I assume a gold standard implies a government controlled gold standard?
Does a forced monopoly on the money supply by the government offer something better than a free market money supply aka competing currencies?
i.e. in your freemarket world, would a shopkeeper who posts prices in gold, tell someone that offers him silver, what the hell this isnt money, go away, or will he say, 'i dont usually take silver but if you pay a markup, i'll do the trade'
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK: i.e. in your freemarket world, would a shopkeeper who posts prices in gold, tell someone that offers him silver, what the hell this isnt money, go away, or will he say, 'i dont usually take silver but if you pay a markup, i'll do the trade'
And I'm supposed to know, how exactly?
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
you answer assumes that gold is the only money. so the shopkeeper would reject calling the silver offered money and would call it a barter good.
I agree.
nirgrahamUK: you answer assumes that gold is the only money. so the shopkeeper would reject calling the silver offered money and would call it a barter good.
I've never said anything of the sort, I can't tell you what the shopkeeper will do, that's beyond praxeology. I can make a fairly well established claim, using praxeology, that one commodity will outcompete the rest.
Try reading what I wrote again.
give me some context to understand outcompete. its meaningless jargon otherwise. i have demonstrated two possible interpretions and their entailments. if there are other interpretations , one of which you are using, it would be kind of you to share it.
GilesStratton:it's nonsensical to refer to the former as a monopoly and it is the former that will prevail.
i concede this particular point. it was used more as metaphor. i wished to describe a situation that would look to a 3rd party as though a monopoly situation, even though due to lack of coercion it would not be a political monopoly. i hope this didnt throw you off understanding me.
nirgrahamUK: give me some context to understand outcompete. its meaningless jargon otherwise. i have demonstrated two possible interpretions and their entailments. if there are other interpretations , one of which you are using, it would be kind of you to share it.
It's hardly meaningless jargon, rather it's an essential part of any market economy. It simply means that all/ the vast majority of people will set their prices with regard to this particular commodity as opposed to another, and most people will hold stocks of this particular currency as opposed to notes giving them access to some mysterious "bundle" as advocated by Hayek.
i was just saying that i can easily agree with the vast majority. and i find the idea that it could be all quite incredible
vast majority does allow for substantial minority, and i would be fine to describe the system as multiple commodity money economy, even if in everyday talk i adopted the conventions of the day and chose to ignore the competing currencies and focus on the dominant money; i.e. when making a simple argument that doesnt require the redundant complexity.
I hope we dont differ on this. I understand if what I have written seems pernickity in light of this. Its only we came down this thread because it seemed like there was a more fundamental disagreemetn going on. but perhaps there really isnt.
nirgrahamUK:i was just saying that i can easily agree with the vast majority. and i find the idea that it could be all quite incredible
That's beyond the scope of praxeology. It is impossible to tell if everybody will adopt the currency or if only a very sizable majority will, the fact of the matter is however, there will be a tendency towards universal agreement on the currency, and those who refuse to adopt the currency will have to pay an economic price for not doing so.
Can gold and silver circulate as money simultaneously? As long as each have a value independent of one another, maybe. Supply / demand for each will be determined by both their demand as money and their non-monetary uses. This will change the demand for each metal differently with respect to the goods it can be exchanged with.
Now, to say that 5 ounces of silver has equal value to one ounce of gold will fail as money. It is obvious price fixing of two separate commodities that have individual unique supply & demand. The under valued metal will grow scarce and be hoarded as per Gresham's law. Having said that, how does one perform economic calculation of profit and loss if there are two independent monies? The exchange rate between gold and silver will always be changing. When foreign companies borrow foreign currencies there are always exchange rate risks to profit and loss, and exchanging labor for wages in one currency while having to pay a debt in another currency is also a risk. If one were to borrow money, will they borrow in gold or silver? When they earn money will they demand gold or silver? They could diversify and trade in both monies, or they could just simplify the scenario and single out one and stick with it. I believe it would be easier and likely that one would be singled out as the chosen money.
