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Originally Posted by mcsluggo
BUT, starting from that point, your statement raises ANOTHER key weakness with specie backed systems: increasing the money supply is NOT an inherently inflationary act.
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You're of course right.
About the surfing the net for porn, I mean.
I can't quite agree that increasing the money supply is not inherently inflationary. Ceteris paribus, none of us would argue that an increase in the money supply is inflationary.
You say that "In an expanding economy you have to expand the money supply continuosly in order to maintain a nuetral monetary policy"....
I would first of all question who "you" is in the context of this sentence, then I'd question why you must expand the money supply with the economy. Without conceding that maintaining a "neutral monetary policy" is self-evidently a good thing, I'd point out that the Fed hasn't come close to maintaining a neutral monetary policy since the demise of bretton woods -- I can remember when a soda pop cost a quarter, today that same soda is about a buck-twenty-five. whatever that is, it ain't neutral.
....finally I'd point out that increasing the money supply raises prices versus what prices would have been in the absence of an increase in the money supply.
Sure, general price levels may be lower after the increase in money supply than they were before the supply increase, but they are nonetheless higher than they would have been in the absence of a supply increase. This, in my view, is to say that a money supply increase is inherently inflationary.
I don't belabour this point because I like to argue trivalities but instead because it is necessarily, inherently, absolutely the case that printing new dollars decreases the amount of stuff that old dollars will buy.
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Originally Posted by mcsluggo
Gold (or whatever commodity) has some value independent of its role as a currency backer. Additionally supply of gold is not controlled. Taken together this means that a monetary authority has a MUCH tougher time controlling the MS in a specie backed system than it does in a system where the currency has no backing other than the "full faith and credit" of its issuing government.
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i would argue that this is a strength of a sound money policy rather than a weakness.
I would argue this, but I'd really rather look at nekkid women right now...you understand.
Cheers