially does not matter. Money performs its function by being a medium of exchange; any change in its supply, therefore, will simply adjust itself in the purchasing power of the money unit, that is in the amount of other goods that money will be able to buy.


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How the money supply is introduced to the markets plays a dominating role. Japan ran an ultra loose monetary policy yet, experienced a very long price deflationary period in the 90's.

[pvn]

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Have you tried paying your taxes with land? Or gold?

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Convert it just prior to payment. Or do you propose that the government accept payment in any form?

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Well, since you asked...

When I conduct a transaction with another individual, I cannot force him to accept my terms (form of payment being one of those terms). If I'm offering hotdogs for sale in exchange for gold coins, and you come up and offer some ice cream cones in exchange for my hotdogs, I can't force you to give me gold coins, and you can't force me to accept your hotdogs.

Further, even if we agree on the medium of exchange, neither of us can force the other to complete the transaction. Maybe I don't feel like selling any hotdogs today, or buying any ice cream cones.

Government compels us to participate in transactions whether we want to or not, on their terms, in their currency.

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Why does this amount of goods and services need to be kept up with?

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Should we go back to the barter system?

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What does my question have to do with barter?

If a bunch of people decide they like using gold as currency, why should they be concerned if the amount of goods and services available increases but the amount of gold stays the same?

[econophile]

pvn,

if you want to learn more about deflation i suggest you go to the library or do a google search.

[Jcrew]

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Government compels us to participate in transactions whether we want to or not, on their terms, in their currency.


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Yes I agree with that point. I see you are trying to make government a symmetric agent in the market but it is not logical to treat the government as such. They are under different constraints and have different purpose.

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If a bunch of people decide they like using gold as currency, why should they be concerned if the amount of goods and services available increases but the amount of gold stays the same?

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Depends on their end goal. If they are all natural rights types and thats all they care about, gold would work OK. If the goal is to maximize net utility growth indirectly by maxmizing economic growth, gold is inferior.

[pvn]

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pvn,

if you want to learn more about deflation i suggest you go to the library or do a google search.

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I know all about it. I'm curious as to what your personal view is here.

[pvn]

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Government compels us to participate in transactions whether we want to or not, on their terms, in their currency.


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Yes I agree with that point. I see you are trying to make government a symmetric agent in the market but it is not logical to treat the government as such. They are under different constraints and have different purpose.

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What is that purpose?

Can I give myself a "different purpose" and then legitimately begin engaging in violent coercive behavior?

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If a bunch of people decide they like using gold as currency, why should they be concerned if the amount of goods and services available increases but the amount of gold stays the same?

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Depends on their end goal. If they are all natural rights types and thats all they care about, gold would work OK. If the goal is to maximize net utility growth indirectly by maxmizing economic growth, gold is inferior.

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How does using a fiat currency maximize economic growth? I'm quite certain it can be a huge +EV for certain parties. However, if the *overall* effect truely were positive, why would such a system need to be sneakily imposed upon the population? Wouldn't they welcome it with open arms? Why were (eg) greenbacks so universally distrusted? Why were legal tender laws needed to force their acceptance?

Why does the government keep gold in Fort Knox instead of paper money??? What's good for the goose isn't good for the gander?

[mattnxtc]

pvn your theories are very old school and really by doing just a little research on the internet you can find out why what you are saying is just bad.

We dont have enough gold to support a gold backed currency so it would be so very uneconomical that it would be disgusting...of the 2 options havin the govt backed money is a lot better

[tripper]

Here you go. The first thing you need to do is correctly define inflation.

Defining Inflation