Gold and the Uneasy Case for Responsibly Managed Fiat Money
In a world in which policy makers who are short-run oriented persist in creating inflationary pressures at rates that cannot be predicted without large margins of error, floating provides the only acceptable exchange-rate arrangement. Lack of predictability is an essential property of such an inflationary setting, because even the limited, short-run stimulus derived from inflation would be unattainable if the inflation rate were correctly foreseen. Thus, to maintain the stimulus, inflation must be accommodated for a while at an accelerating rate, but full accommodation must occasionally be interrupted to prevent the process from getting out of hand at a very early stage. The resulting environment is one of heightened uncertainty and of lowered efficiency.
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Notes and References
- 2.Aside from the sources listed under the table, I made use largely of data found in W. John Busschau, Gold and International Liquidity: the Flow of Credit in Relation to Gold in the International Monetary System (Johannesburg: South African Institute of International Affairs, 1961); Peter A. Abken, ‘The Economics of Gold Price Movements’, Economic Review of the Federal Reserve Bank of Richmond, March–April 1980;Google Scholar
- W. C. Butterman, ‘Gold’, in the United States Department of the Interior, Bureau of Mines, Minerals Yearbook 1978–79 (Washington: US Government Printing Office, 1979); Hearings Before the Senate Committee on Banking, Housing and Urban Affairs, 96th Congress, S. 2704, 29–30 May 1980 (Washington: US Government Printing Office, 1980), pp. 466 et seq.; estimates used by Edward M. Bernstein in the EMB Reports and kindly put at my disposal;Google Scholar
- Phillip Cagan, Determinants and Effects of Changes in the Stock of Money, 1875–1960, Studies in Business Cycles No. 13 (New York and London: Columbia University Press, for the National Bureau of Economic Research, 1965);Google Scholar
- Joseph Kitchin, ‘Gold’, in Encyclopaedia of the Social Sciences Vol. VI, (New York: Macmillan, 1931), pp. 689–93; and International Financial Statistics Yearbook 1979 (Washington: International Monetary Fund, 1980). Abken and Bernstein, as well as myself, have made substantial use inter alia of the estimates of Consolidated Gold Fields Ltd, London.Google Scholar