Esuric:It was in this way that those goods that were originally the most marketable became common media of exchange; that is, goods into which all sellers of other goods first converted their wares and which it paid every would-be buyer of any other commodity to acquire first. And as soon as those commodities that were relatively most marketable had become common media of exchange, there was an increase in the difference between their marketability and that of all other commodities, and this in its turn further strengthened and broadened their position as a media of exchange.
I don't think anyone ever denied this. However, this does not prove (and to be fair, you concede the point) that a paper currency could not come into existence. In fact, I would argue that it is what is most likely to happen if money were to be denationalized. Bet let us start, as you did, at the beginning. It is true that gold/silver are the most likely commodities to become media of exchange in the early stages of an economy. It is for precisely the reason you mentioned that such use was so universally practiced, for example, in the eighteenth century, both in Europe and in Asia. However, once gold has become the norm, people will, as you admit, begin to use substitutes for that medium of exchange, such as banknotes. Once at this stage, however, it is unlikely that a gold standard would continue; demand would grow for a more flexible, convenient, and stable money supply, and in order to fill that demand, institutions would move towards a currency which was not constrained by how much gold happened to be dug up that year. And what better currency than the one people are already using? Now before you quote Mises on me again, at this point paper has acquired the marketability needed, because at this point it isn't anything more than a fun fact that you can trade in your dollars for gold. Of course I concede that it is possible that the money that emerges would not be paper (perhaps a purely electronic currency), but its essential properties would remain the same.
Esuric:He's not defending government fiat currency, he's merely saying that it's valued today, because of it's value yesterday, so on and so forth, back to the days of the gold standard (along with legal tender laws, i.e., coercion).
I know.
Esuric:To say that paper money could actually emerge from natural market phenomena (with the Misesean framework), is to say that paper is so valued, that it could emerge as the most 'marketable' commodity in the economy, so valuable, that people are willing to trade paper (without legal tender laws, and never backed by anything), for everything else.
I see Oh Great One is making a straw man argument here. My statement was "I do not believe this rules out a free market paper currency from ever arising." I never said anything about paper being valued on par with any high-priced commodity like gold or silver. Using Mises's regression theorem doesn't rule out a paper currency from ever arising. One could replace "government" and "coercion" with "large banks" and "trust" to explain the rise of paper currency in a free market.
Mises Community Natural Rights Discussion Group
Landon:However, once gold has become the norm, people will, as you admit, begin to use substitutes for that medium of exchange, such as banknotes. Once at this stage, however, it is unlikely that a gold standard would continue; demand would grow for a more flexible, convenient, and stable money supply, and in order to fill that demand, institutions would move towards a currency which was not constrained by how much gold happened to be dug up that year.
There's no historical backing for this claim whatsoever. You need to distinguish between money substitutes and actual money; paper never became actual money on its own. Paper became money by decree, by force, by government coercion. We got off of the gold standard because FDR needed to inflate in order to finance the war, and to get us out of the depression (so he thought), and not because people thought paper money was more convenient, or superior to gold in any way.
Yes, theoretically speaking, paper could emerge; but my previous position stands, and Mises disagrees with you (my appeal to authority). What are people doing today? They're buying gold and silver; gold and silver are still money even to this day, they're still seen as the only real store of wealth.
The whole keeping "MV stable" bullshit is so completely not Austrian that it really pisses me off.
Esuric:There's no historical backing for this claim whatsoever. You need to distinguish between money substitutes and actual money; paper never became actual money on its own. Paper became money by decree, by force, by government coercion.
The very fact that the confiscation of domestic American gold in the 1930s was as fluid as it was gives much credibility to the fact that individuals no longer thought of gold as money, but rather the representative notes.
Esuric:We got off of the gold standard because FDR needed to inflate in order to finance the war
This is just plain false, when the Gold Reserve Act was passed in 1933 there was no war, nor even a rumbling of war.
Esuric:What are people doing today? They're buying gold and silver; gold and silver are still money even to this day, they're still seen as the only real store of wealth.
Who are there "people"? You cannot just use such a general term when making such an assertion, while it is true that many are buying gold, and silver - I highly doubt that over 10% of the American population owns bullion.
I am becoming a Burkean Whig.
- F.A. Hayek
laminustacitus:This is just plain false, when the Gold Reserve Act was passed in 1933 there was no war, nor even a rumbling of war.
Yes, I misspoke there. But gold standards have been traditionally removed by the state in order to finance wars; that's just historical fact. FDR was listening to 'intellectuals' like Fisher and Keynes, who were making a similar type of argument, namely that gold was archaic and inefficient. Also, are you saying that the gold reserve act wasn't coercive? That people were actually willing to give up their gold for pieces of paper? If this was the case, the government wouldn't have had to put people away for 20 years for noncompliance.
laminustacitus:Who are there "people"? You cannot just use such a general term when making such an assertion, while it is true that many are buying gold, and silver - I highly doubt that over 10% of the American population owns bullion.
There's a movement around the entire world for gold. China, Saudi Arabia, Russia, as well as individuals, are seeking to protect their own wealth through the purchase of gold. Gold continuously hits record highs. One ounce of gold today buys you a nice suit, that same 20 dollar gold coin, 80 years ago, could buy the very same nice suit. The purchasing power of gold has remained CONSTANT, even though it hasn't been a legal medium of exchange for a very long time.
I don't understand the positions held by many on this forum. You seem to be Defending FDR's theft of private gold (at least marginalizing it), others support paper money installed by decree, and yet others talk about keeping "MV" stable (utterly meaningless). How can one support these positions with an Austro-libertarian framework?
Esuric: Also, are you saying that the gold reserve act wasn't coercive? That people were actually willing to give up their gold for pieces of paper?
No, but all this shows is that the transition was incomplete; obviously there were still people who valued gold as a currency itself, but by and large people no longer conceived of gold in this way. However, in a free market monetary system such action would not be necessary, because people would move towards a paper or paper-like currency gradually and of their own free choice; after all, there would be no coercive apparatus for banks to force people to hand over their gold.
Also, just because something retains its purchasing power, doesn't mean its still "money". A money has to be accepted as a medium of exchange, else it is just a highly-valued commodity.
Landon:A money has to be accepted as a medium of exchange, else it is just a highly-valued commodity.
........
Esuric:........
Was that supposed to be a refutation?
Landon:Was that supposed to be a refutation?
So do we agree that the mechanical approach to quantity theory ignores human action, that the variable "V" is utterly meaningless (in economics), and that the most valued/marketable commodity becomes the monetary unit (absent legal tender laws)?
Landon:However, in a free market monetary system such action would not be necessary, because people would move towards a paper or paper-like currency gradually
You can't defend this claim. No society has ever moved towards paper currency voluntarily; unless you're conflating money with money substitutes again.
Ludwig von Mises Institute | 518 West Magnolia Avenue | Auburn, Alabama 36832-4528
Phone: 334.321.2100 · Fax: 334.321.2119
contact@Mises.org | webmaster | AOL-IM MainMises
Mises.org sitemap