Under the supply-siders’ preferred alternative, the Fed is obliged to target the price of a commodity, say gold, whose market value is believed to be a sensitive indicator of impending changes in the overall price level. For example, if the target price of gold is established at $400 per ounce and it starts to exhibit a tendency to decline below this level on the open market, it indicates to the Fed that there is a developing shortage of money and spending, which threatens to reduce prices throughout the economy. By purchasing gold or even Treasury securities from the public in exchange for newly-created dollars until the price of gold returns to its target level, the Fed automatically remedies the monetary shortage and thereby offsets the tendency of the price level to decline. On the other hand, a surfeit of cash balances in the economy [surfeit means an amount that is too large, or is more than is needed] is indicated by upward pressure on the market price of gold. The Fed relieves this pressure by selling gold or securities to the public and, in the process, absorbs and extinguishes the excess dollars before the general price level can be driven up.
—Joseph T. Salerno, “Two Traditions in Modern Monetary Theory: John Law and A. R. J. Turgot,” in Money: Sound and Unsound (Auburn, AL: Ludwig von Mises Institute, 2010), 27.
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