No. In fact a collapse of the economy in the US and or the anywhere else in the Western world is not likely either. The more likely scenario given the sizes of the economies and the perpensity of their governments and central banks for desctruction is to have these economies go down with a whimper.
Look at some of the nations of Europe, France is the usual suspect, they are just going along with their socialism in a never ending slow growth mode. Just as the US blew past them the other countries of the world India, China and Brazil in particular will do the same.
India, China and Brazil will blow by the US as well as the US is hardly immune from the Triple Towers of Destruction: Fiat Money, Government Spending and a Militant Foreign Policy.
Anonymous Coward: ...
I'll just quote and respond inline, since there's a lot to deal with here.
When gold becomes scarce people have more incentive to search out more of it and when there is an abundance it is less economically feasible. Basic supply and demand, 'money' isn't different than any other good in this regard.
So you agree that the ability to increase the supply is beneficial, and will be demanded by the market? Good.
Except for cases of people genuinely taking money out of circulation, like burying it in the back yard (and even then it still has a value as a place in someones cash holdings), money is always owned by someone and is in use. Not like water at all which becomes unowned as soon it is released back into the 'wild'.
I can't find any way to relate this to what I said.
But this seems to be a case of treating money as different in some way from all other goods, I'm not too familiar with the whole velocity of money fallacy so can't comment too much on why you're wrong here.
No, I'm treating it the same as all other goods. There's nothing at all special about money. Are you saying the idea that money has velocity is a fallacy? Or are you arguing against some other pet peeve that you think I am implying?
You can take the price of a Model T and throw it into the government's online inflation calculator and find out that you can get a new car today for the same price that someone paid almost a hundred years ago. With all that 'regularly falling prices' one would expect the auto industry to be (non-morally) bankrupt by now.
Again, I'm finding it hard to tease a point out of this...
Another point is that there was constant and continuous deflation during the 19th century
Simply false.
You make the assumption that non-monetary uses of the commodity would negatively effect its supply to the extent that is would be a problem when the opposite in probably more likely to occur -- the extra value that the commodity gains from its monetary role will make it non-economic to be used in previously profitable production methods. Substitutes will be found &etc...
Wrong again. I said nothing about supply, I specifically mentioned demand. Nor did I say anything about any specific effect on demand, up or down. I said that competing uses leave the commodity you are using for money subject to non-monetary fluctuations in demand, with the resulting non-monetary fluctuations in market price. This makes it unsuitable (or less suitable) as money, for one thing because to use it as a storage of value, you are effectively also holding a speculative position in some industrial commodity. As to it's monetary value causing it to be less desirable for industrial uses, that is also true. But then that is just a case of a poor choice in money interfering with other uses.
If I'm not completely incorrect the Greatness of the Deflation was mostly propaganda by those who wanted silver to be bought at a loss to the government thereby transferring wealth from the many to the owners of the silver mines. Or maybe it was to keep the peg to gold at an artificially low(high?) level so they could profit. Something like that, too lazy to look it up.
It might help to be less lazy. There was in fact a deflation that lasted over twenty years. This had an effect on farmers, who more than most small businesses (which they mostly were at the time), relied on borrowing to fund their seasonal cycle of planting and harvesting. Bryan's populist remedy was bimetallism, adding a silver standard to the already existing gold standard so as to inflate the money supply and allow farmers to more easily repay their loans.
No doubt there was propoganda on both sides, and neither had the best answer to the problem (keep government away from currency issuance and management), but understanding what happened during that time is still informative.
The state won't go away once enough people want the state to go away, the state will effectively disappear once enough people no longer care that much whether it stays or goes. We don't need a revolution, we need millions of them.
A-R:The trap "histhasthai" is falling into is his blatent misuse of the term "deflation". Deflation is a decrease in the physical quantity of the money supply, not a decrease in prices of goods. Prices of goods can fall for many reasons, just one of which is deflation. However, speaking of the "price level" of goods falling as "price deflation" is misleading doublespeak.
