An interesting case study of this would be Douglas French’s Early Speculative Bubbles (specifically, on Tulipmania, he explains how Charles I of Spain, Charles V of Germany, did this by fixing the gold:silver ratio).
costs that are obviously worth paying.
you are characterising giving up something of less value in order to benefit by ending up having something of more subjective value, as though it is a ‘bad’ thing. thats a bizarre characterisation!
Yes, of course! But it does matter wether the (industrial) opportunity cost of the money metal is 99% or 1% of its value in the use as money, doesn’t it? No element has as large a gap as gold between its value as money, and its value in any other uses. If gold becomes money, then we gain a great money, and forsakes nearly nothing else (such as established industrial processes) at all. That’s the opportunity cost advantage of using gold as money.
It’s a big who cares. If there isn’t enough gold, the market will chose something else: cell phone min, cigarettes, bottle caps, whatever.
While it’s a humor article, it kind of shows how market currencies work:
http://www.cracked.com/article_16709_7-bizarre-things-1-bodily-fluid-people-use-as-money.html
metals dont have opportunity costs. opportunity costs are imaginary construct that individual agents posit when calculating what means to expend in the efficient attainment of their ends. as such a general style, universal statement, like
is meaningless.
so you might say, the opportunity for proudcapitalist for spending a dollar on an icecream is the foregoing of his spending that dollar on a lottery ticket (which is his next preffered end on his current value scale.)
my challenge is to ask you to try and construct a similar sentance regarding your opportunity cost vis-a-vis various metals that you own and what you might do with them see if it leads to anything particularly insightful as regards this currency debate.
ProudCapitalist,
Have you EVER heard a description of a direct barter system evolving into an indirect barter system which uses a common medium of exchange ? In other words do you know how a commodity comes to be used as money in a free market ? You sounds as if you lack basic knowledge about this basic fact of economics…
…And so you seem to be trying to reinvent a SQUARE wheel. If you knew the CORRECT theory you wouldn’t be trying to invent a WRONG theory to replace it.
Ah, nigrahamUK, so you are the total subjectivist? Anything is true to anyone, if he imagines it to be true… And where do you want to go from that standpoint then?
Why do you refuse to comment any of my arguments? Why do you deny the fact that people rather hoard gold in safes, because it is so useful as money, and refuse to build electric cables of it, because it is for technical reasons a bad metal to use for electric cables (heavy, soft, resistive)?
But nig has just stated that there cannot be any economic difference between using squares or circles as wheels, (or gold of copper as money)! Facts of geometry and chemistry are unimportant, he claims, because the only thing that matters is that anyone can imagine anything regardless of reality.
i dont deny that :
some people rather hoard gold in safes, because it is so useful as money, and refuse to build electric cables of it, because it is for technical reasons a bad metal to use for electric cables (heavy, soft, resistive) whilst others dont, and would rather use the metal for non-monetary purposes, (maybe some of them even make electrical cables out of it.)
its not clear what you are butting,
since you are being asked a question. and ‘but’ is never a good way to begin answering someones question.
Well, hold on–I never said it was literally useless. Obviously it’s not entirely useless, and as a currency it’s very useful, but I was talking about “industrial” use. I understand what you suggest about possible industrial uses, but I have doubts that there is enough to go around for all of those purposes (plumbing?), and while it may be true that lack of corrosion and slight conductivity are minor advantages, they aren’t significant enough to be worth using gold instead of a more abundant metal in every case. It works with computers because it requires very little material. But this is missing the point I was making:
What I was saying is that the cost of using it as money (versus some industrial use) is lower than the cost of using something that has more practical industrial uses. (I don’t claim this as my original idea, I read it somewhere, possibly Rothbard? I can’t remember.) When you use something as currency, less of it is available for the practical purposes it may otherwise be used for. So it makes sense to use something “less useful” than the alternatives. Perhaps gold could be used for more practical purposes, but if an alternative does almost as good and it’s much more abundant (cheaper), the market will choose the cheaper alternative as long as the difference is minor. I will not disagree that gold is useful as a currency, it fits the “ideal currency criteria” very well.
I think you’re misreading him. And you’re not answering my question. Do you know how commodity money arises in a free market ? If you’re familiar with that account of things, have you refuted it ?
Are we talking about the same thing? Rothbard was saying that a gold dollar with a “fixed definition” is what is important, where the value is fixed at doesn’t matter. In order for inflation or deflation to happen, that definition would have to change. The only way for inflation (or deflation) to occur under that system would be for the gold supply to increase or decrease significantly, and we know that’s probably not going to happen, unless martians decide to rob Fort Knox or someone discovers a way to mine gold at a MUCH faster/cheaper rate.
Hmm, that’s not possible. First, that implies that the value of the dollar has doubled in the last 15 years or so (obviously not the case).
But also, assuming I have my dates correct, that 1/1555 ratio would have been relevant in the early or mid 90’s. The price of gold was closer to $400 then (are you looking at the current price of gold to get that 1/878 ratio?) The ratio I quoted is referring to how much gold would be backing a dollar–not how many dollars it takes to buy an ounce of gold on the market under the current system. Given that the Fed has only created more dollars over time, there would be less gold backing each dollar in existence, so that ratio should be much higher. i.e. A dollar would be backed by a much smaller “chunk” of gold. But when switching to a gold dollar, it could be done many different ways…
And no, I haven’t read “Money” by Murray (yet), this is out of “The Case Against the Fed” by the same author.
Well, “useless” (even though I never said it was entirely) is clearly the wrong word to use. I think the point is that the supply is too small for it to be usable, practially speaking. The price would go too high if it were used in large quantities, so realistically speaking a more common metal is better for most purposes, right? The market seems to think so, in most cases. But since we have to choose something as currency, gold is probably the best choice because it’s more useful as a currency than it is in industry (given that more abundant alternatives which are almost as good are available). Is this really a radical statement?
I’d just like to come in with a point.
Most of us wouldn’t advocate a government-enforced defined dollar gold standard; I’d prefer private currencies, which would generally be based on gold, but not necessarily.
Money has to originate as a valuable nonmonetary commodity. In practice, precious metals such as gold or silver, metals in stable and high demand per unit weight, have won out over all other commodities as moneys.
the gold that is used as currency tends to be better used as currency (than for other things), whilst the gold that is not used as currency tends to be at its best use when used in other things.
Thanks jdavidb I will read those books.
BTW as i was thinking abt your suggestion, I realized that competing currencies already exist. Lets say a contrary X manages its monetary policies in a responsible way. All other currencies will follow that X currency as standard.
EG
and S. American countries recently are doing deals directly in Yuan rather than in dollar in fear deflating dollar.
Yeah, I don’t disagree, if “the market decides” to use it industrially obviously it’s because it’s worth it in those cases.
I think someone above used the term I was looking for previously–“opportunity cost”.