Hello everybody.
I had been browsing through a F. Hayek book, while reading some of Rothbard’s works. I see Hayek advocates competitive paper money, while Rothbard would rather have gold as money.
Rothbard’s theory is quite sound, at least for the forseeable future. But I’m worried from a purely theoretical point of view: what if gold, in the future (be it distant or not), becomes readily available? I’m seeing scientists getting quite close to manufacturing “artificial” diamonds that are indistinguishable from natural ones. What if the alchemists’ dream comes true?
And perhaps, let’s assume, it would take few resources to make gold. I agree that finding a way to create vast amounts of gold is overall good for the market (e.g. cheaper jewelry and CPUs).
My question, or perhaps invitation for discussion, is whether we can be sure that whatever reserve we choose for the money it won’t depreciate suddenly. Here are some ideas:
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The first thing I agree to is that money must be redeemable. Without redeemability, we would require the issuer to go against the market (print or destroy money). Though Hayek does not agree, if I’m correct.
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I suppose a composite reserve (e.g. gold + silver) could be less prone to what I said.
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I figure non-durable goods can’t be part of the reserve. While non-durable goods may depreciate less than the rest of the reserve, you can’t keep them in a warehouse. If you can’t do that, then you must buy them on demand. But this means you could go bankrupt if the durable reserve goes bullish.
If you say no money could be stable in all circumstances, then I ask: can we do without stability? Probably, since this would be both a rare and a beneficial event.
And then, would gold still be a good currency? Can one hold large amounts of a durable good priced so low? What if there’s nothing left to switch to (Star Trek-like scenario)?
I hope a discussion would prove helpful in settling this matters.
Cheers,
Eduard