Why is it necessary to index or correlate the money supply with the gross national product?
I have heard economists say that if we went back on the gold standard there would be an automatic control of the money supply. A. It must be remembered that there is always tremendous political pressure to increase the credit and money supply to heat up the economy. If there were no trustees to keep the money supply in close correlation with the supply of goods and services, there would be a great temptation to “create” new money by printing it up and buying new supplies of gold. The gold would be stored in the government vaults but the currency which was printed to buy it would be circulating among the people. This means the government could go on printing paper money and buying gold until there was a tremendous increase in the money supply and a skyrocketing rate of inflation. So you see, a gold standard does not provide an automatic control of the money supply. This is why we need to correlate it with the amount of goods and services which the money is used to buy. Indexing the mone
