Re: (OPE-L) Re: on money substance and abstract labor

From: Allin Cottrell (
Date: Mon Jun 21 2004 - 21:57:26 EDT

On Mon, 21 Jun 2004, Rakesh Bhandari responded to:

>> The role of gold in present-day monetary systems seems
>> nugatory, a mere historical hold-over.


> Yes but if the former gold bug Fed chief does try to maintain over
> the long term the dollar constant in terms of a basket of gold, oil,
> wheat, then is he not running a modified gold standard?

He's trying to maintain a CPI inflation rate of around 2 percent.
Who cares what happens to the price of gold?  Gold is not in the CPI
and the dollar is not convertible into gold (any more or less than
it's convertible into cheese).

Given that CPI inflation (or possibly GDP deflator inflation) is the
relevant target, it would make sense to focus on some other price
index (gold + oil + wheat, say) only to the extent that the latter
serves as a "leading indicator" of the former.  The price of oil might
have a predictive role.  I'm not aware of econometric evidence that
the price of gold has such a role.

> And if Greenspan does not do this, what are the consequences on the
> role of the dollar as international currency, the closest thing we
> have to world money?

What are the consequences if G'span omits to do what, exactly?  If he
omits to consider the price of gold as such, nothing.  If he's willing
to let inflation rip in the U.S. (say, monetizing Bush's deficits)
there may be consequences.


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