I was very clear that I was talking about a reduction in the supply (though relative to demand, not in absolute terms, if that's your quibble), and used the qualified "price de/in-flation" whenever speaking about prices. Sorry you chose not to notice that.
The rest of your post is apparently arguing against someone else, (and I agree in principle with your main points). I was talking specifically about a hypothetical and nonsensical scenario someone else posited in which increased productivity of the commodity used for currency backing was a priori ruled out. He was arguing for a permanently fixed money supply.
Guys, the last couple of responses I replied to sound like people arguing against what they expect to hear, rather than what I am actually saying. Is there any way we can clear that up so we are at least arguing about the same thing?
histhasthai: When gold becomes scarce people have more incentive to search out more of it and when there is an abundance it is less economically feasible. Basic supply and demand, 'money' isn't different than any other good in this regard. So you agree that the ability to increase the supply is beneficial, and will be demanded by the market? Good.
Yeah, but not increased through some Ponzi scheme like you're proposing. Increased like every other good, by mixing land and labor -- the only known way that real wealth can be created.
histhasthai: No, I'm treating it the same as all other goods. There's nothing at all special about money. Are you saying the idea that money has velocity is a fallacy? Or are you arguing against some other pet peeve that you think I am implying
No, I'm treating it the same as all other goods. There's nothing at all special about money. Are you saying the idea that money has velocity is a fallacy? Or are you arguing against some other pet peeve that you think I am implying
So if money is the same as other goods then the velocity of money == the velocity of goods.
If you're a corn farmer who wants to buy a TV you are trading your corn for a TV with money being the intermediary step to solve the double coincidence of wants problem (and other issues). Does the farmer need to calculate the velocity of corn or his neighbor the velocity of chickens?
What's the velocity of my labor since I produce absolutely nothing in the entrepreneurial spirit?
It's an absurd concept.
histhasthai: You make the assumption that non-monetary uses of the commodity would negatively effect its supply to the extent that is would be a problem when the opposite in probably more likely to occur -- the extra value that the commodity gains from its monetary role will make it non-economic to be used in previously profitable production methods. Substitutes will be found &etc... Wrong again. I said nothing about supply, I specifically mentioned demand. Nor did I say anything about any specific effect on demand, up or down. I said that competing uses leave the commodity you are using for money subject to non-monetary fluctuations in demand, with the resulting non-monetary fluctuations in market price. This makes it unsuitable (or less suitable) as money, for one thing because to use it as a storage of value, you are effectively also holding a speculative position in some industrial commodity. As to it's monetary value causing it to be less desirable for industrial uses, that is also true. But then that is just a case of a poor choice in money interfering with other uses.
Wouldn't the monetary value change in direct proportion to the amount taken out of the supply for non-monetary uses?
I fail to see how this 'speculative position in some industrial commodity' is any worse than a constantly devalued currency when taking storage of value into account. In fact, an increase in demand of a money would increase its value in relation to other goods and would seem beneficial to the individual who is holding it.
Yes, debtor farmers would be hurt from having to pay back more than they borrowed (isn't that the whole point of interest?) but to change the market dynamics of a currency to benefit one group while hurting another isn't really the method that is acceptable to some people.
So you are left with a choice; a currency that constantly devalues, one that increases in value or let it float in relation to other goods based on market forces. I only see one option that is acceptable on a Free Market as the first two would need some outside influence to guarantee that the value moved in the 'correct' way.
histhasthai:It might help to be less lazy. There was in fact a deflation that lasted over twenty years. This had an effect on farmers, who more than most small businesses (which they mostly were at the time), relied on borrowing to fund their seasonal cycle of planting and harvesting. Bryan's populist remedy was bimetallism, adding a silver standard to the already existing gold standard so as to inflate the money supply and allow farmers to more easily repay their loans.
Bimetallism that had one pegged to the other.
So while this would help the farmers it would hurt savers, the folks that provided the capital the farmers needed to operate.
Still doesn't address the issue that industry as a whole was creating real wealth at an astounding rate during this time. Perhaps this is the true cause of the price deflation that lasted over twenty years.
