Many un-Austrian economists will tell you that there is simply not enough gold in the economy for a Gold Standard to ever be implemented. Is there any truth behind these claims?
My understanding is that all the gold ever extracted from the earth in human history would make a cube just a couple meters shy of the length of a tennis court, or would fill an olympic swimming pool. 170,000 tons sticks in my addled brain, but I can’t swear to that. Just how much is available in private hands, or hoarded in bullion banks and government depositories, to serve as money, I can’t say. Interestingly, hoarding is bad if we do it, but is just fine for banks. My feeling is that those who say there is not enough gold to back a standard are not making allowance for gold to be valued proportionally to the quantity of fiat currency in circulation now. I saw one estimate putting the value of gold at $40000+ per troy ounce if that were to be the case. Incidentally, it is estimated by some market analysts that there is now less silver above ground than gold. Being a metal that is industrially depleted.
There’s currently no gold in circulation.
There’s plenty of gold to create a gold currency. The concept of there not being enough gold is only a myth.
This is one of the more common objections. In the mises.org wiki on gold, a very handsome and smart person wrote:
1. There simply is not enough gold for it to be used as money.
This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”
Hoppe writes:
Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs. [Source]
The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.
However much gold there is, is enough. It doesn’t matter what is used for this explanation: gold, silver, platinum (which is much less). I’m trying to pick out things that last over time, food rots, houses decay, but otherwise anything will do.
What changes with time is the value of the thing, not the amount of the thing. Compare this value idea with Federa Reserve Notes which we now use. The price of bread goes up over tine meaning that the value of bread has gone up relative to the amount of dollars needed to buy it. (This is the normal case becuase the Federa Reserve Board likes a steady 2% inflation constantly.) Now when the price of bread goes up, relatively the value of the dollar has gone down.
Gold would act the same way. The value of whatever is used as money is realtive to the prices in the economy.
We divide dollars into cents. If you are thinking about carrying physical gold coins around, that’s certainly possible. But instead of makeing very, very small coins, we’d probably use silver as we historically have, for smaller amounts. Then the price of silver would be set at some ratio to gold. That price would not change with the value of gold.
On the other hand, the Treasury could issue paper notes redeemable in the gold they own. Then we would just use paper as we do now, but this paper would be 100% backed by gold and redeemable in gold.
While the replies that have been made are good, I believe that it is as simple as the last part of MatthewWilliam’s reply…
I don’t believe it is necessary to complicate it any further then that!
Then why bother with a gold standard for that matter. Why cant we create a new unit of money “pink dollar” or chinese proposed univeral currency. and never increase its total ammount ever. forexample if there are 10trillion of universal units are availabe toaday and even after 10000 years it remains the same ammount.
whats wrong with that?
i am asking a question and not trying to argue
Technically, nothing at all is wrong with that, in theory. The problem lies in this bit:
Paper or digital money can be increased ad infinitum by anyone who isn’t “we” (in other words, that wise and benevolent government). It just becomes too tempting to inflate the currency to finance government activities.
Try inflating gold, however.
Thats easy to say when the prices we see today are just nominal- inflated.
First of all it has no real value. It would still be fiat currency which would only be used because the government wants it to. This removes a check on money creation because the cost to produce non-commodity money is very low.
Second I don’t believe that you could have a government currency completely secured from the government itself. They will do what they always do and ask for “temporary powers” in the event of an “emergency”.
Third lets just assume that hell freezes over and that the supply never increases. This is also not ideal because while supply wont change the demand for money will. Under a free banking system inflationary and deflationary pressure of money demand will be tempered by increases and decreases in supply.
That would be optimal, but it will never happen
What would be optimal, and what would never happen?
If there would be too much inflation in the dollar, then the gov’t only needs to abolish the cents. That’d drastically decrease the number of monies out there, and hence halt inflation.
No metal can be used as money, unless there exists at least X tons of it. What is the weight of a digital fiat money bank account?
Gold was impossible to use as money in the 1800s, because there was simply too little of it around. But luckily, since then much more gold has been dug up, and therefor it might be possible to use gold as money today.
absurd? just a little?
I recommend you read Money by Murray Rothbard to introduce you to some basic issues and answer some basic questions so you can get more out of asking the community.
In particular, I think your main question in this thread is answered in chapter 8, which considers the question of how much money constitutes the “proper” supply of money and asks if an increase in the supply of money benefits society.
Money is at its root just a commodity like any other. Anything could be exchanged. But like any commodity put to a specific purpose, certain characteristics fill this need better than others, so moneys tend to be selected for those characteristics. Some of those characteristics include durability, portability, and homogeneity. In the case of your proposals, one thing that makes gold a better money is that it is harder to counterfeit gold than it would be to create a new pink dollar or chinese universal “dollar.”
Who wants a gold standard?
I want competing currencies, I want freedom.
Hallelujah.
3 things.
First, I agree with Block that the quantity of money does correspond to social value, and that the free market will choose the optimal quantity of money, in addition to the optimal commodity to serve as money. This clearly suggests there may simply not be enough gold for gold to monopolize the money market. For instance, if total population, total production, and total money exchanges expand greatly while money supply remains constant, eventually, people will be required to trade microscopic pieces of gold.
People may counter that goods or services could be invented to overcome these obstacles. For example, gold banking…or the use of scales and microscopes able to quickly identify authentic gold dust. However, is such economically optimal?
People might be better off using a different commodity rather than gold which requires such supportive goods and services at some point.
Second, NEVER EVER fix prices. This is especially true between gold and silver. Such would simply cause Gresham’s Law to take effect, driving one or the other out of circulation.
Third, commodity money has many benefits over non-commodity money. Establishment as money must stem from prior prices - commodities will naturally have prices in any market setting and can occur without centralized organization. Commodity money has no counter-party risk - it is what it is and it has value because of what it is (one could argue that threat of government violence is always a counter-party risk, however). Commodity money’s supply cannot generally be manipulated. Even in renewable commodities like rice, expected supply firmly depends on nature-given factors, which are not subject to change due to human decisions.
Thank you for all the answers
I realize that protection against counter fit currency would be a problem. However countries (china) which have huge reserve currencies would ensure that other countries(eg us) would not counter fit those units. So i thought it would be self regulating due to conflicting interest of net saving countries and net spending countries. * any flaws in this argument?*
I just dont like the idea of basing all transactions on gold which is for all practical purposes a useless metal. and then there is a problem that countries like R. South Africa would be able to cash in on demand of money just on basis that they have huge reserves of gold. That seems to be unfair on other countries.
And what exactly is a “pink dollar”? A useless piece of paper?