The Government does that by controlling the rate at which it is made. Too fast, and it loses its value. Too slow, and it increases in value. Either result is bad. I don't know of any reputable economist who thinks that the Depression was caused by excessive monetary growth. Even the monetarists contend that the central bank could have prevented the Depression by increasing the money supply faster at the outset of the Depression. But at the time, the central bank had a hands off policy like the one you espouse, so it did nothing much in response to the warning signs.
Ron Paul’s campaign has PROVEN to me that there is LITTLE difference in the Republican and Democratic party.
Both have their own agendas and both are fearful of anyone entering the arena and up setting their own carts.
Yes, he has some radical ideas.. but the same was said about Ronald Reagan too while he was running for his first presidential bid.
Will he win? I doubt it.. but the bickering on this board and several others are interesting.
The Gov't doesn't know how much money and credit should be in the Market, nor what the interest rate should be.
It is like any other price that is set by the Market.
As for the Great Depression, the problem was not enough 'money' but the fact that Fed had been trying to keep prices 'stable' during the 20's, when in fact, due to rising productivity, they should have been falling.
Thus, while prices didn't rise during the 20's, there was still inflation in the system effecting the investment of capitial.
When the bubble finally burst in 29, the necessary correction took place, but Gov't actions under Hoover and the raising of tarrifs prevented the correction to a swift one.
FDR ran on a policy of returning the U.S. to a sound fiscal policy of balanced budgets and the dollar backed by gold, and ofcourse once in office, started the New Deal instead.
It took WW2 to end the Depression.
Paul Johnson does a good job in explaining it in his work, 'The History of the United States'.
Now, the problem with the Monterist school of Fisher and Friedman is that they think that a little inflation is a good thing and ignore the problem of the 'boom-bust' cycle which artifical low interest rates cause.