Same things can be seen today, I haven't heard anyone claim that deflation is hurting the computer industry or the auto industry (the point I was making earlier).
Nope, I don't buy in to the quantity theory of money...
Anonymous Coward: histhasthai: When gold becomes scarce people have more incentive to search out more of it and when there is an abundance it is less economically feasible. Basic supply and demand, 'money' isn't different than any other good in this regard. So you agree that the ability to increase the supply is beneficial, and will be demanded by the market? Good. Yeah, but not increased through some Ponzi scheme like you're proposing. Increased like every other good, by mixing land and labor -- the only known way that real wealth can be created.
Hold on a minute, let's get this one thing straight first. I never suggested any scheme, ponzi or otherwise. I only said that the supply can and should increase in response to demand. For the record, I have said before, but I'll repeat it to be clear: I think the market will respond to increased demand with increased supply. I think that only the market should do so (I'm counting voluntary, open, and non-monopolistic FRB as being within the market, but as someone else said, that is an argument for another thread.) I am arguing here from an assumption of no monopoly currency, commodity backed currencies with strict convertibility, no central Reserve Bank, and no government regulations on currency or banking - an anarchistic environment where anyone is free to start a bank or a currency on any terms they want, subject to acceptance by the market through voluntary exchange.
As to fractional reserve/receipt banking, I only bring that up as a possible response to certain kinds of market demands. I think it provides benefits, and so will likely be offered and accepted in the market, but my assertion that the money supply can and should increase in response to demand in some way is in no way based on the assumption that that method needs to be, or will be, FRB. FRB is completely a side issue to this discussion.If it bothers you, we can leave it out entirely, assume a context of no FRB at all, and everything I said still stands.
Isn't that completely in accordance with your statement above? In any case, I agree with it entirely.
histhasthai:Isn't that completely in accordance with your statement above? In any case, I agree with it entirely.
Sounds good to me. I just have this 'money isn't special' fetish and am opposed to any theory that doesn't treat it like any other good.
OK, off to measure the velocity of beer...
Anonymous Coward:I just have this 'money isn't special' fetish and am opposed to any theory that doesn't treat it like any other good.
I do too. Of course, every commodity has unique qualities - gold is not the same as silver is not the same as corn - but in the context of analysis as an economic good, there is nothing special about money.
One quality money does have is that it is not consumed in normal use. That matters only in that certain of its qualities take on more importance than in other qualities. The velocity of corn is probably a technically a valid concept, but it is irrelevant because corn is not used as money. Just as the electrical conductivity of corn - which is probably not zero - does not matter because it is not used for electrical applications. In the context of money, the velocity does matter. And velocity is simply this: the inverse of the length of time between economically meaningful uses. If money sits for a week in between exchanges, it does less work in a month than money that only sits a day between exchanges.
I brought this up in the context of refuting another poster's claim that the money supply need not ever expand. Aside from the divisibility issue, the fact that money's velocity can never be infinite simply means that in a tight enough supply, money itself could become illiquid. Taken to an extreme example, if one single ounce of gold was the entire money supply for an entire town, it is possible that anyone wanting to make an exchange using it would have to wait to do that transaction until that ounce gets around to them. But again, I am not saying this could happen in a free market, it is a reductio ad absurdum to an assertion by another poster.
histhasthai: A-R:The trap "histhasthai" is falling into is his blatent misuse of the term "deflation". Deflation is a decrease in the physical quantity of the money supply, not a decrease in prices of goods. Prices of goods can fall for many reasons, just one of which is deflation. However, speaking of the "price level" of goods falling as "price deflation" is misleading doublespeak. I was very clear that I was talking about a reduction in the supply (though relative to demand, not in absolute terms, if that's your quibble), and used the qualified "price de/in-flation" whenever speaking about prices. Sorry you chose not to notice that.
I did not choose to ignore your qualification of "price deflation". My quibble is with the fact that you are misleading yourself by thinking in terms of imaginary aggregates related to some general "price level".
