A Guide to Good Money

The Qualities of the Monetary Base Essential to Sound Money: Fiat and Gold

“…These include episodes of abnormally rapid growth in productivity (economic miracles) as well as abnormal fluctuations in scarcity and abundance in resource markets. The authority does not adjust the path of the base money supply promptly or strongly in response to evidence about emerging variations in real influences but instead focuses on the long run (Brown and Pringle 2022).…”

“…For banking and financial policies, consider the current crises involving various forms of state backing for bank deposits and other debt instruments. The safety of deposits depends less on the backing of high-powered money than on deposit insurance (Brown and Pringle 2022). Holders of deposits may also rely on the belief that the central bank and other government agencies will come to their rescue as lenders of last resort during any episode of financial strain for the too-big-to-fail institution concerned or somehow extend deposit insurance to non-insured deposits.…”

“…4 Milton Friedman described the years 1922-27 as the high tide of the Federal Reserve-based on actual price stability and low constant growth in the money supply (Friedman 1963). That verdict, however, is open to question, not least because of its silence on virulent asset inflation as a key symptom of monetary inflation (Brown and Pringle 2022).…”

“…We see here a version of the reanchoring problem-the turbulence that accompanies the process of anchoring a monetary system which has been long unanchored. This problem is also encountered in proposals to move to a gold-based monetary system, mostly concerning where to set the gold content of the currency (Brown and Pringle 2022).…”

“…Such sustained rises and falls in prices, which occur despite a balance between the supply and demand of base money, are called "natural rhythm" inBrown and Pringle (2022) and play a key role in benign intertemporal adjustments of consumption in response to supply shock and recession.…”