Like zero amount? Thus barter?
If it should be positive how about one atom of gold? One ounce? One pound? All the rest is just wasted on coinage?
Obviously if there was just one ounce of gold in the world then the market would choose a more suitable commodity. The point is that an increase in the money supply from any given market determined level doesn’t make us wealthier, beyond the nonmonetary uses of that commodity.
Natural inflation has the seem ill effects as government inflation( inflation being defined as an increase in the money supply.)
Gold rushes are not productive times.
Increasing the production of a rather scarce commodity as gold can’t be that bad. At any rate it’s way different from increasing the amount of fiduciary media, regardless of the increasing being caused by the gov’t or by private scammers.
Correct. Gold rushes are beneficial because of gold’s non-monetary uses, but for that amount of gold’s value that is derived from monetary use it is wasted.
But the negative social effects of inflation are found during gold rushes, as well. After all, what is a gold rush but a natural bubble?
Yes, it has everything to do with the supply of money, although there are many here who would disagree. As an example, here is the conclusion to this article about Tulipmania here on Mises.org:
But what made this episode unique was that the government policy did not expand the supply of money through fractional reserve banking which is the modern tool. Actually, it was quite the opposite. As kings throughout Europe debased their currencies, through clipping, sweating or by decree, the Dutch provided a sound money policy, which called for money to be backed one hundred per cent by specie. This policy, combined with the occasional seizure of bullion and coin from Spanish ships on the high seas, served to attract coin and bullion from throughout the world.
The end result was a large increase in the supply of coin and bullion in 1630s Amsterdam. Free coinage laws then served to create more money from this increased supply of coin and bullion, than what the market demanded. This acute increase in the supply of money served to foster an atmosphere that was ripe for speculation and malinvestment, which manifested itself in the intense trading of tulips.
An increase in the money supply always drives interest rates below what they would have been w/o the increase, entrepreneurs mistake the lower interest rate for real savings, and the ABCT is set in motion. The reason why so much focus is placed on central banking and fractional reserve banking is that these are usually the cause of business cycles, but they are possible even in a system of 100% commodity reserve backed deposits when there is an influx of new money.
This is one of the few correct criticism made by the paper crowd. Too much labor is spent mining gold, as gold’s price is increased by its use as money. But it is a small price to pay for the many advantages that come from using gold as money.
I’d argue that such bubble is no different than a bubble caused by say a new mine of nickel, or platinum., or new oil wells which sooner or later will stop producing. You can call them natural bubbles or just businesses that reach the end of their cycle.
But I do agree that an increase in the amount of gold-money is ‘inflation’ of the money supply.
A boom in nickle mining is caused by an industrial demand for nickle, so a mining boom translates into an industrial boom, and then a boom in consumption. Gold is different, it is not mined to fuel production, demand is expanded without an equivalent expansion in production. When the boom is over capital has been depleted with nothing to show for it except that part of gold’s value that is due to its non-monetary uses, which is no doubt less than what was lost in gaining the gold.
Well, that sounds rather plausible. I’d say I stand corrected. What I think is not totally evident is what part of gold’s value comes from it being used as money and what part comes from other uses.
I wonder what percentage of gold was used as money when the gold-standard was in place. What if traditionally 90% of the above ground gold was used for jewelry ? Would that mean that increasing gold production is not necessarily that wasteful ?
I believe so.
It is not me who has a problem with market determined money supply.
This is an interesting recent article about an actual money shortage.
You know, before downloading that I knew it was an article from Selgin…
Good article, but its not about a shortage of money. Its about a shortage of a particular denomination.
And the point being?
Fair enough. But the point is fractional reserves were required for a solution.
Can demand ever increase without the corresponding increase in supply? Sure people may want more goods but for them to be able to demand more goods they would have to back it up with an increased ability to pay for them. That increased ability to pay for more goods have to come from an increase in production, given no wealth distribution through moneyprinting has occured… right?
Don’t you have to reject Says law for that statement to be true. Correct me if I’m wrong.
demand is unlimited…it has nothing to do with payment.
I agree that wants are unlimited. Well, if we were to use the standard neo-classic microeconomic term of demand you’d have take the budgetconstraints into consideration.
Demand defined as wants backed up with purchasingpower is limited to the extent that we can produce goods and services.
Wholly false. Also, the melodramatic tone is a joke
So scary!! Had there been no counterfeiters the industrial revolution would not have existed ! What a truly scientific assertion…