Andre -
The government must ensure that there is approximately as much money in
circulation as is needed for the exchange of goods and the payment for
services.
This is exactly what has gone wrong. Government needs to get out of the
money business. This is a formula for inflation, and results in inability to
make economic calculations on a long-term basis.
One would expect that, along with the growth of international trade in
goods and services, a corresponding growth in the international trade in
money and capital would also have occurred. But surprisingly, that has not
at all been the case. On the contrary, over the past twenty years,
international trade in money has increased not four times, but ONE HUNDRED
times!
This writer doesn't know economics or history. One hundred years ago, the
world was still operating on a predominantly gold monetary standard and
international trade was far, far less than it is today. Also, the policy he
advocates - government control of money, with consequent use of paper
instead of real money - has created an overgrowth in the financial sector.
Finance institutions shouldn't be as important as they became. This is why a
gold standard is so good: it puts salt on the tail of the speculative bird.
Also, this writer may not be not indexing for inflation.
banks can profit from the differences in exchange which exist in different
places around the world for the same currency.
This has been happening for a very long time. It's not recent. It's called
arbitrage.
money is turned over without a corresponding production of goods.
A valid objection. Made possible by government paper.
The turnover does not add any social value; it does not result in more
bread being baked, more bikes being made or more houses being built... .
This is not true. Foreign exchange is necessary without gold as a medium of
trade settlement. Also, this writer is forgetting that governments engage in
all kinds of foreign exchange operations to manipulate the value of their
currency. Exporting nations, like New Zealand, keep their currency
artificially depressed to become more competitive on the world markets; this
requires all kinds of nonsensical finaglings to try and keep it going. (It
also results in residents of the country paying overly much for imports.)
Banks hire talented young people to sit behind a computer screen all day,
watching for places around the world where currency deserves attention.
He overstates the amount of profit derived from arbitrage - remember, the
money has to come from somewhere, and that means someone is losing on those
momentary informational lags. Arbitrage systemically keeps the system clean,
by *encouraging* simultaneity of currency information. Similar to much-hated
future contracts; they fulfill a valuable role in forward-looking signaling.
the volume of international trade in money and money products is now, as
mentioned, ONE HUNDRED TIMES GREATER than the total volume of
international trade in goods and
services.
How is he calculating this?
Money has therefore acquired a different role.
Some truth to it. Again, government has driven it.
If you want currency more closely tied to production, price stability (which
means that housing can't go up 10% a year), and constraints on lending - go
for a gold standard. But we've gotten mighty far away from it today, and
getting back will be tough - but probably inevitable. Individual states in
the U.S. are starting to pass laws allowing gold as a legal tender - first
Utah, now one of the Eastern Seaboard states is proposing it.
MRB
http://www.fuguewriter.com
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