Indeed, I live in argentina. Your deduction was accurate =]
That’s possible. The local slang term form money here is not ‘lana’, though. Maybe that word was/is used in countries in central america where wool was more important as a commodity ?
I read the Barnett & Block article, and it seems to me to be largely a semantic dispute of importance comparable to that of how many angels can dance on the head of a pin (particularly the part about the ham sandwich). A few points, however, I thought deserved mention.
No one is arguing that it should be illegal to mine gold, but the fact remains that holders of gold are harmed economically by the mining of additional gold. This is because the reason they acquired the gold is not that they value it more than what they traded for it, nor that they think they can find someone else who does. Instead, they acquire the gold because they expect that someone else will later be willing to trade other goods for the gold for the very same reason. This means that a decrease in the value of the gold (relative to other goods) results in a net loss when the person tries to trade the gold to someone else. By contrast, if you buy a house and it later decreases in value, then you suffer economic loss only if your intention was to sell the house to someone else. If your intention was to actually live in the house, then a change in its market value does not affect you, and so the building of new houses is of no concern to you.
This is not true. Mining gold “leeches value” away from existing gold in the same way that printing fiat money leeches value away from currently existing fiat money. The result is that more resources are devoted to the mining of gold than would otherwise be if gold were not used as money. To be fair, this distortion is small compared to those caused by government printing of money, but it is there nonetheless.
I would argue that in a purely free market, gold would have little or no value as money. (I know that’s an extraordinary statement, but one which I would like to discuss.) People own gold as a store of value especially in times of war and political turmoil because it provides certainty. Even today, the price of gold goes up when the government starts messing with the economy. It is therefore not unreasonable to believe that increasing the freeness of the market will also diminish the value of gold.
So basically, gold is considered valuable because gold is considered valuable? If this is so, then the value of gold is not stable at all; on the contrary, it is vulnerable to a sudden and irreversible loss of value if for some reason its value decreases enough to undermine people’s expectations that it will continue to maintain its value. This would cause a harmful shock to the economy. I am arguing that this will be brought about by the development of an efficient decentralized currency/barter system, and so it is best to adopt this system as soon as possible and bypass the gold standard altogether.
This means that the ideal commodity to use as money is something that is rare, homogeneous, easily divisible, and has absolutely no non-monetary value whatsoever. But how could this commodity end up being used as money in the first place? If I tried to convince people to start accepting, in exchange for real goods, a form of money that is completely useless even as a paperweight, they would rightfully point out the fundamental irrationality and arbitrariness of such behavior.
Imagine that you could cast a magic spell on some gold coins such that on a certain future date, they disappear and then reappear in your pocket. Thus, the default risk for you can be reduced to zero, and the risk is essentially passed on to someone else. Now back in the real world, I think it is possible to simulate this by using warehouse deposit certificates with expiration dates.
was it in purely free markets that the metals arose as popular moneys in the first place?
maybe a few dictums from various gods that pushed them along too perhaps.
i guess when gold for non money use is mined - benefit does occur.
if one gets 100 oz gold investment and is able to mine 200 oz of gold , i suppose whatever amount sold that isnt used for commodity use would be kept as surplus inventory or coined.
did any new coin leech value?
i suppose it historically was a market function of the mine to provide inflated money to money-fy bartering-producers (who accepted gold/silver) in many areas and the coins were good media.
outside of that there was a diminishment of PP of the existing coin.
was there another market factor that would spur individuals to want inflated metal coin that diminishes in PP? maybe there were “net benefits” beyond the value leeching that took place.
ill have to do some research.
i wont get into magic spells.
but i cant see how gold money can be unsustainable.
Right, it is what I wanted to say, that that discussion could be interesting but it is not relevant to your main question.
Well, there are some points to be considered. In a pure free market, gold price doesn’t reflect only current gold quantity, but also future gold quantity. I assume that additional gold will be mining. Current holders would be harmed if, for instance, a revolutionary mining technique is discovered. Gold price reflects available information.
OK, this is the real statement to be discuss. Gold has been money. It is not money now, but it was money, and it was money in peace time. Imagine that magically government dissapear and our dreams of freedom come true.
Do you think that gold as money would be impossible in a free society?
If your answer is ‘no’, then you are either contradicting yourself -of course, I discard this option- or finding a market failure as Barnett & Block affirms.
If your answer is ‘yes’, then either you are contradicting what has happened in history -again, I discard this option- or thinking that the state of technology would make gold as money an impossible option, in the same way that if you leave to free market the decision about travelling from Anchorage to Ushuaia, donkey transportation will not be the answer.
I assume that your answer is the last one. Well, in that case, who knows. Free markets have found amazing solutions for every imaginable need. I would bet that gold would arise as the main winner, with other competitors finding their own niches, but it is not more than a bet in an hypothetical situation that unfortunately governments are not going to let it happen. Whether it is in a traditional way or in tools such as e-gold, I don’t know, nobody knows, but to me, gold still has the best set of features to become good money.
How? It is irrelevant. The fact is that situation has existed. The alternative to no-money is barter. The alternative to gold-money is another free-market money that if it is a commodity your concerns are not solved, and if it is not a commodity, I have no idea how to solve your question on how is used in the first place. Then, the only obvious alternative that will solve that is a government money, that it is clear that it does not work and made us slaves of their decisions.