The problem with speaking in those terms is that you're conflating two radically different ideas: one is strictly monetary, and the other is due to increases in productivity in certain specific industries, or due to changes in consumer preference, etc. It does not suffice to say that the supply of money is being reduced "relative to demand" since demand is both subjective and heterogeneous. To you, demand for money may be increasing because you value highly those goods which are being offered in increasing quantity (or quality) against money. I may see no value what-so-ever for those particular goods and see demand for money in entirely different terms, ie. relative to those other goods which I desire most urgently.
histhasthai: The rest of your post is apparently arguing against someone else, (and I agree in principle with your main points). I was talking specifically about a hypothetical and nonsensical scenario someone else posited in which increased productivity of the commodity used for currency backing was a priori ruled out. He was arguing for a permanently fixed money supply.
I'm not sure what you mean by increased productivity of the commodity used for currency. My entire post was attempting to address your circular argument that expected "price deflation" would result in a dearth of investments. In fact, expectation of price decreases ("deflation") simply create valuable signals in the economy that those particular goods in question (or even all goods if that was the case) are no longer desired as urgently and that further investment would be wasteful.
histhasthai: Looked at another way, the interest rate at which someone will loan money is the subjective opportunity cost of forgoing the immediate use of the money, plus a risk premium, plus the expected rate of price inflation. Should the rate of inflation be far enough negative, it would imply a negative interest rate. Since keeping it under the mattress pays 0%, it's a better deal than loaning it at a negative percentage.
Looked at another way, the interest rate at which someone will loan money is the subjective opportunity cost of forgoing the immediate use of the money, plus a risk premium, plus the expected rate of price inflation. Should the rate of inflation be far enough negative, it would imply a negative interest rate. Since keeping it under the mattress pays 0%, it's a better deal than loaning it at a negative percentage.
The interest rate (+storage cost) on any good, including money, will never be less than zero. If it ever was, there would be an obvious arbitrage opportunity to borrow the good, store it, and pay it back at the lower future value and keep the difference as profit. If the prices of some goods are dropping at a certain rate relative to money, it simply means that the interest rate calculated in terms of those goods will always be that much higher.
For example, If two of today's computer chips are expected to be no better than one produced one year from now at the same unit cost, then clearly the interest rate on borrowed computer chips must be at least 100%. Likewise for any good expected to be cheaper in the future.
It's a mistake to expect so-called real (normalized) interest rates to tend to zero when there is so-called economic "growth". Interest rates normalized to some price index must necessarily be higher than the expected decline in that index.
Money is likely to have one of the lowest interest rates of all commodities, low opportunity cost for holding it being a desirable feature. It is therefore said that interest rate on money tends to zero as time preferences drop. It will never reach zero as long as there is any opportunity to employ capital productively. However, the interest rate on money will always get bid sufficiently above zero to finance all productive investments in need of financing.
The ability to increase the supply of money is most definitely not beneficial. One of the most important qualities of gold as money is precisely the inability to increase it's supply. As a money, it is not perfect in this respect, but there are few other known commodities which exceed gold in their difficulty in being inflated (except for maybe platinum group metals) and that also share the other desirable aspects: durability, portability, divisibility, etc.
it hits a limit when, for instance, a loaf of bread costs one one billionth of an ounce of silver
I imagine there is something less valuable than silver that might be used when we get there. Don't you think? Copper, maybe. Or whatever the market decides.
And try finding that hundred-billionths of an ounce you dropped on the floor while trying to take it out of your pocket.
Now, why do you assume anyone would be so silly as to physically carry around this stuff? I am quite certain that by the time we'd be using billionths of an ounce we could have nice little devices for everyone that would automatically make these transactions, no need for carrying the money. Or we could always use - gasp - certificates that had some backing of silver/gold/whatever and you could pick your hundred-billionth up at the bank if you wanted it, or just put it in your account.
To you, demand for money may be increasing because you value highly those goods which are being offered in increasing quantity (or quality) against money. I may see no value what-so-ever for those particular goods and see demand for money in entirely different terms, ie. relative to those other goods which I desire most urgently.
