RE: Re: RE: Re: Gold

["David Shemano" <dshemano@xxxxxxxxxx>]

Christian Gregory wrote:

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<<More importantly, how could the gold standard be neutral with respect to
the
business cycle, unless you think that credit demand and the business cycle
are completely unrelated? The whole point of a price-specie flow model is to
balance the payments system "automatically," such as to "correct"  over- and
under- production, excess and insufficient demand, by referring them all
back to the gold price. What good is a currency with a constant value if it
has no macro-economic effects? Surely, you don't want a currency with a
constant value for its own sake--right? (ie. You did complain in an earlier
post about price volatility since the 70's.)>>>


I am a believer in the price system as the best way to determine production
and allocation of resources.  In order for the price system to work most
effectively, I want a change in prices to represent information other than a
change in the quantity of the unit of account.

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<<Hmm. Gold standard =constant money value = less inflation = (cet par)
lower
inflation expectations= lower nominal (and real) interest rates.  Constant
money value= less volatility = decreased costs of hedging, insurance, etc. =
lower real interest rates. No? Isn't that the argument?>>

Works for me.

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<<One of the stranger things about this discussion is that, like lots of
other
liberal economists, you point to the closing of the gold window as the
moment when the contemporary financial world began. Difference is that,
while John Eatwell and Lance Taylor want to use the BIS as the int'l lender
of last resort, you want a gold standard. Assuming that this is possible for
the US at present, do you think it would fly internationally? Wouldn't it
have to to work?>>

I would be very interested in a Marxian analysis of the operations of the
Bank of London through WWI.  It is hard for me to believe, but the pound in
1800 had the same purchasing power as a pound in 1900.  There is no reason
why it wouldn't work today.  There is no reason a socialist economy could
not use a gold standard.  The problem is that the masses want bread and
circuses, but don't want to pay taxes.  That puts great pressure on
governments to inflate the money supply, so governments do not like the gold
standard.  The mechanism is the easy part.

David Shemano