It is much to be regretted that the system which evolved over centuries of trade and economic development as the most reliable means both of maintaining a constant value of the monetary unit and of adjusting the quantity of money in circulation to the needs of business should be so little understood or appreciated today, either by the general public or within the economics profession. The policy of guaranteeing convertibility of currency into real commodities offers a potentially major contribution to the solution of both of the outstanding economic problems facing the world today — namely inflation and recession. These are particular expressions of the more general problem of the instability of both the value of money and the level of economic activity. Under a system of currency convertibility, market forces operate in such a way as to reduce both of these. In the simplest terms, the monetary authorities’ guarantee to provide real commodities on demand in exchange for currency serves both directly and indirectly to restrain inflation, while the guarantee to provide currency on demand in exchange for specified commodities serves to alleviate recession.
KeywordsMonetary Policy Trade Cycle Market Force Monetary Authority Short Term Fluctuation
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