Of course if what he had said had been more socialist than it was, the market would likely gone up (like in August 1971 when Nixon sent us down this branch of the road to serfdom).

Mario: As you may recall, I am not an economist, just a reader of economics -- first having read the 1949 Yale edition which I found in a public library in 1967 and then getting a "free" 1966 Henry Regnery 3rd edition for signing up with a book club in 1968, which is my marked up edition. I have gone through it several times and never considered the tone "arrogant." (I also have your Time and Ignorance and Time, Uncertainty and Disequilibrium.) But, aside from you consider the tone of the book, could you elaborate on what you consider to be its wrong reasoning. I just reviewed his trade cycle analysis and found it compelling. Am I wrong about this?

Alex: That fact is precisely why gold makes such good money. On the other hand, paper tickets, electronic digits, and sea shells can be expanded virtually without limit. Further, gold or any other money is not consumed - used up - in fulfiling its function as money, so it does not need to be constantly replaced with new supply. For an excellent and accessible discussion of this see Rothbard's "The Austrian Theory of Money" which was in Dolan's 1976 book containing some of the paper's presented at the South Royalton Conference: http://mises.org/rothbard/money.pdf

Grant writes: “Unless I'm grossly mistaken, a gold standard (which many Austrians advocate) would not increase to accommodate an increase in the demand for money. Reserves would remain fixed, so a credit collapse (decrease of the multiplier) would result in a large decline in the money supply.” To this Steve Horwitz replies: “Define a "gold standard." If you mean 100% reserves, then you are correct, in my view. If you mean free banking with fractional reserves based on gold (as in Selgin, White, Horwitz, Sechrest, et. al.), then such as system would, in our view, accommodate changes in the demand to hold money with the appropriate change in supply, without discoordinating prices and wages.” It seems to me that the correct response to Grant is somewhat different. If he means by a gold standard 100% reserves, then the monetary base is the total amount of gold held in the defined “economy.” And the M1 multiplier would always be 1, because whether the gold is in or outside a “bank” would be of no relevance. Credit would be determined by the willingness to save and lend (with or without intermediation). If the demand to hold money increased, those so demanding would import or mine more gold. Now, if by a gold standard, you mean free banking with fractional reserves based on gold, you would have some amount of fiduciary media being treated as money with the attendant risk of booms and busts, minimized by the inability of banks to coordinate credit expansion in the absence of a central bank facilitating artificially low interest rates and inflation. Obviously, neither system is ideal, especially if one views the first system as inconsistent with freedom of contract.