Price Stability or Inflation in Our Midst?

The Supply-Side Debate Is Over Jerry Bowyer, TownHall As the year comes to a close so does the inter-Nicene argument between free-market economists about gold and inflation. Both are passing because of the same cause – the passage of too many months without the end of the world as we know it. For those of you who are just now joining the discussion, here’s the background: The founders of the supply-side economics movement, such as Arthur Laffer, believed that in order to predict future inflation, it was necessary to look at various markets. Some of their followers, in an excessive reaction to liberal disdain for gold, took things further and claimed that gold and gold alone held the key to the financial future. As a general -- not a universal -- rule, people who made their living in investment markets tended toward the first view and people who made their living as part of a movement (columnists, advocacy group staff, bloggers, etc.) held more tightly to the gold-only view. More

Disagreeing with Jerry Bowyer John Tamny, RealClearMarkets In the summer of 2001 the price of gold hit a modern low of $253/ounce. To various economic commentators with free-market leanings, the gold price signaled a monetary deflation whereby dollar debt-holders were suddenly being forced to pay back dollars far more expensive than the ones they borrowed when gold traded at a higher price. That the U.S. economy experienced a shallow recession at the time (where many heavily indebted companies went bankrupt) confirmed for many that the Fed was too tight. That the Federal Reserve had been cutting rates alongside a strengthening dollar was unimportant to many who followed gold, in that a loose or tight Fed was not a function of a low or high nominal rate set by our central bank, but instead a function of this objective market price. Why gold? Due to its unique stock/flow characteristics, gold has for thousands of years served as money and a money measure for paper currencies thanks to its impressive stability in real terms. When gold’s market price moves, this is not a function of gold’s real price changing, but instead an indication of the changing real values of the currencies in which it’s priced. More