I prefer the idea of a single commodity money over Hayek's free market currency basket concept.
1. As well as in case of inflation, in case of a deflation not all prices will will change simultaneously for the same percent. Even the natural deflation threatens of infringement of the relative prices, what causes cyclical flucftuations.
2. People originally used gold because of its physical properties: uniformity, divisibility, a keeping. But if we come back to the gold standard, we will not use gold. Even at the today's prices the least coin will approximately cost USD100. And with transition to the gold standard the price will essentially jump up and will be constant to grow further. So we will use either banknotes or electronic (non-cash) money. Gold will be used only in calculations between banks.
So why in that case any other raw resource or a set of resources cannot be used as the reserve goods? Don't you think, use of a basket of several key price indicators will not provide stabler money (and the price of gold always fluctuated)? Isn't better to put eggs in different baskets?
3. It is necessary to remember, that gold in transactions will practically not be used. We will use banknotes. These banknotes will grant the right to their owner to get certain quantity of gold. But if the emitter will go bankropt, he will not be able to fullfill liabilities. So gold standard does not give a 100% guarantee.
Now we will consider system of competitive currencies (Hayek's proposal). The competition will force the emitter to support the currency at certain level (for example to support stable the price of a basket of the goods).
So what of the gold standard?
At the same time private money has few advantages:
- larger flexibility to global changes (for example, reduction in price of procedure of synthesis of gold);
- Possibility of producing stabler money (probably the competition will allow to receive a universal measuring instrument of the general work cost );
- We cannot estimate probably, some advantages today at all. After all the free market is the most powerful generator of new conveniences and possibilities.
Sorry for me english. Will be thankfull, if you will show my mistakes.
Bodia:1. As well as in case of inflation, in case of a deflation not all prices will will change simultaneously for the same percent. Even the natural deflation threatens of infringement of the relative prices, what causes cyclical flucftuations.
Cyclical fluctuations are the result of intertemporal discoordination as the result of new credit coming on to market for loanable funds. Unless you can somehow prove that deflation will somehow causes this discoordination, it simply is not true that deflation will cause cyclical fluctuations, by which I presume you mean the boom bust cycle.
Bodia:2. People originally used gold because of its physical properties: uniformity, divisibility, a keeping. But if we come back to the gold standard, we will not use gold. Even at the today's prices the least coin will approximately cost USD100. And with transition to the gold standard the price will essentially jump up and will be constant to grow further. So we will use either banknotes or electronic (non-cash) money. Gold will be used only in calculations between banks.
Electronic money is only feasible because it can base itself on the dollar, Mises' regression theorem shows that any good that is used as a medium of exchange must have, at some time, had use value. This simply isn't true and as such the idea of electronic currency replacing the dollar in untenable.
Bodia:So why in that case any other raw resource or a set of resources cannot be used as the reserve goods? Don't you think, use of a basket of several key price indicators will not provide stabler money (and the price of gold always fluctuated)? Isn't better to put eggs in different baskets?
What are "several key price indicators"? That's an entirely subjective question and the goods in question can only be arbitary. Besides that, a "basket of goods" attemtping to act as money goes against the entire function of money, which is to permit an extension of the division of labour by removing the restriction of a double coincidence of wants that was formerly imposed upon trade. The holder of two currencies that represent different baskets are in a state of barter vis - a - vis one another, not only that but any calculation in terms of these currencies, will not, and can not be entirely rational.
Now, you're also not addressed how this currency would come about. A medium of exchange becomes a money because it is more highly saleable than the rest of its competitors, and yet, a basket of goods can never be more saleable that its competitors because one of its competitors will be the most saleable good in the basket.
As for stability of the accounting unit, why would gold not fulfil this purpose? It has been argued that in a gold standard we would see a falling price level, as long as this was foreseen be entrepreneurs there is nothing wrong with this.
Bodia:3. It is necessary to remember, that gold in transactions will practically not be used. We will use banknotes. These banknotes will grant the right to their owner to get certain quantity of gold. But if the emitter will go bankropt, he will not be able to fullfill liabilities. So gold standard does not give a 100% guarantee.
