More communist style central planning if you ask me. Only global this time and enforceable not by one's own democratically elected government, but some opaque global body. That's worse than what we have.

This solves none of the problems inherent in unbacked lending and does nothing to turn the issuance of currency over to the free-market. I would violently oppose this.

I had thought better of the Post Keynesians (Minsky, Schumpeter). Davidson sounds more like Keynes on steroids.

More communist style central planning if you ask me. Only global this time and enforceable not by one's own democratically elected government, but some opaque global body. That's worse than what we have.

This solves none of the problems inherent in unbacked lending and does nothing to turn the issuance of currency over to the free-market. I would violently oppose this.

I had thought better of the Post Keynesians (Minsky, Schumpeter). Davidson sounds more like Keynes on steroids.

http://www.creditwritedowns.com/2009/01/paul-da...

I think we can have multiple competing currencies backed by various assets (wheat, land, gold, oil, etc) and exchanged electronically. Depositary institutions would be separate from all other banking institutions. They would merely charge a tiny fee to keep your deposit safe. Lending institutions would also charge small fees for the service of facilitating exchanges between borrowers and lenders. Unbacked lending would be criminally punishable under existing misappropriation laws.

In a credit based monetary system, prices are so violently skewed (due to the lack of differentiation between forced and voluntary savings) that wide swings between asset inflation (from forced savings) to asset deflation (reverting to a level commensurate with voluntary savings) is inevitable.

If relative price stability (based on market forces, not monetary) is what one seeks, then the abolition of the credit based monetary system is a prerequisite.

On the whole, I would agree with Dan that liquidating overcapacity is what he would recommend and what I also think is key to recovery. This is one reason that risk is back (overcapacity in financial services).

But, that's not necessarily driven by monetary policy. So, the question still stands: how does one achieve price stability in a deflationary fiat currency environment?

I think Prof. Horwitz may be jumping the gun on this, because in the next page Hayek says: “I do not agree with Friedman on the causes” (Deflation per se – since we know what Friedman was blaming) and right before that he says “The authorities made things worse by a process of deliberate contraction” (emphasis on deliberate, as opposed to a natural contraction).

But they both contended that with a stable currency unit and lack of unbacked lending (ie. forced savings) price movements would be limited to supply/demand market forces, rather than monetary concerns, as is now the case.

I can guarantee you that if either were alive today, liquidation of bad debt – not necessarily monetary contraction – would be the prescription.

They were both against the purposeful manipulation of prices by central planners – either inflationary or deflationary.