if money is a comodity, who decided that it should be based on gold or silver? why not land capital, company stock or some other good. its obvious why gold is a good choice. but cant people expand the money supply at will?
Market participants decide. You answered your own question. Gold is simply what was chosen historically, and there is good reason to think it’ll be chosen again. Expanding the money supply is not problematic because it involves production, and by trying to gain by producing more than what is in demand producers risk suffering diminished profits or even losses (i.e. it’s self-regulating, given that money too obeys the laws of demand and supply.) What is problematic is issuing money-substitutes over and above the underlying commodities backing the money-substitutes.
-Jon
so banks or private companies would have to physicaly own gold, silver or diamond assets? however companies could also issue fiat coupons or vouchers ?
They could if they wanted to, sure, but there are severe limits on their ability to inflate, namely: they will lose their customers if their deposit notes are exposed as fraudulent, and if there is no central bank to be a “lender of last resort” they are far less likely to attempt these shenanigans.
There would be different strategies to create currency. Commodity based, company stock based, and possibly even securities. Commodity based could be used by farmers to raise capital for the expense of farming. Where as the issuance of a promised amount of wheat is the value of the note. So the farmer goes and gets capital requirements (possibly another currency more accessible to across the board industries (ie gold standard currency)) and writes out how many bushels he will produce, and the investors decide the price based on other currencies (such as gold). Or instead of promising bushels (as their is risk involved) promising portions of the crop. Or part of the profit. There would be money market notes. Where a middle man steps in and allows investors to spread risk. If wheat does bad, so do you, but instead you go to a middle man who invests large amounts of other peoples money into all grain equally. Or just all farming equally. Whatever money market group, could then exchange their own currency as stock or portions of profit. Money should represent real property and real value, since that is what it is exchanged for. Different and competing currencies. Otherwise you would have cornering of markets if it was a fixed money. Such as only gold. What if we learn how to produce gold? It is produced in spent nuclear rods. Or someone finds a planet made from it. The value would decrease. So it would be better to hold value in a wider arrange of currency. Diversity is what nature teaches us. Allowing diversity in the market place, and allowing diversity of cultures.
The catch is that in a free market the distinction between currency and commodity gets blurred, so no decision related to currency is made beforehand. There is no state to impose rules, so market participants essentially barter one good for another. People often like to save, so there is a tendency to choose durable and somewhat rare goods (such as gold, silver etc.) as payment. Durability ensures that they don’t have to reap its benefits at the moment, while rarity makes for easy storage, everlasting demand and value stability in time.
Well put!
The banks could agree on a standard for currency without any external coercion, much like the tech companies agreed on the DVD and Blu-Ray standards.
Actually with Blu-Ray and HD-DVD there wasn’t really an agreement. individual companies supported different formats, and the HD-DVD supporters eventually gave in to market pressure. A better analogy would be IEEE standards for hardware and unit measurements, or internet protocals. Although, I’m not too certain the world wide web would be the only form of internet in a free market.
It shouldn’t be the banks. It should be the consumer. If I don’t trust gold, then I shouldn’t have to hold it. All proposed currencies would float among each other. It would essentially be a barter system, but only bartering the paper of the real property. I imagine however there will be gold and silver standards that create the lions share of market exchange. But letting the banks decide or agree is not good for consumers. Non-coercion.
Banks coming together to form a standard currency is not in any way coercive. Unless the use of those notes is forced, it’s completely legitimate. You dont have to trade for notes you dont want.
See Mises on how money comes about (regression theorem, etc.) Banks (or governments) can’t just decide what money will be.
see thats why i was confused. when austrians talk about gold, i get the impression that they want people to use gold coin to do shopping- whats insane!
if i wanna know what im talking about read murray’s article on thomas pain, or tucker’s article on coin shops.
At the end of the day banks answers to the consumers so…
In any case “money” was around before banks.
Yes, that’s what money-substitutes are.
-Jon
No, but they can come together and decide on a currency standard to put on the market.
Why? People already carry around a pocket of change today, the only difference would be that this handful of coins would actually buy something.
Though a digital method for gold transfer would be likely to dominate(ie Credit cards transferring gold instead of dollars)
but gold gets worn out.