Re: RE: Re: Re: Gold

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 05:50 PM 06/28/2001 -0700, you wrote:
> Jim Devine writes:
>
> <The supply of money also fluctuates despite the efforts to anchor it to the
> gold reserve.>
>
> ---------------------
>
> Where did I say, Wanniski say, or any other person who suggests that the
> Fed should operate on a gold standard suggest that the money supply should
> not fluctuate?

I didn't say anything about you or Wanniski here. However, some advocates
of the gold standard see it as stabilizing the financial system.

> I specifically said that the money supply will fluctuate under a gold
> standard in respond to liquidity demands.  The point is that the
> decision of increasing/decreasing the money supply will be made by the
> market, not the idiosyncracies of the Fed governors.

I don't think that the Fed's governors are "idiosyncratic," since they
mostly represent the general interests of the banks and Wall Street. This
is whence we get the anti-inflation campaign of 1999-2000 (even though
(price) inflation was pretty moderate by most people's standards). The
problem is that the Fed can't predict the future any more than anyone else
can, so that AG is responding to current events instead of engaging in the
kind of long-term monetary planning that he's supposed to (according to the
textbooks). He causes a recession (via his 1999-2000 anti-inflation
campaign) and then has to reverse himself and pump the economy up again.

> But more importantly, the reason why they set up the Fed was that despite
> the gold standard (which is supposed to stabilize the
> economy)
>
> ---------------------
> Where did I say, Wanniski say, or any other person who suggests that the
> Fed should operate on a gold standard suggest that the gold standard will
> stabilize the economy?

some people assert that.

> A gold standard will stabilize the value of the currency, which will help
> facilitate market transactions, but the economy will still be subject to
> fiscal policy, regulatory policy, war, natural disaster, technological
> change, revolution, etc.

it's also subject to the endogenously-driven business cycle and social
crises that characterize capitalism. Some other things that capitalism
encouraged during the 20th century were:

--  fiscal policy (to try to deal with the unemployment that's endemic
under capitalism but politically unpopular or with the inflation that
results from wars or supply shocks);

-- regulatory policy (to try to deal with the external costs, scams,
monopoly, crimes, etc. that are endemic under capitalism);

-- war (as with the two world wars, which involved contention between
capitalism powers, or the Cold War, aimed at saving capitalism and
undermining the bureaucratic-socialist competition);

-- natural disasters, which are made worse by the narrow-minded
profit-maximization that's encouraged by capitalism;

-- technological change, which for better or for worse is encouraged by the
aggressive profit-seeking that characterizes capitalism; and

-- revolution, which is encouraged by the social inequalities and societal
disruption encouraged by capitalism.

I think one problem is that you seem to assume that capitalism is merely a
bunch of mutually-beneficial exchanges between individuals. This misses the
class and expansionary nature of capitalism.

Jim Devine jdevine@xxxxxxx & http://bellarmine.lmu.edu/~JDevine