The flexible standard is an instrument for the engineering of inflation. The only reason for its acceptance was to make reiterated inflationary moves technically as simple as possible for the authorities.
In the boom period that ended in 1929 labor unions had succeeded in almost all countries in enforcing wage rates higher than those which the market, if manipulated only by migration barriers, would have determined. These wage rates already produced in many countries institutional unemployment of a considerable amount while credit expansion was still going on at an accelerated pace. When finally the inescapable depression came and commodity prices began to drop, the labor unions, firmly supported by the governments, even by those disparaged as anti-labor, clung stubbornly to their high-wages policy. They either flatly denied permission for any cut in nominal wage rates or conceded only insufficient cuts. The result was a tremendous increase in institutional unemployment. (On the other hand, those workers who retained their jobs improved their standard of living as their hourly real wages went up.) The burden of unemployment doles became unbearable. The millions of unemployed were a serious menace to domestic peace. The industrial countries were haunted by the specter of revolution. But union leaders were intractable, and no statesman had the courage to challenge them openly.
In this plight the frightened rulers bethought themselves of a makeshift long since recommended by inflationist doctrinaires. As unions objected to an adjustment of wages to the state of the money relations and commodity prices, they chose to adjust the money relation and commodity prices to the height of wage rates. As they saw it, it was not wage rates that were too high; their own nation's monetary unit was overvalued in terms of gold and foreign exchange and had to be readjusted. Devaluation was the panacea.
The objectives of devaluation were:
1. To preserve the height of nominal wage rates or even to create the conditions required for their further increase, while real wage rates should rather sink.
2. To make commodity prices, especially the prices of farm products, rise in terms of domestic money or, at least, to check their further drop.
3. To favor the debtors at the expense of the creditors.
4. To encourage exports and to reduce imports.
5. To attract more foreign tourists and to make it more expensive (in terms of domestic money) for the country's own citizens to visit foreign countries.
However, neither the governments nor the literary champions of their policy were frank enough to admit openly that one of the main purposes of devaluation was a reduction in the height of real wage rates. They preferred for the most part to describe the objective of devaluation as the removal of an alleged "fundamental disequilibrium" between the domestic and the international "level" of prices. They spoke of the necessity of lowering domestic costs of production. But they were anxious not to mention that one of the two cost items they expected to lower by devaluation was real wage rates, the other being interest stipulated on long-term business debts and the principal of such debts.
(from Human Action)(emphasis added)
"It would be preposterous to assert apodictically that science will never succeed in developing a praxeological aprioristic doctrine of political organization..." (Mises, UF, p.98)
What we learn in standard Macro is that Fed decrease of interest rate means more investment, which increases GDP so yay.
This post by Graham Summers at Phoenix Capital Research illustrates the point I'm trying to make:
http://www.zerohedge.com/contributed/2012-12-12/and-thats-checkmate-bernanke
Summers writes:
In simple terms, QE fails to generate economic growth or jobs. End of story. The BoE spent 20% of the UK’s GDP on QE (a truly staggering amount) and more people are unemployed now than when it started. And GDP has yet to get even close to its pre-Crisis highs.
The same can be said of Japan which has implemented QE over 20% of its GDP. There, as has been the case in the UK, there is no evidence that QE has created jobs or even economic growth.
So the Fed is flat out lying in its claim that QE will create jobs. There is no evidence that this QE does this. So the Fed is announcing this new program for a different reason.
But as Mises writes:
In this plight the frightened rulers bethought themselves of a makeshift long since recommended by inflationist doctrinaires. As unions objected to an adjustment of wages to the state of the money relations and commodity prices, they chose to adjust the money relation and commodity prices to the height of wage rates. As they saw it, it was not wage rates that were too high; their own nation's monetary unit was overvalued in terms of gold and foreign exchange and had to be readjusted. Devaluation was the panacea....
...However, neither the governments nor the literary champions of their policy were frank enough to admit openly that one of the main purposes of devaluation was a reduction in the height of real wage rates. They preferred for the most part to describe the objective of devaluation as the removal of an alleged "fundamental disequilibrium" between the domestic and the international "level" of prices. They spoke of the necessity of lowering domestic costs of production. But they were anxious not to mention that one of the two cost items they expected to lower by devaluation was real wage rates, the other being interest stipulated on long-term business debts and the principal of such debts.
In other words, Bernanke isn't creating more jobs by "kickstarting" the economy. He is creating more jobs by lowering wage rates through currency devaluation. He is creating more jobs. He just doesn't want to say that the way he is creating them is by lowering wage rates so that more wage earners can be hired.
QE > Kick start economy > more economic activity > more employment
QE > increase commodity prices relative to wage rates > equals lower wage rates > equals cheaper to purchase labor > equals lower unemployment
Also, this from Human Action, 3rd rev. p. 777:
Lord Keynes considered credit expansion an efficient method for the abolition of unemployment; he believed that "gradual and automatic lowering of real wages as a result of rising prices" would not be so strongly resisted by labor as any attempt to lower money wage rates.
Cf. Keynes, The General Theory of Empoyment, Interest and Money (London, 1936), p. 264)
6. Steal real wealth from the poor by reducing the purchasing power of their wages and savings as the poor have the lowest percentage of their wealth in real assets. Here are the biggest losers and winner:
Biggest Losers:Miniorty Men giving via anti-Social in-Security to old white and Asian women.
Soon to be Biggest Losers: Student loan payers who are behind on payments giving to Feds.