Hey guys I am on the fence on the Gold Standard. So you know where I am coming from I am very influenced by Milton Friedman’s school of thought… which is for central banking. But I would like to be for the Gold standard because it takes the power out of the hands of bureaucrats and puts in on a system that fluctuates more naturally. Here is my problem the Gold standard hinders growth… While yes overprinting money causes inflation… but little amount of currency in the economy hurts growth… So what are pro-gold standard argument for this question?
“but little amount of currency in the economy hurts growth”
As the value of a currency increases, the amount needed to trade decreases. People would just trade with smaller fractions of gold.
The fallacy is that since inflation causes growth and inflation is the opposite of deflation then deflation must be the opposite of growth.
I assume you know why inflation causes growth so I won’t go into the Austrian Business Cycle Theory song and dance…
Incidentally, Friedman recanted on his former positions on gold later in his life…
What about bimetalism? I know gold is infinitely divisible and value is determined by scarcity, yada, yada, yada, but physically there is a heck of a lot more silver. Why not bring back the ‘poor man’s gold’ as money as well? Or do Austrians already advocate that?
i think the austrian position is more based on the premise that it should be the market to decide on money (adios legal tender!) rather than prescribing the form this should take. obviously history has shown that precious metals are an ideal money, but i think the market would inevitably throw up different solutions in different circumstances.
i think the sense of your question goes to the bad name bimetallism got in the past by governments fixing a gold/silver ratio. i can see no reason why other precious metals like platinum or palladium shouldn’t join silver and gold as money in a free system.
I was reading this Hoppe article, Banking, Nation States, and Politics: A Sociological Reconstruction of the Present Economic Order
This seems to go against the competing monies idea, in the footnotes he has Hayek’s Denationalization of Money as ‘a highly prominent example for this misconception’ and Rothbard’s Hayek’s Denationalized Money as a critique of the competing monies view.
Now Hoppe says ‘gold’ as the only valid currency but I assume that it could be replaced with any other commodity that the market has chosen and still fit within his theory as long as it is the only form of currency in circulation.
I could see how a single monetary standard would make life easier – by not having 0.007oz gold, 0.03oz silver, 0.0033oz platinum price tags on a can of beans – but what are truly the limitations that would cause a multi-metalism system to fail…given the almost universal adoption of computerized cash registers and the high adoption of ‘plastic’ by the average consumer?
Could be that Rothbard answers this but I haven’t finished reading the Hoppe article yet, it just kind of jumped out at me as out of character for an ‘Austrian theory’.
Can you elaborate on what “the competing monies idea” is? Mises’s money regression states that the most highly marketable commodity will eventually arise out of a barter economy and will become the single ultimate money. However, it is also empirically true that both gold and silver were both used as money and neither utlimately displaced the other in the global market, before central banks and perfectly fiat fraudulent currencies took over.
If the market never settles on a single money, there is, by definition, barter involved between the two monies. In a free market it can be no other way. Even today, floating fiat currencies, as Hoppe pointed out (somewhere), are essentially bartered for each day in the currency markets. Only a single world monetary unit can eliminate barter against competing currencies. On the other hand, two freely floating commodity monies such as silver and gold would be vastly superior to what we have today.
How?
Essentially you’re asking, “what is the optimal supply of money in the economy,” but you’re only looking at nominal standards.
Money’s value does not consist of those little $ signs that you see and how many of them are held in the Fed’s report. Money is a completely elastic good fluctuating with its own supply/demand and the supply/demand for goods used to purchase it.
The problem with Friedman consists of the same lame arguments proposed by Hume and the other quantity theorists.
"What about bimetalism? "
yeah i was wondering about a bimetallic money system.
if say 2 grams of gold (about the size of a dime coin) would by 200 potatoes and all you could eat were 3 potatoes (the rest would perrish), wouldnt there arise a market demnad for a metal or commodity money for use in small transactions?
where 2 grams of silver would buy 3 potatoes.
it would seem that in a modern 100 percent reserve money system, notwithstanding digital money trades (where minute fractions of gold grams,to difficult to coin are used), that there would still be instances where coin would trade hands.
there would not be a fixed ratio of gold to silver, but a exchange rate determined by the nature of the transaction.
so on the other hand if someone was selling a small condo for 300 grams of gold, and a potential buyer was offering silver, the buyer could refuse and only take gold because it would say..take 100 times the weight in gold satisfy to seller. and/or charge silver penalties for large silver tranactions? where the cost of potential redeemption large amounts of silver would be high?
thus developing a market preference for gold in large transactions.
so gold would tend to be used in larger transactions for simplicity.
is this roughly how a bimetallist system could operate?
Silver for small change seems plausible. I think historically it has worked. However, i think that as long as there are two monies, there is barter. The optimum situation is one money: gold for instance. I think technologically it is possible to carry small denominations of gold not in coin form, but in sealed plastic packages - similar to those that seal numismatics - mass guaranteed by a private mint or measuring firm. This way, very small amounts of gold can be traded - and silver coins for small change can be dispensed with.