>Why does a gold standard guarantee deflation? What exactly do you mean by
>that?
deflation = falling prices (increasing purchasing power of money). The gold
standard limits the global supply of money because the supply of gold is
very inelastic, while new discoveries are rare. If countries follow the
"rules of the game" of the gold standard, they must have fixed exchange
rates. There's a serious asymmetry in that system: a country which has a
balance of payments surplus (like France in the 1920s) suffers few
consequences as it accumulates gold, since the gold inflows can be
sterilized, so that inflation need not occur. But it imposes a balance of
payments deficit (gold outflow) on the rest of the world (by definition,
since one country's surplus is another's deficit), which imposes deflation
of them. In the 1920s, England suffered from this, which was made worse by
the stickiness of prices, so deflation encouraged real output and
employment to fall (while spurring the 1926 general strike).
If the exchange rates are "just right," the fixed exchange rate system can
work. But since economic conditions change a lot, they don't stay that way
for long.
>Conceptually, why do you think that a gold standard does not allow for the
>elasticity of credit that capitalism needs?
if the domestic supply of money gets too far out of line with the monetary
base (the gold owned by the central bank), it undermines the fixed exchange
rate.
>How about some gold standard quotes from Das Kapital? I understand Karl
>was a bit of a gold-bug himself.
A gold-bug is a speculator. He did some of that (I'm told), but not in
gold. He did assume that international money was golden, because that's the
way it was at the time. But his theory doesn't depend on that assumption.
He allowed for state money domestically, so there's no reason why we can't
introduce it into his theory on a world scale.
Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~JDevine
