Why do so many austrian economists not heed his advice? I just finished reading his book Principles of Economics and at the end of the book he has a section about money, and, he argues that metal has no real value, and that he even goes as far as to agree with people who say that its value is imaginary. Why do austrian economists not take his advice?
Also, I really liked his book because it’s the first book of Austrian economy that I’ve read where the author doesn’t go out at the end and say “we need a gold standard, gold standard good, paper money bad.”
I’ve never known any Austrian to believe anything had any intrinsic value. Generally, Austrians support a gold standard over fiat because under a standard inflation is kept low (as its quite difficult to create gold) and its historically been more stable.
Most Austrians seem to support free banking, though.
Peter Schiff justifies Gold as money based on its inherit value. I’ve heard him many times. He is clearly wrong or simply using bad terms to explain why Gold is valued as money. He is confusing many people.
You can open up any economics textbook (I have my Intermediate Macro by Mankiw handy) and they will say that commodity money has “intrinsic value” that paper does not. Are they talking aboukt objective value, or some sort of labor theory of value? No. The “intrinsic value” of commodity money just means that commodities, like gold and cigarrettes are useful and desirable for purposes other than as money. Green pieces of paper do not.
When Austrian economists talk about a “gold standard” they are usually not talking about a government enforced gold standard (except in a historical context). When Ron Paul or someone talks about going back to a “gold standard” they almost always are talking about competing currencies and free market money.
Every single Austrian economist that I know of heeds Menger’s advice. I’ve never heard a single Austrian economist state that any monetary standard, whether it is metal or paper or something else, has any “inherent” value. The entire concept of “inherent value” is completely foreign to the Austrian school of economists. Ask any Austrian economist what determines the value of money, and s/he will state that supply and demand determine the value of that money. A gold standard could feasibly be worth less than a paper standard if the supply for both were roughly the same and the demand for paper money were much higher.
First of all, Peter Schiff is as much of an economist as Ron Paul. In other words, he isn’t. Schiff is simply an investor and a leader of a financial firm.
Secondly, where has Schiff stated that gold has “inherent value?” I’ve never heard him say that.
No commodity has inherent value. All value is derived from utility for the given person. Specifically, utility to reach desirable ends (which all relate to relieving psychic unease as Mises would put it in Human Action).
Not really a black-and-white issue. Above all, Austrians understand that all value is subjective. In that sense, nothing has value (since value is not a characteristic of a thing, but rather an independent and subjective appraisal of the thing’s worth to a specific person in specific circumstances).
However, lumps of gold qua lumps of gold have little-to-no value in use, that is, as standalone items they are not capable of enhancing man’s well-being in a Robinson Crusoe economy. This is probably the closes approximation I could give for “intrinsic” value, i.e., a loaf of bread has intrinsic value. A fishing pole has intrinsic value. A piece of gold can only have value in a market, and only then if other people are willing to trade other items for it.
In this context, and in a market-based economy, gold has quasi-inherent value insofar as it continues to be a desirable commodity, on account of its being widely desired and in short supply.
I excuse Schiff because I am deluded (ha!) to think i know what he meant to say, in the minute he was pushed to explain gold money to a lay audience. he underlined the difference between commodity money and fiduciary media as that when the trust [Latin fīdūciārius, from fīdūcia, trust; see fiducial.] that it has use a a media of exchange dissappears, you still have gold, and whatever the real qualities of gold are (gold is intrinsically gold), which you can then go about subjectively valuing a lot, or not at all.whatever. compared to the paper money, which entitles you to nothing, and so there is not this material object to start casting your subjective valuations upon.
Schiff took a thymological shortcut, whoop-de-doo. I’ve pounds of paper ready to exchange for your gold. Neither has intrinsic value but I recognize the nature of the materials and a varied history of preference for them. Without the state they diverge.
While it is true that no commodity has intrinsic value(that is no commodity has value unless it holds some value to the consumer), and while it’s also true that the ‘legal tender’ somehow seems to bring in value to bits of paper, paper does not still pass the test of free money.
While gold and silver were selected as money for their intrinsic characters which suited their role as money, paper money was sneaked in fraudulently.
Just imagine you are in Crusoe’s world as the second member. Would Crusoe really exchange his fishes with you for green papers? So while gold and silver derived their values first serving as commodities with uses other than as a media of exchange, the paper money was a tool of coercion.
And another essential character of natural money is that it must be limited in supply, to justify it’s status as an ‘economic good’. Paper money sadly has quite frequently, in world history, shown why it’s a free good(during times of hyperinflation). If the market were allowed to run a free course at the end of hyperinflation, be sure green paper bits won’t pass the test of money.
