Under the Gold Standard how does gold keep up with the growing population?
A more numerous population requires and provides a larger quantity of goods/services, but since in this case the growth in the quantity of goods/services isn't driven by market forces (it will still be the same quantity / person), the price has no reason to drop.
Example: When you have 5 people that require 10 loaves of bread / week it's the same thing as having 10 people that require 20 loaves / week.
But, the quantity of gold available is fixed. If you DO adapt all the prices so the sum of all prices at all times equals their value in gold, doesn't that mean that as an economy grows due to population growth it will continuously deflate, as there is fewer and fewer money available, when compared with the quantity of market goods/services available?
When deflation becomes so serious a problem, and alternate or secondary means of exchange can be found.
If you find something evil that wobbles, push it. - Gary North
xSFx:Under the Gold Standard how does gold keep up with the growing population?
New gold is mined at a rate of 1%-2% per year, which is sufficient to keep up with population growth.
In a true free market, there is no requirement to use gold as money. People may use silver, copper, or barter if they prefer. If the supply of gold is insufficient, then people will switch to other forms of money.
Time-deposit banking and "Bills of Exchange" allow the money supply to be legitimately increased. In a true free market, you are better off holding revenue-producing investments than physical gold. In the present, it makes sense to hoard gold, because there might be no better investment. Gold is the only investment where you get full allodial title. In a true free market, interest payments are an incentive against gold hoarding.
In a true free market, there's nothing immoral about hoarding gold. People will switch to other forms of money if someone attempts to corner gold.
I have my own blog at FSK's Guide to Reality. Let me know if you like it.
The "population growth" critique of gold's monetary function is without merit.
xSFx:the quantity of gold available is fixed
Ahh, yes. But unlike the loaves of bread, the quantity of gold does not diminish, gold is not a consumption good which is used up and destroyed. The earth's population has quadrupled over the last century, and gold is not yet in jeopardy.
Gold has been valued by people the world over for the entire record of human existence, and despite wide fluctuations in population growth (on a steadily upward trend) the production of gold has been rather slow and steady throughout the millenia and the total world stock of gold has never declined year-over-year (for about the past 600 years for which we have reliable data on the subject).
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David Z
"The issue is always the same, the government or the market. There is no third solution."
The earth's population has quadrupled over the last century, and gold is not yet in jeopardy.
Just because we're not using gold as currency doesn't mean it stopped holding value. It still largely performs its monetary function, which is why its going for $900/oz.
xSFx: Under the Gold Standard how does gold keep up with the growing population? A more numerous population requires and provides a larger quantity of goods/services, but since in this case the growth in the quantity of goods/services isn't driven by market forces (it will still be the same quantity / person), the price has no reason to drop. Example: When you have 5 people that require 10 loaves of bread / week it's the same thing as having 10 people that require 20 loaves / week. But, the quantity of gold available is fixed. If you DO adapt all the prices so the sum of all prices at all times equals their value in gold, doesn't that mean that as an economy grows due to population growth it will continuously deflate, as there is fewer and fewer money available, when compared with the quantity of market goods/services available?
It's a moot point: the population is not going to keep growing. It can't. That would require continued cheap and abundant energy sources, and it seems pretty clear that access to such is going to diminish going forward. If you graph world population vs access to forms of energy, you see the knee of the curve occurs when humanity stumbled upon energy dense resources - first coal, then oil and its derivatives - the fossil fuels. Call me crazy, but in a century or less (possibly far less), I think it highly likely that we'll be back to a billion or so.
By the way, you are also making illogical assertions here, such as 'an economy grows due to population growth' - since when does population growth drive economic growth? You seem to be confusing causality with correlation, and only at the macro scale.
This idea that 'A more numerous population requires and provides a larger quantity of goods/services' seems unsupportable to me on its face. Ever hear of Balngladesh? Or any of the innumerable other human-dense nations which rarely if ever seem to experience 'larger quantities of goods/services' - despite the seeming 'requirement'. You speak as though 'requires' and 'provides' necessarily accompany each other. This is non-factual. The whole point of the free market is not that it represents some utopia, or that it's perfect - it is that, under a TRUE free market system (unlike ours or any other on the planet - the 'Unknown Ideal' so to speak), 'provides' will have a better chance of following 'requires' than in a non-free market system. That's all. There are many posts here which exhibit magical thinking about the market and its abilities - don't be fooled. It's amazingly powerful, but it's not miraculous.
You also would do well to read up on prices, because you seem to have this backward - these are not *fixed* things that represent some inherent value of some product or service, as your posts seem to imply you think (apologies if I misinterpret you). They are merely communication signals - carriers of information if you will - which rise when the product or service in question grows scarce and which drop when that same product or service is plentiful. That is, people don't "adapt all the prices" - the prices adapt themselves to the shifting market. At which point, people adapt their actions in response to the price changes - buying more or less as their ability and preference dictate.
None are more hopelessly enslaved than those who falsely believe they are free. - Goethe
xSFx:doesn't that mean that as an economy grows due to population growth it will continuously deflate, as there is fewer and fewer money available, when compared with the quantity of market goods/services available?
As I must often repeat, there is no correct amount of money.
Money is used to establish exchange rates between goods. Any amount of money can do that.
Answer: Even if Gold didn't keep up with the growing population there would be nothing wrong with that. Take your keynesian professors' lectures with a grain of salt.
