Thursday, March 6, 2008

Stabilizing nominal income level or the price level? (amv)

There is a much neglected alternative to contemporary monetary policy: the standard for sound policy is not to stabilize the price level (which in a progressive economy obviously implies continuous credit expansion beyond the equilibrium level given by voluntary saving), but nominal demand stabilization or - what is the same - stabilizing the amount of money in circulation. This of course suggests that sound monetary policy in a progressive economy (in which we face productivity growth) has to allow for secular deflation. Prof. Selgin, a most famous advocate of free banking, wrote this insightful paper which I heavily endorse.

@fg: Selgin has a twin brother, too!