Reply To: A Free Market Monetary System


Yes, people could negotiate contracts to avoid the ill-effects of a rising purchasing power of money. And, if they still thought it disadvantageous to use gold, they could choose silver or some other commodity that didn’t appreciate over time in a manner they considered troublesome.

Debtors and creditors dealt with the price deflation of the 19th century without the market evaporating.

Production of commodity money on the unhampered market would be regulated by its profitability, just like the production of every other good. If demand for men’s dress shoes (money) increased, then its price (purchasing power) would rise making it more profitable to produce. Entrepreneurs would step up production to earn the profit. Their increased demand for inputs would bid their prices up and their increased supply of output would moderate its price. They would continue their reallocation until production earned the rate of interest again like every other line of production.