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> There is no need for more money to pay off interest, because time and labor and other things have value. An historical example of needing more money because
by throw0101a 4y ago
> There is no need for more money to pay off interest, because time and labor and other things have value.
An historical example of needing more money because an economy ran out it and people couldn't get any to do financial transactions:
* https://en.wikipedia.org/wiki/Great_Bullion_Famine https://en.wikipedia.org/wiki/Great_Bullion_Famine
* https://en.wikipedia.org/wiki/Great_Slump_(15th_century) https://en.wikipedia.org/wiki/Great_Slump_(15th_century)
See also the Great Drepession for another problem with a fixed money supply:
> However, Temin (1989) argues that, once these destabilizing policy measures had been taken, little could be done to avert deflation and depression, given the commitment of central banks to maintenance of the gold standard. Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.
* https://www.nber.org/system/files/chapters/c11482/c11482.pdf https://www.nber.org/system/files/chapters/c11482/c11482.pdf
- MR4D 4y agoThat’s a liquidity problem, which is different. The PP was talking about inflation of money supply. For reference, you can have liquidity problems and an inflationary money supply at the same time.
- marcinzm 4y agoThe first two example as best I can tell are of a decreasing money supply due to export of currency to other places. That is fundamentally different than having a fixed supply of money. >See also the Great Drepession for another problem with a fixed money supply: Sure but the system worked for the whole 1800s with basically no inflation during that time. It may not be ideal but "works for over a century" is pretty good to me.
- ChrisLomont 4y agoThe system did not work for the 1800s. Inflation and deflation boom and busts in the 1800s were so severe and destructive that it led to central banking to avoid those problems. Here's where you can start looking at the data https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_United_States https://en.m.wikipedia.org/wiki/List_of_recessions_in_the_Un...
- marcinzm 4y agoYet society survived and thrived which is the definition of a working system to me.
- ChrisLomont 4y agoYet the people were vastly worse off than under the current system. Which would you prefer to live in? Here's some of what it was like to live then for comparison https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4577070/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4577070/
- ChrisLomont 4y ago>An historical example of needing more money because an economy ran out it and people couldn't get any to do financial transactions Yes, an economy can hit a liquidity crisis, but it's not because the reasons the article claims. And deflationary spirals are also not because of there is not enough money to pay old interest. These are two completely different things. The reason modern economies do not want fixed monet supplies is because the other problems it causes: the GD taught the world the problems of a deflationary spiral, which is why all modern central banks target slight inflation. This has led to more stability than previous systems. And, as money inflates, and as economies grow, there is need for more money to allow trade to function efficiently. But none of these reasons are due to there simply not being enough money to pay old debts plus the interest. The article above seems vastly far from this understanding of modern economies and why things are done the way they currently are.