[e-gold-list] Re: clear thinking

[Pete Chown]

John Kyle wrote:

> Without fiat money, and the ability to create more, under a gold standard
> government borrowing would push up interest rates.

It already does push up interest rates.  I suppose to be precise, the
government can choose higher interest rates or inflation.  If they
borrow through bonds, they bid up interest rates.  If they print money,
they increase inflation.

> However, the price of milk in 2005 is
> the exact same in 1995. This is because the inflation created by the FED has
> canceled out any decline in prices. But, since on the face of it the prices are
> the same, the FED can claim there has been no inflation.

That's what inflation means, though: requiring more money to purchase
the same goods.

I suppose there are two views about what money ought to represent.  The
current view is that money stands for the goods it could buy, so we
should try to keep prices constant.  The other is that money stands for
the labour in producing the products, so we should try to keep the
amount of labour constant.  In the second view, $1 would buy a certain
amount of a farmer's time -- in both 1995 and 2005.  Presumably you
would get more milk in 2005, because the farmer is more productive.

I suspect our choice of the first approach is pragmatic as much as
anything.  Deflation is bad for the economy, so we try to avoid it.

Pete




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