Thursday, March 18, 2010

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Absent price controls, the market sets the price for shoes regardless of which monetary supply you use. The price is a calculation of costs ( raw materials, labor, distribution ) plus profits, and at every stage, the cost is impacted by the quality of the money in use.

You will have more price stability under a commodity money system, because the money's value will be a derivation of a known finite asset's ( or basket of assets ) value, rather than a derivation of something nobody knows- like America's ability to pay interest into perpetuity.

The reason why bread that was 50 cents a loaf not that long ago is now $3 a loaf is not because it became 6X more expensive in real terms to process wheat into a loaf on the market shelf- that price is a direct result of currency depreciation under a fiat system.

Whether you have a private central bank running a fiat money system or the government running a fiat money system, you have a counterfeiter in control of your money supply. If you like price instability caused by factors outside of the supply and demand for a product, go with a fiat money system- you'll get all the price instability you could ever ask for, thanks to the temptation to manipulate the money supply..

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