Of course. Yet it is valid to talk of an aggregate demand. It may not be strictly measurable, but it exists, and we can talk about it increasing or decreasing in broad strokes. The discussion was about if demand for money - not relative to other commodities, but qua money for the purpose it serves - increases, for whatever reason, by any measure, what are the implications of a permanently fixed supply.
Again, that was not what I was talking about. I said that if the money supply does not increase relative to the demand, if no more can be produced, that money itself will become more expensive. Is that untrue?
The interest rate (+storage cost) on any good, including money, will never be less than zero. If it ever was, there would be an obvious arbitrage opportunity to borrow the good, store it, and pay it back at the lower future value and keep the difference as profit.
Correct. That is why I used that outcome as an example of a dysfunctional outcome of the ridiculous concept of a permanently fixed money supply. I said that interest rates would never go below zero, yet a strong enough and persistent enough expected deflation - meaning future money is more expensive than present money - would imply negative interest rates. The obvious contradiction was used to support my point that the market would not tolerate such conditions - it would seek to increase the money supply. If that was not possible - due to the aforementioned ridiculous assumption of a fixed money supply - lending would cease.
Correct again. I'm not sure why you think that is a rebuttal to anything I said.
Unless the real cost of borrowing becomes so high that business or individuals cannot recoup their financing costs. Again, a dysfunctional condition that the market would desperately seek to correct - unless it can't because by some magical reality distortion field (or coercion) the supply is capped.
See, here, where do you get that? Of course gold allows for an increase in the money supply. Ever heard of mining? It still goes on, you know. They haven't found and extracted all the gold in the earth's crust, unless there was some big news I missed.
I could just repeat what I said about the impossibility, and even if somehow possible, the economic havoc, of a permanently fixed supply. The only thing I can think of to make sense of this is that you are arguing against an increase of the supply by fiat. Of course I am not advocating that, never have. Either I'm misunderstanding what you are trying to say, or you are completely out of touch with basic, readily apparent reality. I doubt it's the latter.
Morty: it hits a limit when, for instance, a loaf of bread costs one one billionth of an ounce of silver I imagine there is something less valuable than silver that might be used when we get there. Don't you think? Copper, maybe. Or whatever the market decides.
I addressed that. If the money supply is permanently fixed, the demand will eventually outstrip the divisibility of whatever you choose to back money with.
Morty:Now, why do you assume anyone would be so silly as to physically carry around this stuff? I am quite certain that by the time we'd be using billionths of an ounce we could have nice little devices for everyone that would automatically make these transactions, no need for carrying the money. Or we could always use - gasp - certificates that had some backing of silver/gold/whatever and you could pick your hundred-billionth up at the bank if you wanted it, or just put it in your account.
I don't assume anyone would be that silly. That's the point, a fixed money supply that makes whatever commodity is backing it so valuable that you have to divide it that finely leads to that kind of silliness.
As to only using currency, and never dealing with the backing commodity, you lose the basis for the money altogether. The ability to deal with the backing commodity directly is what the market requires to discipline the currency. If currency is not convertible in any amount - either due to it being fiat to begin with, or due to the physical difficulty of handling the backing commodity - you end up relying on the same thing that a fiat currency depends on for its value: faith.
histhasthai:Of course. Yet it is valid to talk of an aggregate demand. It may not be strictly measurable, but it exists, and we can talk about it increasing or decreasing in broad strokes. The discussion was about if demand for money - not relative to other commodities, but qua money for the purpose it serves - increases, for whatever reason, by any measure, what are the implications of a permanently fixed supply.
Well sure, if you're only speaking subjectively (or relative to some arbitrary index of goods) then we can each estimate our personal value for aggregate demand. But it's value has to be somehow assessed relative to other commodities, regardless of which index of commodities you choose. What purpose does money serve, except in relation to other commodities? Lets just assume for the sake of argument that we do agree on some specific definition for the demand for money.
histhasthai:Again, that was not what I was talking about. I said that if the money supply does not increase relative to the demand, if no more can be produced, that money itself will become more expensive. Is that untrue?
