Same here. I’m also reading some economic textbooks from college, but I’ve read about velocity in Austrian literature as well, so I’m pretty sure they don’t say it doesn’t exist. That is not to say they share the Keynesian view on it’s effects, but surely they are not in denial about it.
Sorry if I sounded like I was accusing you of generalizing or something. I think you made some very good points in this thread, and I said that because I’d hate that you turned your back to the Austrian school because some fools in the forum don’t know their economics. The actual scholars I’m sure have enough of economics to spend extra time in online forums.
This is really focusing on an odd part of the equation and doesn’t make any sense. Millions of people don’t have the money to spend on yachts. Why don’t they have this money that is mysteriously clogged up elsewhere in the economy? Why aren’t banks offering free yachts when you open an account with them?
This must explain why central banks are sending government checks back for insufficient funds, being autonomous institutions and all.
It’s not the end of the story. Block and Barnett state explicitly that they are challenging the mainstream Austrian view, which is properly described in previous posts in this thread.
I have my own criticisms of this paper. For one, they are thinking collectively when they state that the Mises/Rothbard position is that adding monetary gold is “socially valueless” and thus a “case of ‘market failure’”. While it’s true that gold adds no value to the wealth of society overall, it certainly adds value to the wealth of the miners and thus is not a case of market failure.
The other objection I have is that they don’t seem to realize that in setting up their scenario that they are changing the nature of gold, making it into something other than gold. Specifically, they posit what would happen if there was only a tiny bit of gold, but one of the properties of gold is that it’s found in relative abundance, and that it’s indestructable so there is always a growing amount of it. By theoreticizing away one of the fundamental properties of gold, you create a psuedo-gold that might prove your point but has little application to the real world.
In short, this paper criticizes but by no means refutes or replaces the traditional Austrian view.
Wow. It’s like they read my mind. Those quotes from Mises and Rothbard explain alot, and I don’t mean about the truth of the question at hand.
I try to avoid calling “end of story” on the word of some presupmptive authority, but I will defer all my future arguments to that paper, it says all I have to say on the matter.
I don’t know of anything that isn’t dependent on faith for its value. You have faith that any particular product will be the means to your end. You can’t really know, for certain, that this will be the case. Since everything is only valuable insofar as someone places value on it (i.e., nothing is intrinsicately valuable), all values are, at some level, based on faith in the product.
The problem with fiat currency is not that it is “based on faith” but rather that it was determined by fiat, instead of by market processes. If the market, for whatever reason, led to the adoption of a currency that is exactly like the dollar - i.e., unbacked paper notes - that would still not be a “fiat currency” and would be just fine. And if the government adopted a gold standard, while it would be better from the perspective of limiting inflation, the gold-backed currency would still be a fiat currency. Again, the distinguishing feature is not the nature of the money, but rather how the money was arrived at.
Well put Morty, thanks for the perspective; although I think it is an unspoken agreement here that no coercive institution should be charged with creating/controlling/regulating the money supply. My understanding is that most Austrians believe that the gold standard is what would be chosen by the free market, rather than what should be imposed on it. This seems to be a point many non-Austrians often miss. Even Ron Paul has made this point (although probably not enough): it doesn’t really matter in the end if the gold standard is or is not viable. The market would determine this, and without the need for review and debate by central planners, alternative systems would be employed almost instantaneously.
Nonetheless, it is still of great use to debate the viability of the gold standard, regardless of how it would come to be.
Wait, so ceteris paribus, an increase in the supply of money will not increase prices? I agree it won’t happen instantly, it will take time. It may not happen in proportion to the increase in supply because of no expectations of inflation, etc. But how could he say it won’t happen at all? Or maybe I’m just taking this out of context.
That’s my understanding as well. The math cannot be deterministic since there is human volition involved. We can look at tendencies, general directions, etc., but even then not always and not reliably.
I think they right and their critique is to the point. What do you mean by that there is increase in the wealth of miners but not of society and market failure? In this thread you argued increase in money supply is somehow bad unlike in the production of cars for example even if there is commodity money. What is so bad about gold mining?
Nothing, IMO. It’s quite useful, in the normative sense, for prices to remain relatively stable as opposed to falling down to hard-to-use increments. And gold has uses other than monetary uses.
I agree with the above criticisms and would add my own. The entire Barnett and Block article is based on a blatant misrepresentation of Rothbard’s views and fundamental misunderstanding of the nature of commodity money on the part of the authors.
Yet, Barnett and Block contend the opposite, and without providing any quote to that effect.
Gold may be used as money, or may be used in other applications. But always and forever, the stock of monetary gold and of commodity gold is one and the same. In fact, gold is often used in both roles simultaneously; for example, jewelry. In addition to it’s beauty, one of the prime reasons to buy gold jewelry is because it’s gold content is valuable and recoverable. A gold ring is merely a more portable form of gold coin, and surely was used as money long before any coin was ever struck. In oriental cultures, I believe it still is the tradition to “wear your wealth” by accumulating all sorts of gold jewelry as a form of savings.
This error that money is somehow separate from gold is one that’s been promoted since ages ago by Kings and rulers as the first step along the road of debasement. This insidious process is intricately described by Rothbard in The Case Against the Fed.
Use is what matters. Human action and all that. Gold has no inherent quality of “moneyness”, it’s use determines that. Gold (or silver) that is being used for ornament or goods is not used as money, and, in general, remains so unless it is the only form of gold available to a person who requires some. And it has to be converted, even if the conversion amounts to no more than a decision to trade it for something based on its weight instead of its subjective value as ornament or good - the latter being foregone by doing so (a fact overlooked by your mention of it merely being in an inconvenient form for exchange). That decision, and the actions proceeding from it, effectively add new gold to the stock used as money - as forming raw gold into ornament or goods effectively removes gold from the monetary stock. Examples of the former abound, even today, when high prices cause lines to form for people to cash in their old jewelry, silverware, and collectible coins. If these people had bullion in their possession for savings or investment, they would not be cashing in their jewelry.
In the west as well, tradition encourages the giving of jewelry to brides, and the possession of goods made of precious metals by families as protection against dramatic declines in wealth or income. Again, these are not used as money, nor as savings, though their value is in part based on the fact that they can be brought quickly to the same purpose served by savings. They are valued primarily for the functions they perform: ornament for jewelry, utility for things like silverware. It is their easy conversion to money that recommends gold and silver for the manufacture of these items, not their immediate use as money.
