Re: RE: Re: RE: Re: RE: Re: Gold

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

David, I am not sure that anybody but you and Jim are following this
discussion.  What you claim would be largely orrect in a world without
any credit whatsoever.  Anyway, if this is not of general interest, maybe
it could continue with you an Jim offlist?

On Thu, Jul 12, 2001 at 06:59:44PM -0700, David Shemano wrote:
> In reply to Jim Devine:
>
> Instead of engaging in a specific point-counter-point, let me make a series
> of comments and ask a couple of questions that are generally responsive to
> your statements.
>
> 1.	What is the evidence that the gold standard had anything to do with the
> economic contraction in the 1930s?  Please explain the casual link and how
> not having the gold standard would have avoided the contraction.
>
> 2.	More generally, what is the harm of the gold standard?  In response to
> one of your questions, I make no claim that maintaining a gold standard will
> do anything else other than provide the benefit of maintaining a constant
> unit of account (i.e. avoid the problems created by monetary deflations and
> inflations).  Maintaining a gold standard will not prevent the problems
> created by errors in fiscal policy, war, natural disaster, etc.
>
> 3.	With respect to the mechanics of the gold standard, as I have said
> previously, there is no requirement that a government own a single bar of
> gold or make the dollar convertible to gold to effectuate the policy--
> simply that the currency authority publicly accept and act on the assumption
> that if the gold price is increasing, that is a sign that too many dollars
> are being created and visa versa.  If the currency authority has good reason
> to believe that a decrease in the price of gold is the result of an unusual
> increase in the gold supply, the currency authority can announce that belief
> and announce an adjusted dollar-gold price,
>
> 4.	You say that a gold standard would likely be deflationary.  Why?  Imagine
> three assets in an economy: (1) dollars, (2) gold, (3) all other goods and
> services.  For the price level, overall, to remain constant in a growing
> economy, the number of dollars would have to increase proportionally to the
> increase in overall goods and services.  If the dollars did not, there would
> be a monetary deflation.  One of the benefits of gold as a currency marker
> is that its annual supply increase is roughly the same as all other goods
> and services -- a couple of percent, and that the demand for gold for
> non-currency purposes is relatively stable.  Therefore, as the gold supply
> increases annually, there would also be an increase in the money supply, all
> things being equal.
>
> 5.	What did William Jennings Bryan say about gold?  Was he for money
> untethered to a metal?  Arguing about Bryan and the post-Civil War era is
> like arguing about the Great Depression -- there are two sides to the story.
> If you want the gold standard side, I will be happy to provide it.
>
> 6.	What is the "business cycle?"  It is probably unrealistic to ask, but
> please provide me a short and concise description of what you are trying to
> describe.
>
> 7.	Debating the 90% tax rate is another thread of its own.  As you
> acknowledge, if affected very few people.  In addition, precisely because of
> the rate, the tax code was riddled with loopholes.  Do you have any evidence
> that a 90% tax rate collected more money from those affected than a 30% rate
> would have?  How about a comparison of the 90% rate and the 70% rate
> instituted in 1964?
>
> 8.	You state that I conflate "monetary inflation" with "actual inflation."
> What do you mean?  Under a gold standard, prices of individual goods and
> services will rise and fall in response to shifts in supply and demand
> curves, but they will not rise because of an increase in the unit of
> account.  What am I conflating?
>
>
> David Shemano
>

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx