Bimetallism and market distortion question.

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Phi est aureum replied on Mon, Jul 30 2012 2:38 PM

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Well, first, there would be market distortions because of the mere fact of confiscation of some of the supply of these commodities. That would tend to raise the prices or relative values of the metals, just as taxes raise prices (or costs actually, but whatever).

Second... well I'm not sure what you mean when you say if they spent the gold and silver if it were equal. There would clearly be a distortion (as well as coercion) if the government, bought 1 good X for 1 oz. gold and also bought another unit of the same good X for one oz. silver, since as far as I know, the market hasn't ever held the value of one oz. of silver to be equal with one oz. of gold.

Perhaps you could elaborate on what you mean by this.

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Phi est aureum replied on Mon, Jul 30 2012 3:35 PM

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Right, so in that case, the distortion stems basically from the fact that coercion is used to stop market actors from trading only market value. And unless the State only confiscated an approximately equal amount of wealth (in gold and silver) and then only forced sales of goods equal in that value, the distortions might be even greater, not only to the prices of gold and silver, or the goods and services they purchase, but it would likely ripple out the distortions to all other goods and services. Of course, since it needs to coerce to maintain such a policy, we can assume that it wouldn't be equal in value. And on top of that, looking at the State's ability to manage finances (whether in the policies of the spending of the legislature or the central planning of the FED), we can also safely assume they couldn't manage even approximate equivalences in value even if they tried, but this may just be due to the fact that without economic liberty and the ability of a market to function and develop freely, it's practically impossible.