Actually it's highly likely, due to the necessity of renewing bank notes (e.g. B buys good from A, B gives banknote to A, B stops paying the money to the bank for storing the gold that he has paid to A, unless A immediately withdraws note from the bank, A will have to a premium) it is likely the most small transaction will be conducted in gold and individuals will constantly be withdrawing gold.
As for going bankrupt, this is not possible if the issuer of notes maintains a strict 100% reserve policy, so it is a seperate issue from that of whether or not it is feasible to have a gold standard, raising that issue only obfuscates the issue at hand.
Bodia:Now we will consider system of competitive currencies (Hayek's proposal). The competition will force the emitter to support the currency at certain level (for example to support stable the price of a basket of the goods).
And Hayek has been refuted by Hoppe, Rothbard, Mises and others. His suggestion doesn't even conform to Mises' regression theorem. In any case, what level is this and how do you measure it?
GilesStratton:Unless you can somehow prove that deflation will somehow causes this discoordination, it simply is not true that deflation will cause cyclical fluctuations, by which I presume you mean the boom bust cycle.
Prices have varying flexibility. Thus relative prices wil be distorted. Hence discoordination.
If the relative price of product A will be temporary higher it will cause too much production of it. Of course, it is not such a big problem as undercharged interest rate, but it is still a problem.
GilesStratton:Electronic money is only feasible because it can base itself on the dollar, Mises' regression theorem shows that any good that is used as a medium of exchange must have, at some time, had use value. This simply isn't true and as such the idea of electronic currency replacing the dollar in untenable.
I wrote in that paragraph about alectronic money and banknotes based on gold.
GilesStratton:What are "several key price indicators"? That's an entirely subjective question and the goods in question can only be arbitary.
That qustion becomes objective, when free maket (not you or me) will decide what is the answer.
GilesStratton:Besides that, a "basket of goods" attemtping to act as money goes against the entire function of money, which is to permit an extension of the division of labour by removing the restriction of a double coincidence of wants that was formerly imposed upon trade. The holder of two currencies that represent different baskets are in a state of barter vis - a - vis one another, not only that but any calculation in terms of these currencies, will not, and can not be entirely rational.
The currencies will have their own commodity prices. As the price of any product, that commodity prices will depend on various other prices (sacondary. primary all prices of course are the functions of rarity).
There is no big difference between money and non-money. Protected banknote isn't only a piece of paper. Such money can be similarly rare as gold.
GilesStratton:Now, you're also not addressed how this currency would come about. A medium of exchange becomes a money because it is more highly saleable than the rest of its competitors, and yet, a basket of goods can never be more saleable that its competitors because one of its competitors will be the most saleable good in the basket.
That basket has mostly informational function. People will decide in short term what money are better according to the difference in their fluctuations. In long term, more global factors weill be decidive. And that will show what measure is better (among different baskets and models, including simple gold).
GilesStratton:individuals will constantly be withdrawing gold.
Why they will do it?
1. Gold coins will be imposiible to use in small transactions.
2. In big transactions we usually do not use cash. It is not only because of goverment restrictions, but also because of inconvenience and danger.
GilesStratton:As for going bankrupt, this is not possible if the issuer of notes maintains a strict 100% reserve policy, so it is a seperate issue from that of whether or not it is feasible to have a gold standard, raising that issue only obfuscates the issue at hand.
Every money except the cost of gold will have additional cost (in private coinage system). And that cost can fall off anyway.
Talking about FRB, in competitive currency system, it will be almost impossible. In monopoly gold standart system it requires additional decision of goverment. Another advantage of Hayeks proposal - it will kill FRB.
GilesStratton:In any case, what level is this and how do you measure it?
It is very hard question: what money are best? Stable in their quantity, or dependent on number of people and labour productivity. As I wrote before, market will decide.
Before it was very hard to measure the price of labour. So people didn't use that in money supply. But may be the quantity of money have to correspond with it.?
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