Who knows, maybe free markets find that option, no idea how. Anyway, risks always exist. It could be default, it could be that gold is stolen, whatever. There is no certainty for any future outcome.
From what I gather, you are arguing against any increase in money.
In which case the money supply should never increase, there by stabilizing prices according to the money stock already in use… …
And what about services and costly durable goods (like cars and houses)? How do you store value in this omniscient barter system?
Yes, I think that’s what I’m getting at.
Even if everyone in a fiat-money economy knows the rate at which money is being printed, value still gravitates towards the people printing the money because they are the ones who get to spend it first. Likewise, because newly-mined gold is not proportionally distributed among all current owners of gold, value gravitates towards the people who get to spend the new gold first.
The alternative I’m thinking of is a system whereby each individual prints their own paper money (or its electronic equivalent) with the guarantee that they will buy it all back at some future date. There are still some problems with this approach, which I’ll probably start another thread for; but the purpose of this thread is to determine whether an alternative to gold money is necessary at all. I argue that it is, for the reasons I stated, even though I don’t know precisely how the alternative would work.
im not sure whether you are just stating a fact or making a further claim that this is something ‘bad’?
im afraid you are onto a loser with this one…
Is that not the same thing some of you have against fiat money or fractional reserves?
fiat money is fraudulent by virtue of a confusion of contracts or in other words multiplying claims to property, this is a moral bad. the cantillion inflationary effects cited are tipped in the favour of those closest to the political apparatus of the state.If the state has resources it can use to inflate the money supply, ie. wages it can pay to its bureacrats, budgets to finance the operation of its treasury, and its police and judicial system to make sure the fiat system has no rivals and is protected then the inflation it produces is a by-product of prior moral outrages (in addition to rewarding those who are political favoured as mentioned above)
whereas
people who dig and then refine gold are certainly not committing moral bads. Yet, it is a fact that people who dig up new gold will be able to bid more for products than they could have otherwise. the cantillion inflationary effect is tipped in favour of people who have stocks of something (say gold) that they are merely putting to use when engaging in consensual capitalist acts
Just like people who dig more iron or nickel or any other commodity. Or produce more computers, or engage in any ‘real’ economic activity.
I’m not sure what the cantillon inflationary effect is. Increasing the supply of commodity X used as money is different from increasing the supply of unbacked/partially backed paper used as money.
If a producer of iron increased the production of iron ppl would not say that he’s “inflating the supply of iron” would they ?
to explain myself in my terminology
regardless of whether the money supply is inflated in a context of free market commodity money (i.e. discovery of new gold mine sites)
or government fiat money expansion, the new money enters the economy , not evenly, but to ‘first receivers’, so the ‘price increase’ associated with money inflation are felt unevenly amongst the population, this is an insight that Cantillon first gave us.
Yes. My point tho was that ‘inflating’ the supply of paper is not the same thing as increasing the supply of commodity money…as we both perfectly know =]
Now…
If a producer of gold increases the supply, he’s certainly able to bid more goods and services – that’s his ‘payment’ for being a better producer so to speak. This is no different than a better producer of iron making more profits thanks to increased production. And of course, increasing the supply of any commodity makes it cheaper or ‘devaluates’ it.
And those facts are also true with respect to counterfeiters. Producing more bank bills enables the producer to turn a bigger profit and at the same time decreases the value of bank bills.
Furthermore, since value is not a material quality of objects, and, whatever people value has ‘value’, it follows that valued bank bills are no different than valued gold.
There must be some sophism there…
I’m not saying that gold mining is “bad” in a moral sense, only that this leeching of value makes it profitable to mine more gold than if gold were not used as money. The effect that this has on the overall economy is small but non-zero.
What do you mean?
The reason why this is not referred to as “inflating the supply of iron” is because iron is not used as a medium of exchange. When someone buys or trades for iron, they do so either because they can do something useful with it, or because they believe that someone else will come along who can make good use of it—not because they believe that the iron can continue being passed on indefinitely from one person to another without ever actually being used, as is the case with gold and government fiat money.
I don’t think so. The reason is that the terminology is not really consistent.
“the terminology is not really consistent”
does that include every word in your post?
this phrase is true for money.
it is not logically impossible for iron to be passed around without being used. just as it is not impossible for some gold to stop being passed around and be put to use.
‘leeching value’ by being the miner of new gold either passes or fails the profit test. if an entrepeneur sets out to mine more gold and makes a loss, then as you say the overall effect on the economy might be small, non -zero, and under post-ante analysis to have been a loss.
whereas, if it is profitable to expend costs in pursuit of new mined gold, this shows that the miner has delivered a net benefit to the market. the markets profit rewards in this case, is a ‘thank you for leeching’. this is probably due to demand for gold for ‘other than money uses’ rewards the suppliers of new gold who service this, or that peoples desires to hold largers gold cash balances rewards the mining ‘leechers’.
of course if leeching become so great that the devaluing effect made miners who mine take lossess for mining they would soon stop this unrewarding and unnecessary mining activity, at least until it was necessary and rewarding again.
mining gold under free market commodity money is not a problem.
Hopefully not.