Thanks, Luke. I archived the article on my own hard drive. For the past five years, I have been unable to reconcile the problem you imply. We believe that in a laissez-faire economy - nominally "gold-based" but really more complex than that - interest rates would be low because risk would be low. We believe that monetary inflation increases the cost of money over time because money loses value over time. On the other hand, if you borrowed a kilogram of gold against which to capitalize a product launch of your own, the gold would hold its value over time. Indeed, in a laissez-faire regimine gold as a physically static quantity of stuff would increase in value as ever more goods and services compete for it. Thus, prices would fall over time. Interest rates would be based entirely on the perceived exposed risk of the venture. You want to build and sell the gizmo you designed. The banker likes your character and business plan. But some of the the coolest gizmos of the past have failed: markets are subjective. (Amiga Computer, Adam PDA, Vitamin Water.) So, there is risk. Moreover, if the banker wants my money, she has to offer me more than I can get for it by holding it, or using it to produce my own widgets, etc. She must pay interest to borrow my gold in order to lend it to you. But, with our zero-interest banking system, no one has any incentive to save -- at least not in a bank. If you want to see your money return a profit as an investment, you have to do something else with it. That economy is unperceived by Paul Krugman. (Edited by Michael E. Marotta on 7/27, 11:57am)
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