I probably don't value two motorcycles, which is why I buy a car.
Right answer, wrong reason.If the Fed doubles the money supply, then the nominal money price increases but the real prices remain unchanged.
You believe that money is -somehow- a different economic good, and therefore obeys different economic laws.
Money is just another economic good, and obeys the same economic laws as other goods.
Like any other economic good, the increase in the supply of that good will tend to lower its price: economic law of supply and demand.
Thus, in a trade, that economic good of high supply will need more quantity in trade with other goods. Its "price" going down means it takes more of it to be traded then before.
An increase in the supply of money will lower the price of money in that marketplace.
But because we measure price in reference to money - we see the effect on the price. Like above, it takes more of that good in high supply in trade for other goods - the price of other goods goes up.
Note: it does make a darn difference of what other goods are compared to with each other.
Remember Say's Law:
Products buy Products
Remember that Money is an economic good (a Product)
You buy and sell money with your production and buy and sell other products with that money. But money is a product too.
Nah!market wide supply and demand equilibriums. .
You attribute convenience of pricing to be due to some economic law and force. It is not.
It is merely convenient to sell mass produced goods at a fixed price - the seller simply does not have the time to negotiate per individual. He values his time more than the few extra sales that negotiation may have created.
Internet selling demonstrates this where individual to individual selling does take place for the same mass produced goods - Ebay and Amazon exist because of this.
Last edited by Black Flag; 03-28-2012 at 07:07 PM.
"Everyone who believes in freedom must work diligently for sound money, fully redeemable. Nothing else is compatible with the humanitarian goals of peace and prosperity." -- Ron Paul
Rand Benedict Paul.
Not only did he sell us out, this douche bag did it to his own father! I'm more upset him selling his father out. I don't care who i think is going to win i would never sell my father out. If his willing to sell his father out what else is for sale?
Theoretically, you could end up with a reverse Zimbabwe if you had a currency crisis.
Let's say we're directly using gold as money. If you are a mint, you need to decide how many $1 coins, $5 coins, $10 coins, etc. that your market needs in order to satisfy their demands for each denomination. If you make too much, you will either end up pallets of coins sitting in your vault, or your money may lose value (assuming users of the currency are paying a premium above the price of gold) if you release it into the market. If you don't make enough, your users will either use another currency if there are multiple competing currencies, or else the value of your currency (or all currencies) will go up due to lack of supply.
The situation is exactly the same if we're using gold-backed bank notes instead. The only difference is that you're only going to have a small percent of the total amount of gold as notes at any given time - when it's in a bank, it's just gold, it's only a note when it's in a person's hands. So you don't need enough notes to cover all of the gold, just enough notes to fill the demand for currency.
Still, I can't imagine a deflationary crisis as being more serious a problem than an inflationary crisis.
During hyperinflation, you might leave your house to go to the store and buy a loaf of bread, and by the time you got there, your money wouldn't buy a slice of bread (Weimar).
During hyperdeflation, you might leave your house to go to the store to buy a loaf of bread, and by the time you got there, your money would be worth enough to buy the whole store, lol.
If something bad happens, we will be blamed. If something good happens, we will get no credit. If nothing happens, we will be forgotten.
Also, with hyperdeflation, all economic activity is discouraged. If your money is going to double in value this month, why would you work? Why would you do anything at all? You would buy the absolute bare minimum of neccessities in order to survive, because you know that tomorrow, next week, or next month, those things would cost less. The county would enter a deep recession, and you would end up with an economy where everything is imported and there is no local production of any good or service.