You forget that prior to withholding credit the Fed was expanding the money supply at 7.7% per annum through the whole of the 1920s, which naturally resulted in an inflationay asset boom. When the Fed finally stop adding this credit, the economy crashed. This is no different than withholding heroin from a heroin addict. The addict will indeed crash.
You
could use a more relevant example.
Dave wrote:I am consistently baffled at to how people can't visualize why a gold economy would work. To take one example, in the 19th century the purchasing power of the British pound increased by 50%. A hard money would, however, cause much of the financial sector to collapse, which is just fine in my opinion. 25% of all economic activity in this country coming from finance is absurd, and is only made possible by continual inflation.
What is wrong with price fluctuations? The gold standard cannot, as of current, create enough credit to sustain the U.S. economy, which is geared towards the vast credit offered under a fiat monetary system. If you indeed wish for a switch to the gold standard, the ensuing credit would create another depression, unless there is a substantial transition period. Even after the transition period, deprived of such vast quantities of credit the quaternary sector would rapidly diminish and economic prosperity would move in the same direction. Economic growth would likely stagnate, if not it could even contract. How is it economically possible to re-instate the gold standard
and maintain prosperity?
Dave wrote:Services, by the way, add value, they do not create value. No manufacturing, no services.
This is quite ridiculous. Of course services add value, as can be proven by the fact that people pay for them. I pay my ISP provider to give me broadband internet access, and I pay the "dairies", or convenience stores, prices higher than supermarket prices because of the convenience. Services is what adds value to production. Producing a good is useless if you cannot transport it to the customer. Operations, logistics, and supply chain management is a great deal more complicated than people think.
Dave wrote:That's true of all consumption on the individual level. If you spend $15 on a haircut you're $15 poorer.
A classic misunderstanding of economics and commerce in general. If you trade that $15 for a haircut, you must value that haircut at greater than $15, otherwise you wouldn't have gone through the trouble of getting one. At the very least you are getting $15 worth of haircut in return of your $15 cash spent.
"PR [and politics] is about theory, not practice. A philosopher may very well argue that a table doesn't exist in principle, but he can still have his dinner on one." ~ Charles Prentiss
E: +2.50
S: -5.28