The Myth of the “Elastic” Currency: Why the Economy Never Needed It

One of the most pernicious myths about central banking is its necessity to expand and contract the money supply to facilitate the “needs of trade.” But, as the Austrian School of Economics demonstrates, a static money supply is perfectly fine for trade, and it doesn’t entail the destructive inflation that comes with central bankers.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

The most common argument against a commodity money is that it doesn’t expand and contract with the “needs of trade.” The idea is that if the economy grows, the money supply should grow with it. Under the gold standard, increasing the supply of gold was slow and costly, so we needed to break away from those limitations with a system that allows for quick and low-cost increases in the money supply when warranted.

This argument was central to the founding of the Federal Reserve. In fact, it’s mentioned in the first sentence of the Federal Reserve Act: “An Act […] to furnish an elastic currency.”