Sure, what's wrong with money becoming more expensive? Holders of money are rewarded for having delayed consumption and having allowed their previously created wealth to be used towards productive ends.
histhasthai:Correct. That is why I used that outcome as an example of a dysfunctional outcome of the ridiculous concept of a permanently fixed money supply. I said that interest rates would never go below zero, yet a strong enough and persistent enough expected deflation - meaning future money is more expensive than present money - would imply negative interest rates. The obvious contradiction was used to support my point that the market would not tolerate such conditions - it would seek to increase the money supply. If that was not possible - due to the aforementioned ridiculous assumption of a fixed money supply - lending would cease.
How are negative interest rates "implied"? Who would loan out money at a negative rate?? A low rate of interest on money would be equivalent to a higher rate of interest on other goods. Anyone loaning those goods at an insufficiently high rate to make up for their price drop is simply making a calculation error and a loss, ie, misallocating resources.
histhasthai: It's a mistake to expect so-called real (normalized) interest rates to tend to zero when there is so-called economic "growth". Interest rates normalized to some price index must necessarily be higher than the expected decline in that index. Correct again. I'm not sure why you think that is a rebuttal to anything I said.
You said interest rates would be negative. No one would knowingly lend commodities at a rate insufficient to make up for a drop in value of those commodities. If that's correct, then interest rates in money terms will not be negative.
histhasthai:Unless the real cost of borrowing becomes so high that business or individuals cannot recoup their financing costs. Again, a dysfunctional condition that the market would desperately seek to correct - unless it can't because by some magical reality distortion field (or coercion) the supply is capped.
This is not a dysfunctional condition at all. If businesses cannot recoup their financing costs, they are misallocating resources. Either prices are dropping because other businesses are doing a better job at satisfying consumer demand or prices are dropping because consumers express a decreasing demand for those products. Perhaps due to increased uncertainty, consumers prefer to increase their relative demand for money. In either case, the investments are totally unjustified with respect to the desires and time preferences of consumers and would result in a destruction of wealth!
In the event that all businesses were somehow mislead into making such malinvestments, driving prices on all consumer goods below costs of productions (is this what you're implying?), then it's especially necessary for the most squanderous of them to liquidate their assets until factors of production are bid down and consumer goods are bid up sufficiently to make production profitable. This process occurs almost immediately as information is available to speculators in an unhampered market.
You seem to be forgetting that prices are determined by economic reality. Prices don't just preemptively fall on their own.
histhasthai:See, here, where do you get that? Of course gold allows for an increase in the money supply. Ever heard of mining? It still goes on, you know. They haven't found and extracted all the gold in the earth's crust, unless there was some big news I missed.
I specifically said that gold was NOT the ideal money precisely because it can sill be mined. However, gold has been mined for thousands of years. In any one year it is impossible to increase the gold supply by very much at all. I read someplace that all the world's mines working at full capacity could only increase the gold stock by about 2% in one year. Do you know of any commodity less susceptible to changes in supply and that possess the other desirable monetary properties that gold has?
If there exists such a better commodity, I'm sure the free market would end up adopting it. Maybe silver, platinum, etc... It's completely ludicrous to think that individuals would voluntarily choose a more inflationary money, other things being equal, for the purpose of propping up businesses unsuccessful at generating positive returns. The market is not some collectivist entity. Individuals will seek to use the money that they expect to best conserve their personal wealth. Of course gold miners will continue to mine gold as long as it is profitable to do so. But as far as gold's monetary applications go, they are not contributing to the wealth of society, unlike other profitable enterprises.
A-R:I specifically said that gold was NOT the ideal money precisely because it can sill be mined.
Are you seriously suggesting that the best course of action with regards to gold-backed money - all coercion aside, if it could be done voluntarily somehow - that the best course of action would be to cease all mining entirely?
A-R:Of course gold miners will continue to mine gold as long as it is profitable to do so. But as far as gold's monetary applications go, they are not contributing to the wealth of society, unlike other profitable enterprises.
You're serious?!
I'm curious, to anybody else lurking here, is this the prevaling opinion on this site? Is this what Mises and other Austrians believe?
