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To: Travis McGee

Keynes predicted what would happen to the English economy when it went back on the Gold standard. He had no emotional concerns about gold just knew it was no longer viable as a money supply. Actually it had NEVER been viable unless permanent recession was the goal.


103 posted on 12/01/2005 1:42:51 PM PST by justshutupandtakeit (Public Enemy #1, the RATmedia.)
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To: justshutupandtakeit

What, exactly, has been viable for any length of time as a money supply? Old pesos or new pesos? Tulip bulbs? Tonnes of coal?


111 posted on 12/01/2005 1:50:59 PM PST by bvw
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To: justshutupandtakeit

Keep in mind that the British Empire and the United States from its founding were on the gold standard. Both experienced no inflation during the periods that they remained on the gold standard. The USA did experience inflation during the Civil War period, when the government started issuing greenbacks. But the inflation only affected greenbacks.

Of course, as we all know, the USA went off the gold standard in 1933 and then the US pulled out of the the Bretton-Woods agreement in 1971, which ended the exchange of gold by central banks. It's been all downhill from there.

The use of the gold standard is best explained in the book, The Way the World Works, by Jude Wanniski. I cannot recommend this book enough. Also, economists such as Laffer and Mundell advocates its use. Mundell just happened to have won a Nobel prize in economics. BTW, he and Laffer were the real architects of the Reagan Revolution.

To summarize Wanniski's explanation briefly, what's important is the activity at the "gold window" of a central bank. If people are buying gold with currency, money is inflating. If people are trading gold for currency, then money is deflating. The desired outcome is to have no net inflows or outflows at the "gold window". This has worked historically very well. Its worth noting the price of a loaf of bread was the same in 1790 as it was in 1910. The important thing is the net flow of gold not the absolute size of the reserves. Britain had a relatively small supply of gold when it was on the gold standard.

Milton Friedman himself pointed out that problem of trying to establish whether to expand of contract the money supply was like driving in a tunnel with no lights - you'd first crash against one wall, and then against the other - the monetary decisions would always be toward overcorrecting in one direction or another. The "illumination" for driving down that monetary tunnel is the gold standard.


146 posted on 12/01/2005 4:20:22 PM PST by KamperKen
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