I have posted this elsewhere earlier, but this forum is still the most active with some very knowledgeable posters. Paradox of Money More money means a higher standard of living for an individual, for a partnership of 2, 3, 4, ... persons, for a family, for a business corporation, an organization, a municipality, a constituency, but it stops with the country where more money lowers the optimal possibility for economic production and harms the economy. At the country level, more money would first unleash a destabilizing competition for ownership of the newly created money. The new money will then further cause a forced redistribution of the country's product disrupting the normal working of the free markets which causes a further fall in the optimal possibility of the economy. This paradox suggests that a fixed money supply (Gold Standard) monetary system better serves the economy than one based on the current US Fiat Money Fractional Reserve Banking system. Most of all aspect of modern free market capitalism should still be available except commercial banking as we now know it. Outline of a Fixed Money Supply Full Gold Standards A closed economy is assumed - i.e. a one country world. There is no commercial banking - no more banking as we know it, the banks that can create money. The Government Central Bank - this is the only bank in the country. It holds the fixed total money supply in the country which is also now the total of all "bank deposits". All money transactions only move money between these accounts. fixed total money supply - it means the total "registered" quantity of Gold the central bank decides on using as money. A simple model can ignore new discoveries of gold, etc. This is also the figure when an accompanying theory refers to the "money supply". It is also unchanging. It is also completely divisible in whatever granularity we wish to have and no one ever need to "carry" the physical metal. all of this money have an owner - should be self-evident. Lending - this is simple unqualified "money lending". It is in all ways identical to personal loans between two persons, from A to B. A cannot lend more than what he has in the "central bank". What A loan out is no more available for him to spend, but B now has more money to spend. coins and currency in circulation - this is a trivial issue. Assumption of a cashless society should not make any difference to the development of a consistent theory. The above may be all that is required as an outline. The details as to how to ensure the money supply is maintained as a fixed quantity of Gold is not examined. A simplified Fixed Money Quantity Theory The Exchange Equation is : P x Q = M x V P = price level of final goods Q = real Total Final Goods or GDP M = fixed money supply V = money velocity Postulate : The money velocity is stable or constant in the proposed fixed money supply system. In other words, the Nominal GDP (M x V) is constant as a postulate. As the other side of a transaction of goods is payment from wages - Price x Real GDP = Wage Level x Total Man Hours. We have as a corollary of the postulate: With a constant work force, the Wage level is a constant. We have a clean simple proof why our fixed money supply Simple Quantity Theory can accommodate changes in economic growth: Proof by Refutation Assume it cannot. This means the real GDP must be a constant. But this is clearly illogical. Assume a bumper harvest in the agricultural sector. This must mean a real GDP growth or changes in real GDP changes. Thus the theory must be able to accommodate changes in real GDP. --------------------------------------- A fixed money supply economy within our theory does not in any way disallow changes in growth. It can accommodate growth expansion as well as contraction. Fractional Reserve Banking is flawed. A monetary system unlimited on the supply side for money serving to match the real product of a country limited on the supply side is fraught with unpredictable, and likely detrimental, consequences. The argument for this new monetary system is that it optimizes the working of the free market mechanism by allowing it to work in a most stable economic environment. In a normal stable economy with a real growth rate of 3% per annum due to productivity increase from better technology or returns from prior real capital investments, an increased standard of living would be realized in an environment with stable wages and natural price deflation of about 3% per annum This simplified Quantity Theory can be invalidated only in two ways: 1) that the the money velocity cannot be assumed stable in the real world. 2) The model with Price x Real GDP = constant is not workable in a real economy and it causes the collapse of the economy under all reasonable conditions.