"And the Reserve System, established in response to monetary instability, had the power to exercise deliberate control over the stock of money and so could take advantage of this possibility to promote monetary stability. That conjecture is not in accord with what actually happened. As is clear to the naked eye in Chart 1, the stock of money shows larger fluctuations after 1914 than before 1914 and this is true even if the large wartime increases in the stock of money are excluded. The blind, undesigned, and quasi-automatic working of the gold Standard turned out to produce a greater measure of predictability and regularity--per-haps because its discipline was impersonal and inescapable--than did deliberate and conscious control exercised within institutional arrangements intended to promote monetary stability."

Friedman's "Monetary History of the United States" pg 9-10

The idea that "the stock of money" is a real, objective thing is rank insanity. The idea that this "stock of money" should magically be constant makes even less sense.

There is no stock of money. There are only political decisions, assorted client and patron relationships, and national and international conflicts among interest groups that define social goals and resource distribution.

Money is political power counted on imaginary tally sticks. Volume fluctuations are irrelevant. What matters is what people do, for whom, to what end, using what resources.

In an alleged democracy what should matter is economic enfranchisement - which in practice means creating fluid and porous social castes and interest groups, and inventing interesting goals with intelligence, realism, and effectiveness.

Booms and busts are caused by aimless short-term accumulation, which is a form of unintelligent goal setting. Whether tally sticks are referenced to lumps of shiny metal or numbers derived by fiat is wholly irrelevant if the only goal is to acquire as many sticks as possible, and nothing else matters.

First sentence: True - and neglected in our time, but not, I think by the originator of the concept. He did set a lot of store by "animal spirits," and these very strongly affect "the money supply" in the following ways:

The usual multiplier of funds in a bank assumes that the depositors will regard their banked money as still theirs and available. But note that this is actually the OPPOSITE of the thinking of my grandparents, who lived through the great depression. To them, the largest single reason to put money in a bank was precisely to forget about it; and to piously treat it as now beyond their reach and ability to spend because it was now part of a sacred reserve. A very deflationary logic since it brings down the effective banking multiplier of the money supply (reflected by spending) sharply. And this is indeed what happens after a recession, and a kind of thinking that's still with us, post 2008.

Of course, changes in sexual selection are also a large part of this. Young women and men shifted from being very interested in free spenders of the opposite sex (as a proof of money) before 2008 to being much less interested in being married to a free spender, thanks. Where I live, I was woken by revelers in the early morning leaving the fanciest downtown bars blocks away until 2008 at least a couple of times a week, for years. In all the years since that crisis, those extreme revelers have only very rarely been heard from by me. Despite my being a much less sound sleeper, now. Here too, sexual selection shifts post-crisis to a logic that's closer to bank-it-and-don't-think-about-it. (Debt accumulation, say on credit cards, may contradict me by now, however.)

Just curious: is this coming from stuff you've read or original thought? Because what you just said feels much closer to the truth than anything I heard in my macroeconomics 101 class. But I'm not an economist, so.

You've changed the subject, sir.

No period (before 1914) is given by Friedman. This matters because, as my source is careful to say, a remarkably rigid system of international currency exchange rates had been formed before the WWI. This wasn't an accomplishment of the U.S., nor was it entirely safe, wise, or productive.

Of course, rather by definition, if multiple currencies are all convertible to gold (as they were pre-1914) they rise and fall in exact sync with each other with every whim of the gold market, every gold discovery, etc - until one falls off the cliff and has to renounce conversion - but that hardly means no whiplash!! In fact it means countries are less insulated from each other's economic troubles, more of a monoculture than a robust ecosystem - and, as stated, every country's economy is whipped about by anything that changes how easy it is to get gold out of the ground or increases or decreases consumption of it, including fashion and improvements in dental technology. Also, even the severest depression won't be reflected in the exchange rates. And it was those downturns, that were the topic.

Stable exchange rates have a trade-off; and they certainly don't prove economic stability or the absence of downturns at all. It's more like watching a team of acrobatic aircraft: they all maintain their wingtip distance strictly, and that's fine: but if one plane goes into the ground, they all do. Being in close formation isn't a proof you're not headed for a mountain or the ground; because it's not the kind of stability that has anything to do with that most important risk. Ditto rigid exchange rates.

What changed in 1914 was war. There was no intellectual decision that gold convertibility was unfashionable - war breeds inflation, necessity made conversion a hindrance to the war efforts. That international confusion (and therefore the resultant fluctuations in currency exchange rates worldwide) wasn't created by the American decision to have a central bank, for goodness sake. If anything the arrow of causation went the other way.

If Milton finds it hard to believe that the war-to-end-all-wars might have caused a wee bit of currency turbulence, so it had to be the U.S. finally creating a Federal Banking Institution that did that all over the world, he's rather isolated in that position. But of course, he's slyly leaving that leap into the abyss for the reader to make.

What changed in 1914 was going from gold backed money to fiat money controlled by a central bank.

> and has to renounce conversion

This problem only happens in a fiat money system. It notably happened in 1930 in the US.

There was a world-wide change in 1914 that blew apart the previous rigid system of currency exchange. The U.S. followed suit, but under any scheme at all the exchange rates of its currency would have been more unstable because the previous stability between all currencies was gone, whatever the U.S. chose.

Nixon renounced conversion to go to a fiat system. That's what renouncing conversion means, to abandon conversion, leaving only the fiat. You are agreeing strenuously.

And again, all this a whole other topic than whether downturns were more or less frequent: which was where I started.

The world wide change in 1914 was going from the gold standard to a fiat money system.

> exchange rates of currency

That was not the topic, the topic was instability in the money supply.

> Nixon

The US official exchange rate was a fiction from 1930-Nixon, because it was illegal to hold gold as a monetary instrument. Nixon simply did away with the fiction.

NO. Just before the war, the war scare blew up the exchange system. It's in the book cited. History. Empiricism. Data.

Now you want to change the topic away from EITHER economic stability OR exchange rate stability? To money supply stability, a whole other topic? Yikes.

Nixon - cavilling. Choose any illustration and the logic and semantics of "fiat" remain. Once again, you're off on a new topic, a new distraction. Not only is that not logical, it's not civil, either.