Hi Arthur,
(KH) <<<< In truth, although governments are supposed to be the "true" originators of money, interest rates and so on, they are really quite inept at controlling the system. >>>> (AC) <<<< Inept compared to who. Or to what. I don't think anybody fully understands "the system" and I am quite sure that control is probably as good as its going to get. >>>> You ask "Inept compared to who. Or to what." Inept compared with, for example, the period in England from 1694 (when the Bank of England was granted the monopoly to issue banknotes) to 1914 when, because money was directly related to something valuable (which happened to be gold), it held its value almost constantly. (Compare this with the 40-50 fold devaluation of the pound [and all other official currencies] in the course of the 20th century.) Furthermore, interest rates held steady at about 2% during 1694-1914, too. (Compare this with [real] interest rates that swung wildly between -3% and 8% [nominally between 3% and 17%] in the 1960-1990 period.) The point is that the price of money shouldn't be "controlled" any more than the price of bread or any other item of value. The 220-year period mentioned above was the most tumultuous period of economic change that any country has ever experienced. The Industrial Revolution was proceeding apace, hundreds of banks were being founded and then collapsing (though the prudent ones survived), production of gold came in surges as new gold fields were found, and yet the value of the banknote remained largely constant. Even though the Government monopolised the issue of banknotes -- which itself was a retrograde step but not totally disastrous -- they still bound themselves to the important centuries' old dictum that paper money, promissory notes, bills of exchange, cheques and so forth had always to be redeemable (if required) by a constant weight of something that had tangible value. It happened to be gold in those times, but it doesn't necessarily have to be gold. It could be a given quantity of anything that is widely accepted as having real value. Because governments want first claim on a currency (sometimes for worthy purposes, often for not) they have taken over control. But in doing so, currencies now have arbitrary values that are at the mercy of panic decisions at times of great stress. There could not have been times of greater stress and changes of fortune than during the 1694-1914 period mentioned above, but yet the Industrial Revolution proceeded because, at bottom, everybody could rely on a reliable value of money. I doubt whether the IR could have proceeded under the present "system". You wrote: "I don't think anybody fully understands "the system" ". Well, it's not surprising because governments interfere with money at so many different levels, and in so many different ways, with so many different lead- and lag-times of effect, sometimes openly, and sometimes secretly. No wonder! Keith Hudson ___________________________________________________________________ Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED] ___________________________________________________________________
