These thoughts and axioms arrived in the shower a few minutes ago:
- Money is unique because it is both a unit of measurement and a commodity that is bought and sold.
- Paradoxically, its role as a commodity ensures that it is an unreliable unit of measurement because its value is determined by the marketplace.
- When the market devalues the price of money, it is experienced as inflation. While inflation has many causes, all forms of inflation involve money devaluation.
- When the market revalues the price of money, it is experienced as deflation. While deflation has many causes, all forms of deflation involve money revaluation.
- When there is neither inflation or deflation, the supply of money matches demand.
- A central bank has a monopoly in money creation - no other organisation has the ability to supply money to the marketplace (commercial banks are merely one means by which the central bank supplies money to the marketplace)
- While the market can determine the demand for money, central banks can ultimately determine supply.
- Unlike most goods and services, money is infinitely fungible.
- Central banks have the theoretical power to create an infinite amount of money if required.
- Central banks also have the theoretical power to remove all money from the money supply.
- It is theoretically possible for central banks to supply as much money, or as little money, as the market demands.
- It is theoretically possible for the value of money to remain constant, given the power of central banks to increase or decrease supply in response to market demand.
- The only time money can succeed as both a unit or measurement and a commodity that is bought and sold is if its value remains constant.
- Absolute Price Stability (neither inflation nor deflation over the course of the business cycle - money remaining at a constant value) should therefore be the only reasonable monetary goal of central banks.
- An economy running Absolute Price Stability should prevent endogenous economic shocks from occurring.
- An open economy running Absolute Price Stability is still exposed to exogenous economic shocks.
- A single unit of currency whose value remains constant should provide superior net economic results than a series of different and competing currencies whose values do not remain constant.
- A single international currency and international central bank committed to Absolute Price Stability
will be the first step in me conquering the world and making a one world government! mwa ha ha!!would be, um, good.