Which currency system do you think is best?

[tomdemaine]

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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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I still don't understand where this should comes from. I fully admit that despite doing an economics degree I'm relatively dense about this stuff but if you take away the assumption that deflation = bad (which I think there are pretty good arguments for doing) then there is no "should" to the amount of money in the economy, just like there's noone saying there should be X number of trainers produced per year.

[AlexM]

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Which currency system do you think is best?

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[pvn]

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also, a flexible money supply isn't necessarily a fiat currency. increased supplies of gold would increase the money supply. EDIT: distribution of gold also could imply a flexible money supply. so whoever controls the supply and/or the storage distribution fo gold controls the change in the money supply

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This isn't anywhere close to the same thing, and you know it. This is like saying that the fact that free market actors can choose when to produce more cheese, increasing the cheese supply means that a free market in cheese is pretty similar to a centrally planned cheese market.

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my question is then who controls gold production (or maintenance/storage)? whoever controls gold supply thus controls the money supply.

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Who owns gold mines right now? This isn't very hard.

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does that not also restrict freedoms even though it is in absolutely no way a fiat currency system?

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What freedoms are being restricted? Does the fact that farmers own farms restrict freedoms? To use your terminology, "i have no idea what you're point is. can you rephrase this into a clear sentence?"

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so how would gold mines not act in their interest and produce marginally more gold? i.e. what would restrain them.

that is what i'm after...
Barron

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Why would I care? According to your previous arguments, we should want them to produce more gold, shouldn't we?

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thats fairly disingenuous. i think you know via reading what we've been talking about here the issue is both producing MORE gold and NOT TOO MUCH gold. i.e. running at below optimal profit inducing capacity in order to maintain a fixed money supply...or even a marginally slowly growing one.

Barron

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OK, I think I see the source of the miscommunication. There is no "right amount" of gold. There's not going to be some committee that says "ABC mining company should only mine X ounces next year." Just like "the market" doesn't tell Dell how many PCs to manufacture. Well, it does, sort of. But if it makes too many, it's squandering its own resources. Dell doesn't benefit by making more than it can sell. So why is making "too much" gold a problem? If it is, why isn't it a problem now?

And note, I've never advocated a "fixed money supply".

[pvn]

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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 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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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.

[DcifrThs]

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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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I still don't understand where this should comes from. I fully admit that despite doing an economics degree I'm relatively dense about this stuff but if you take away the assumption that deflation = bad (which I think there are pretty good arguments for doing) then there is no "should" to the amount of money in the economy, just like there's noone saying there should be X number of trainers produced per year.

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first off, change G from gold to something much easier to produce that could grow quickly if effort was put to it...say wheat (could stop planting other stuff and plant wheat).

now the *should* comes from the economy producing at potential. potential is the highest rate of growth that can be sustained indefinitely (or for the long term).

in order for the economy to produce at this rate, there cannot be a fixed money supply. i think we've convinced you of that.

now what does that imply about the money supply...it implies that it has to grow. but by how much should it grow?

well, to maintain the potential GDP levels on average it should grow by the amount that the economy grows in real terms (ignoring productivity for now. but overall, since increased productivity increases output potential by allowing more growth with the same resources, it should be subtracted from potential GDP).

anything less than this would produce deflation if that state was kept for a long period of time (consistent money growth of less than trend GDP growth would produce deflation).

similarly, anything more than that would, int he long run, produce "too much" inflation.

so the *should* comes from the fact that in my mind at least, we should all want to grow at potential GDP, or as close to it as possible without producing either large inflation or deflation.

Barron

[DcifrThs]

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also, a flexible money supply isn't necessarily a fiat currency. increased supplies of gold would increase the money supply. EDIT: distribution of gold also could imply a flexible money supply. so whoever controls the supply and/or the storage distribution fo gold controls the change in the money supply

[/ QUOTE ]

This isn't anywhere close to the same thing, and you know it. This is like saying that the fact that free market actors can choose when to produce more cheese, increasing the cheese supply means that a free market in cheese is pretty similar to a centrally planned cheese market.

