The Economy

You originally told me that the money supply has to expand with a growing economy. You still haven't explained that one. How do you explain, say, long periods of the industrial revolution, where productive capacity and technological gains made it so that the U.S. economy was growing like gangbusters and the country became the most powerful in the world as a result. ... while prices were falling like a rock (and standards of living were rising)?

That last post also makes zero sense.

So you go into business, do well for a few years, are happy. ... and then someone else comes in and figures out how to do what you do more effeciently and charges less money than you do for the same goods and services.

You are trying to give me a treatise about how terrible tha tis for everyone. We need to protect the less efficient producer and that somehow makes anyone better off? Stop trying to be an econ 101 textbook and think like a real person. Tell me who doesn't go to the store looking for lower prices.

And inflation is not "good for growth." Explain to me how increasing the money supply generates any real wealth (which is what actually grows an economy). You are just expanding the money supply. You aren't creating goods and services by simply debasing a currency. And in fact, it has the EXACT OPPOSITE effect of encouraging growth by damaging the wealth-formation process.

Money is a medium of exchange. It exists to be exchanged for things you want or need. In another words, money creates an exchange of something for somehing. When you create more money out of thin air, it gets used to take from the pool of real goods and services without producing anything useful. i.e. you are exchanging nothing for something.

Creating money that way diverts real wealth toward whoever gets rewarded with the new money. As a result, less real wealth is left to fund wealth-generating activities, which are what actually drive the economy. That WEAKENS economic growth. It's the same as if someone came and dropped a bunch of counterfeit money on a place.

In terms of what the Federal Reserve has been doing, the easy money policies simply divert resources to non-productive activities. Which is why they cause bubbles. When your business is not operating profitably, your incentive is to shut down. What they have been doing is designed to prevent failure. It is a survival of the unfittest environment. By diverting resources from wealth-generating activitives (which is what really grows an economy), they destroy wealth, which is what supports an expansion of economic activity.

You have it backward. But if you want to keep going in circles trying to justify the unjustifiable, ask yourself, if 2 percent inflation somehow encourages economic growth, why don't we completely devalue the currency? Surely we could create even more prosperity if 5 percent inflation was a goal, couldn't we? Hell, why not 90 percent inflation?

 

You have thrown out several declaratory things (some I didn't even respond to) that are wrong, and I am just responding to you. You then respond with more declaratory statements, taking the conversation off on a new tangent without simply addressing the thing I questioned.

Telling me that depression after depression was caused by the gold standard was not "intellectual content." It's was just flat wrong.

Neither was telling me that "the money supply needs to expand to support a growing economy." That is absurd.

It has nothing to do with that (you taking it yet another direction without being able to explain why the things you declared and I questioned are true). ... but I personally favor sound money.