JonBostwick: xSFx:doesn't that mean that as an economy grows due to population growth it will continuously deflate, as there is fewer and fewer money available, when compared with the quantity of market goods/services available? As I must often repeat, there is no correct amount of money. Money is used to establish exchange rates between goods. Any amount of money can do that.
This is a great point - as an example, I have a neighbor who is originally from the Dominican Republic, and her mother just moved in with her. Now my neighbor wants to move her family to Costa Rica, but her mother protested because 1 US dollar equal about 500 CR colones - he mother thinks this means that Costa Ricans are 500 times poorer than Americans.
The problem with prices going down - say as in the original post, population doubles, and so does production: 10 loaves becomes 20 loaves. If the money supply is static, then each of the 20 loaves costs half of what it did before, right? But wages remain the same. Or do they? I guess this is where I have questions - in a flexible labor market, wouldn't it be as likely that wages go down, since prices would - assuming increased productivity - go up? We always assume wages must stay the same or increase for increasing prosperity, but that's not necessarily the case is it?
Or am I missing something here?
If prices trend downwards, there's no reason that wages would have to rise in accordance with increased productivity.
xSFx:But, the quantity of gold available is fixed. If you DO adapt all the prices so the sum of all prices at all times equals their value in gold, doesn't that mean that as an economy grows due to population growth it will continuously deflate, as there is fewer and fewer money available, when compared with the quantity of market goods/services available?
Let's say this is true, even though it isn't because new gold will be mined. So what? Prices will decrease as more and more goods come into existance versus the supply of gold. How did this idea that the money supply needs to expand for growth get so ingrained into popular thinking?
Stolz2525: Let's say this is true, even though it isn't because new gold will be mined. So what? Prices will decrease as more and more goods come into existance versus the supply of gold. How did this idea that the money supply needs to expand for growth get so ingrained into popular thinking?
This false idea was imprinted the same way other false ideas are spread. There's a massive propaganda and disinformation campaign, which I claim is a deliberate conspiracy. That's the reason most people believe "Taxation is not theft!" and "Government is necessary." and "Business cycles are a natural free market phenomenon."
There's nothing wrong with a constant money supply. If this is downward pressure on prices, then there will also be downward pressure on interest rates. That's good news for anyone who wants to raise capital to start a business.
ozzy43:I guess this is where I have questions - in a flexible labor market, wouldn't it be as likely that wages go down, since prices would - assuming increased productivity - go up?
Yes, wages are just the price of labor, and can fluctuate like any other price.
ozzy43:We always assume wages must stay the same or increase for increasing prosperity, but that's not necessarily the case is it?
No, it's not.
xSFx: Under the Gold Standard how does gold keep up with the growing population?
Fungability. Who cares if the coin is denominated in 1oz gold or .1oz, or .00001oz? Gold can be sliced and diced to any extent.
False. Utterly, completely, false. Someone living in the tropics has no need for a furnace to heat their house, or like me both a furnace and an air conditioner and good insulation because of the swings in seasonal temperatures. A telecommuting beach-bum requires no car, no 3-bedroom house, he would use hardly any resources compared to me.
By the same token, a single person lives in apartment, say, yet two people could live in the same apartment. The combination uses half the "living space" requirements that they had prior to cohabitating.
You're also equating "price" with "cost". Even if there are no efficiency improvements over time, a myth all by itself, a fixed quantity of the medium of exchange would simply be spread over more and more goods, changing the "price" without any change in "cost".
Yeah, so? Really, can you tell me why you <b>have to have</b> a loaf of bread bought with .1oz gold instead of .001oz gold?
I am very, very curious, xSFx, what is it about decreasing prices that frightens you?
Let me take a stab at this: We might run out of gold, and thus out of "money", and the world's economies will crash down since we will no longer be able to perform economic calculation.
The reason this cannot happen is because gold does not vanish. The consumption of gold in electrical parts and NASA space probes is miniscule. There is also the fact that as a given quantity of gold will buy more goods, finding more becomes more and more cost effective. This has always more than offset the industrial use of gold.
Lastly, there is no <i>requirement</i> that gold be used as money. Silver, copper, seashells, slaves, furs, land, equities, warehouse receipts for anything and everything, all have been and will be used as "money" again (excepting slaves, I hope) in the future. Gold was used historically only because of its stability and universallity. Rather than "gold standard", we really should use the term "commodity standard".
ozzy43: We always assume wages must stay the same or increase for increasing prosperity, but that's not necessarily the case is it?
We always assume wages must stay the same or increase for increasing prosperity, but that's not necessarily the case is it?
Careful with that "we", that's a Keynsian mind-control tool, the equation of a numeric value with an economic "value", as if a $20,000 car today is 20 times better than a $1,000 car was in 1971.
Let's look at the 19th century. Over the course of that century there was a continual, gentle downward trend in prices as industrial efficiencies improved. Yet at the same time, goods and services improved fantastically. The world went from the Brown Bess smooth-bore musket to the Maxim machine-gun, just as one example. Wooden sail ships to the Titanic. Horse and buggy to world-wide railroads and the new automobile.
The outhouse , to hot and cold running water. Whale oil lamps, to the Tesla dynamo being driven by Niagra Falls, powering lightbulbs from Canada to New York City.
In no way can "decreasing prices" be linked, except rhetorically, to decreasing standards of living. The Keynsian rationalizations of government monetary inflation are the Great Big Lies that must be crushed.
For this lie alone the razing to the ground of every goverment-run "public" school is perfectly justified.
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