Stranger:If the amount of inflation was kept constant, there would be no economic contraction. What creates booms and busts are the changes in policy of the central bank. When it chooses to inflate, it creates a boom. Wheni it can no longer tolerate inflation, it creates a bust.
That is the correct starting point. The question then becomes whether the central bank must necessarily inflate. I think theoretically it can stand pat into perpetuity. Practically and politically, I think inflation is just too irresistible.
From my reading of Mises, he seems to think that once started the policy of inflation must continue until the currency collapses; I'm not so sure. It's a question I've seen debated in several forums with no conclusive answer.
histhasthai: A-R:Of course gold miners will continue to mine gold as long as it is profitable to do so. But as far as gold's monetary applications go, they are not contributing to the wealth of society, unlike other profitable enterprises. You're serious?! I'm curious, to anybody else lurking here, is this the prevaling opinion on this site? Is this what Mises and other Austrians believe?
It's a very subtle point and he's making it with a hammer, but I think he's essentially correct. The US Mint creates finely engraved pieces of paper that are valued by numismatists for a value they regard as intrinsic to the object. However, to the extent these pieces of paper are used as the mere medium of exchange, increasing their quantity does not increase wealth.
Same with gold. The Spanish conquered a land where there was so much gold they were practically using it to make spittoons. So what happened? The cost of goods such as saddles, blankets, food, etc., skyrocketed in terms of gold coin.
The medium of exchange simply needs to be durable, portable, in universal demand, and in sufficient quantity so that we're not, like you say, measuring transactions in millionths of an ounce. Copper, silver and gold all qualify. To the extent the market demands greater quantities then, as was also pointed out to you, the market would find another substitute. Iron or zinc maybe. Vodka, tobacco and cowhide are good too since, while not durable, they are practically infinitely renewable.
I'm not sure there is a school outside of the Keynesians who believe increasing the money supply will do anything to increase wealth, no matter what form the money supply takes. The medium of exchange has indirect, not direct, value, in its capacity as such.
-Jon
To darkness I condemn you...
That's right. Given the scenario excludes gold's industrial and entertainment uses (e.g. jewelry) and looks at it strictly as money, then production of gold doesn't contribute to a societies overall wealth but instead transfers wealth from non-miners to miners.
This is Milton Friedman's primary objection to the gold standard (besides the fact that it prevents Monetarism) -- that it "wastes" some human productivity. By his reasoning, fiat currencies are better because they don't cause this "waste" (ignoring all the other problems they create).
"He that struggles with us strengthens our nerves, and sharpens our skill. Our antagonist is our helper." Edmund Burke
histhasthai:I'm curious, to anybody else lurking here, is this the prevaling opinion on this site? Is this what Mises and other Austrians believe?
Most people here I'm sure are not economists as a career choice, they are merely interested in it (I see some folks here using "==" as equal, so you can see they are software developers), and so their knowledge on economics might be a bit shaky. Naturally, an economist is already surrounded with other economics and already spends his time discussing it, has likely spent a lot of time in this particular subject, so people here will tend to be either students or from an unrelated field. Don't generalize what some people say in a forum to what the Austrian school stands for.
I am not an economist myself, but I certainely agree that the velocity of the circulation of money affects the price of things. If money is being used elsewhere, people will bid prices down because they don't have it to spend. (this is basic stuff from Fisher's Equation of Exchange) And there are good reasons why you want the money supply to expand, like the divisibility problem you mentioned. Most central banks are autonomous institutions, and so it's entirely possible you can have a fiat currency in a free market for money if the central bank operations are done transparently. Most people might prefer to store their wealth in gold or some other hard asset -- or invest in stocks or something -- but that's already true, so I believe it's entirely possible a fiat currency can win as the medium of exchange.
Equality before the law and material equality are not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time. -- F. A. Hayek in The Constitution of Liberty
BlackSheep:Don't generalize what some people say in a forum to what the Austrian school stands for.
That's why I asked, I don't want to make assumptions, and I'm only starting to learn what the actual Austrian positions are. I'm not an economist either, but I've done some self-study.
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