Too little isn't an issue?
and that the government can determine the proper amount.
Yeah, that didn't work so well.
His analysis of the cause of the Great Depression was that, as the economy spiraled down, the Federal Reserve did not provide enough money [liquidity in modern parlance] for business to dig itself out of the hole.
Didn't the money supply shrink by a third? Wasn't that a problem?
FDR agreed and ended the ability of Americans to trade their paper dollar s for gold. To complete the circle, he declared it illegal for Americans to own gold and forced them to sell it all back to the government. All of this in an effort to eliminate the limits on the issuance of paper dollars imposed on the government by the gold standard. It didn't work, of course,
What happened to the money supply after FDR repriced gold?
It isn't working today, either. We are still caught in the same slow-growth stagnation in 2013 we were in 1938.
Imagine where we'd be if money supply had shrunk by a third after 2008.
Any amount of money can serve as long as prices are allowed to rise or fall according to the needs of consumers [i.e., the market].
Massive deflation is a-ok with you?
The magnitude of the debt indicates that any deflation will be a short lived prelude to the certain inflation
No, it isn't. Prices adjust to the quantity of money available. Currently, they are adjusting upwards to accommodate a higher money supply; without government interference or long-term labor contracts, prices will adjust downward if the money supply is stable or is reduced.
Yeah, that didn't work so well.
Phew. At least we agree on that.
Didn't the money supply shrink by a third? Wasn't that a problem?
Well, yes. But only because the money supply had been artificially bloated by the Fed during the boom. When the economy collapsed, loans went bad and that part of the money supply disappeared.
What happened to the money supply after FDR repriced gold?
It increased. It increased by Fed action.
Imagine where we'd be if money supply had shrunk by a third after 2008.
Under our current system, it is the government under the direction of the Federal Reserve that pumps up the money supply and then tamps it down [see Volcker, 1982]. That is why I would like to see a return to private money -- a gold standard is my preference.
Massive deflation is a-ok with you?
No. But only government can create a "massive" deflation. It always comes just after government has created a massive inflation and then decides the economy has "overheated" which it usually has.
Under the gold system [when it was still being observed], there was a modest deflation of something like 1%/year. That reflected a stable money supply and took into account productivity improvements. That is benign deflation -- not the wrenching deflation that only a government can cause.
We have all grown up and lived under a system where the government allows the central bank to attempt to plan our economy by manipulating interest rates and the supply of money. It seems perfectly natural to us and it's difficult to envision anything else.
But government is no more competent at regulating the economic activities of 310 million individuals than it is in defending the border or deciding what health insurance we should have.