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my question is then who controls gold production (or maintenance/storage)? whoever controls gold supply thus controls the money supply.

[/ QUOTE ]

Who owns gold mines right now? This isn't very hard.

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does that not also restrict freedoms even though it is in absolutely no way a fiat currency system?

[/ QUOTE ]

What freedoms are being restricted? Does the fact that farmers own farms restrict freedoms? To use your terminology, "i have no idea what you're point is. can you rephrase this into a clear sentence?"

[/ QUOTE ]

so how would gold mines not act in their interest and produce marginally more gold? i.e. what would restrain them.

that is what i'm after...
Barron

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Why would I care? According to your previous arguments, we should want them to produce more gold, shouldn't we?

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thats fairly disingenuous. i think you know via reading what we've been talking about here the issue is both producing MORE gold and NOT TOO MUCH gold. i.e. running at below optimal profit inducing capacity in order to maintain a fixed money supply...or even a marginally slowly growing one.

Barron

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OK, I think I see the source of the miscommunication. There is no "right amount" of gold. There's not going to be some committee that says "ABC mining company should only mine X ounces next year." Just like "the market" doesn't tell Dell how many PCs to manufacture. Well, it does, sort of. But if it makes too many, it's squandering its own resources. Dell doesn't benefit by making more than it can sell. So why is making "too much" gold a problem? If it is, why isn't it a problem now?

And note, I've never advocated a "fixed money supply".

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gotcha. i actually think i'm with you in understanding what you're saying now.

not matter what commodity you choose, the market price of that commodity based currency system would adjust such that an overproduction would lower the price of money and an underproduction would increase the price of money. the "natural" price of money would flow from the economy producing at potential GDP since that is the amount that would be demanded from the commodity producers.

is that about right?

Barron

[DcifrThs]

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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

[Moseley]

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well, to maintain the potential GDP levels on average it should grow by the amount that the economy grows in real terms (ignoring productivity for now. but overall, since increased productivity increases output potential by allowing more growth with the same resources, it should be subtracted from potential GDP).

anything less than this would produce deflation if that state was kept for a long period of time (consistent money growth of less than trend GDP growth would produce deflation).

similarly, anything more than that would, int he long run, produce "too much" inflation.

so the *should* comes from the fact that in my mind at least, we should all want to grow at potential GDP, or as close to it as possible without producing either large inflation or deflation.

Barron

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This I fully understand. That is why, despite the fact that Clinton balanced the budget and had a fruitful economy under his Administration, he stole from the middle class & fixed income citizens, as he increased the money supply by over 10% per annum (some claim it was 15%), while GDP increased about 3.5%.

Bush is doing the same thing, only more secretly, behind closed doors with his "economic advisors." Ron Paul claims the money supply is increasing at 20% now.

This is the sole reason, as far as I am concerned, that my father-in-law, who had it so well off in 1990, is now complaining.

He is far from living from check to check, he just spent money on a new mattress & boxsprings because the ones he has owned for 3 yrs "just doesn't feel right," and goes on trips up and down the east coast about 6 times every summer.

If he liquidated everything he has and put it into bonds and moved into a retirement home, he would have approx 750k, his retirement and his ssi, however, at 85, he knows how to use a computer, track his cost of living, and sees his buying power decreasing every year at a faster rate (from 1990-2007) than any other 15 year period in his life, so he claims.

My wife (we live alone) claims our monthly cost for groceries has gone from $320 to $400 over the last 2 years.

That is is our largest monthly expense, after our $775 mortgage payment.

Our cost of living has increased much faster than the 2.5% that Bernanke claims, and nothing has changed in our household.

[pvn]

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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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This is one of the things that makes wheat a really unlikely commodity to emerge from a free market as a monetary standard. [img]/images/graemlins/smile.gif[/img]