I am all for a gold standard. In fact, I have moved toward a pure gold standard theory these past few days. But I wonder. If the only currency available is gold coins, then theoretically there can be a point when there would not be enough gold to coin for everybody, as the world population keeps increasing.
What then?
There’s been a half-dozen or so threads on this. I’m too lazy to look them up but you can use the search box in the upper right-hand corner.
If there’s not enough gold (let’s say all above-ground gold simply disappeared overnight), then people will use silver or something else. So, there is no theoretical difficulty here. More importantly, there is no obvious definition of what “enough gold” really is. It depends on the propensity of individuals to use money or accept money-substitutes in exchange. The more reliably that money-substitutes are accepted in payment, the lower the demand for physical gold in hand-to-hand transactions, which means that the practicality of using gold coins in day-to-day transactions is less important.
Historically, copper and nickel have functioned to one degree or another as “poor man’s money” and enabled very small transactions to be handled without the use of money-substitutes. So, there just isn’t any issue here. It’s a made-up problem.
Clayton -
How does the free market handle shortages?
Rothbard’s words from The Mystery of Banking.
Consider the following: Apart from questions of distribution, an increase of consumer goods, or of productive resources, clearly confers a net social benefit. For consumer goods are consumed, used up, in the process of consumption, while capital and natural resources are used up in the process of production. Overall, then, the more consumer goods or capital goods or natural resources the better.
But money is uniquely different. For money is never used up, in consumption or production, despite the fact that it is indispensable to the production and exchange of goods. Money is simply transferred from one person’s assets to another (A minor exception for small transactions is the eroding of coins after lengthy use, although this can be guarded against by mixing small parts of an alloy with gold). Unlike consumer or capital goods, we cannot say that the more money in circulation the better. In fact, since money only performs an exchange function, we can assert with the Ricardians and with Ludwig von Mises that any supply of money will be equally optimal with any other (See Ludwig von Mises, The Theory of Money and Credit [Indianapolis: Liberty Classics, 1981], p. 165 and passim). In short, it doesn’t matter what the money supply may be; every M will be just as good as any other for performing its cash balance exchange function.
The answer is no. The amount of available already mined gold and gold that has not been mined is less than the global gross domestic product.
If we ended a lot of the government waste and had competing currencies. With today’s advanced technology like chip and pin and banking from your mobile, a handful of competing non fiat based currencies backed by actual commodities seems a lot more plausible and sustainable.
A lot of the global GDP is government spending which is deficit spending or just DEBT. Not to mention the derivatives market which is at some ridiculously high value and there would never be enough resources on the planet to match the value of that market. If you think that gold standard would replace the global dollar standard than i think you might be misunderstanding the problem of fiat currency.
I’m not following. Why would this matter?
Sorry I edited my previous post.
Well it would not necessarily matter, but when people who do not follow austrian economics think of a gold standard, they must look at the global GDP and then look at the amount of actual gold on the planet and come to the conclusion that gold is not viable.
I don’t understand. If the demand for gold as a money increased, would it not just increase in value untill it was so valuable less needed to be used?
It would have to increase in value to something like the extent that you could buy a house with an ounce of gold with the current value of the gold price and the current value of the global gdp. That sort of value seems unrealistic to me.
Well could people not just use notes which are backed by gold in this case and then cash in the notes for metal compound with tiny amount of gold in them or just get tiny amounts of pure gold.
The supply of gold doesn’t matter, it’s the ratio at which you peg the price that counts. So if we go to a gold standard, expect the price of gold to go up dramatically.
The supply of gold doesn’t matter, it’s the ratio at which you peg the price that counts. So if we go to a gold standard, expect the price of gold to go up dramatically.
That’s exactly what I thought.
I agree with the first part right. It doesn’t matter what the amount is. If money is a medium of exchange, it does not matter how much of it there is.
But I don’t know what you are trying to say with the second part. What do you mean by “the price of gold”? What I think you mean is the amount of gold which can be exchanged for Federal Reserve Notes (FRN), which is currentyl around 1650 FRN to 1 ounce of gold. But if you say that we are going to a gold standard, that means that FRN are no longer being used as a medium of exchange, and gold will be used as a medium of exchange, thus things will be priced in gold. So what do you mean “the price of gold will go up dramatically”?
But I don’t know what you are trying to say with the second part. What do you mean by “the price of gold”? What I think you mean is the amount of gold which can be exchanged for Federal Reserve Notes (FRN), which is currentyl around 1650 FRN to 1 ounce of gold. But if you say that we are going to a gold standard, that means that FRN are no longer being used as a medium of exchange, and gold will be used as a medium of exchange, thus things will be priced in gold. So what do you mean “the price of gold will go up dramatically”?
You could think of it as the price of the currency then. If you leave the currency on the market for a while the market may decide how much gold they are willing to exchange for the currency.
Your answer is here:
https://forum.freecapitalists.org/t/quick-shift-to-gold-standard-question/20807/4
This is the comprehensive response to Gold Standard Questions. In the list of links you will find the question of whether there is enough gold for a gold standard. From what I understand, the question is supply and demand (ie, price of gold relative to federal resevre notes goes up).
Mises explains that even an ounce of gold would be theoretically enough.
It’s simple math. There is X amount of gold in the world and Y amount of dollars/euros/yuan. There are a lot more dollars/euros/yuan than there is gold. Do the ratios and the price (ie, the amount of a given currency needed to buy an ounce of gold) goes up.
Just in case someone skips to page two and misses my response:
Your answer is here:
https://forum.freecapitalists.org/t/quick-shift-to-gold-standard-question/20807/4
This is the comprehensive response to Gold Standard Questions. In the list of links you will find the question of whether there is enough gold for a gold standard. From what I understand, the question is supply and demand (ie, price of gold relative to federal resevre notes goes up).
Mises explains that even an ounce of gold would be theoretically enough.
“even an ounce of gold would be theoretically enough”
Note that there is an asterisk on this since it presumes the general acceptability of money substitutes (gold notes). It is possible that as gold became more scarce, people would feel less comfortable accepting gold notes because of the risks. The answer is that people would turn to the “next best money” which is almost certainly silver.
Of course, this is all purely metaphysical speculation… as it is, there are over 100,000 tons of gold in the world. Given its current valuation, many parts of the world simply could not use gold coins at all (except for large transactions) so dividing this across 7 billion people is just silly. If we shut down the central banks and let people use the money they choose, I would expect silver to become the most widely used coin in both 1st and 2nd world nations, copper in 3rd world nations and gold only for large transactions anywhere (not used for transactions smaller than a purchase of a new, wide-screen television). Money substitutes would emerge and would alter the dynamics somewhat as the usefulness of the money substitutes is a combination of their trustworthiness and cost-effectiveness versus coins.
Clayton -
Yes, that makes sense, but it wasn’t my point. I agree with you, and one could see me arguing semantics, but I think to state that “the price of gold will go up dramatically if we go back to a gold standard” is misleading. If the US were to start using a gold standard, then yes, the dollar price of gold would go way up. But that’s just another way of saying that US dollars or Federal Reserve Notes would become worthless. But you assumed that by saying that we would be using gold instead of Federal Reserve Notes as a medium of exchange.
By innovating, I guess? But this means that gold would be less scarce. The whole point is that the backing of currency is scarce. This is why I oppose bimetalism. The more scarce, the more there would be.