Curious to see the response to this from the Austrian perspective:
If someone counterfeits money, it immediately gives the advantage of wealth to the counterfeiter while eventually prices will inflate. Counterfeiting is viewed as being immoral, which is why Austrians dislike the Fed.
However, if someone mines gold, for instance, and adds that currency to the market, similar to counterfeiting, it immediately gives the goldminer the advantage of wealth due to being the first person to essentially have "extra" money in the given market. Yet Austrians do not view this to be a bad thing but a natural progression of free markets.
So in thinking about this, while ethically, the intention might matter, I don't see how ethics relate to an end result of adding money to a market that already has a certain amount of that money. Market prices will inevitably adapt to the increase in money, so at first glance the counterfeiter and the goldminer are essentially doing the same thing.
Perhaps the only difference would be in the type of money used by the counterfeiter or the goldminer. Of course, fiat money is easier to counterfeit because it doesn't need to be weighed to determine its value, while gold certainly does. And there is the possibility of mending or molding gold to use for capital goods. However, the principle from one form of currency to the other is the same: it is adding money to a market, giving an immediate advantage to the first person who does it. Does gold actually determine whether or not counterfeiting, or in the case of the goldminer "adding money," is right or wrong? From my understanding of the Austrian system, the form of currency should not matter. Even if fiat currency was the market's natural choice of money, from the Austrian perspective this should not be prevented.
Disregarding ethics and looking at this pragmatically, if the counterfeiter and the goldminer are using the same currency, how can the counterfeiter be doing something wrong while the goldminer is not doing anything wrong?
Nobody has any kind of insight on this? It's really a nagging curiosity. I know there are Rothbardians that can shed some insight.
Nothing.
Its the same.
But if i print Kelvin Dollars no one will accept it, rendering my efforts at a printing press useless.
Ancap societies will have no authority on who can issue legal tender.
All tender is legal tender in anarchist society.
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This was discussed recently, to some degree, I believe.
But, it ain't that easy to mine gold. I went to a Barrick mine some years back and it was like 10'000 tons of ore per oz of gold. Or more. Or less, I'm sure you can look it up. Point is, you don't just push a button and wallah! Money!
It's more of a commodity, used as money vs numbers in a computer. It serves an existence beyond faith. Then consider this. If gold = money, how exactly do you make money off of mining gold? Trade nuggets for coins at a loss? Or spend gold to make less of it? I think a lot of large-scale mining goes away if it's used as a currency. Instead of trading 1700:1, it's direct. I don't know, I imagine these things work themselves out. The devil is in the details.
this could happen in other metals, and historically silver is more volatile than gold, which is one reason its inferior as money. But you have to remember that demand for a specie is also determined by end-users, in this case jewelers and manufacturers of high-end electronics. Inflation of physical currency will make their cost of doing business decrease, making their products cheaper, making everyone wealthier. And the base value of a metal currency is still determined by its industrial value.
not so for counterfeit money, or fiat inflation. In neither case does the end user benefit, because there is no base use for the money. The counterfeit is less valuable than what it claims to be, either in mass, purity, or content; or it is the title to something that is already owned. And new fiats are only good for paying taxes, that inevitably rise in response to the decrease in buying power. So the two situations are about as different as night from day.
Leaving aside the obvious difference between printing someone else’s money (which is pure fraud) and gold mining, I’ll discuss only printing by the actual owner of the fiat currency vs. gold mining.
1) My impression is that most Austrian economists would see a strictly unchangeable money supply as their ideal, and in this sense gold mining would seem to have a negative connotation. Still, they’d see gold as by far the best deal we can get right now in money, since the supply of gold tends to change only slowly due to natural rarity.
As far as I know, no one has ever ventured to propose an alternative currency that would never be re-issued again after its first issue/production batch. So, mining would change from ‘counterfeiting’ only in degree, not nature.
2) Those Austrian economists- such as Hayek - who’d rather prefer a stable price level (which, pace Rothbard, actually can be defined with some precision) see gold mining as a desirable reaction of the market to a fall in the general price level: the price of money increases as we add to our supply of goods, thus inciting mining to bring back profits in the industry to normal.
The only issue these guys have with gold would seem to be that the cost of mining gold would seem to be increasing along with production, and not to remain steady as a proper price-stability-mechanism would require. And in effect, the Gold Standard era witnessed a slight secular tendency to deflation, what you’d expect from rising mining costs. Hayek devised his famous plan to provide a currency that betters gold in this respect, but he too would probably to have agreed that gold is the best we can get right now.
1. Not necessarily. Most Austrians would like to see a free market in money production, that is anyone can create their own currency and then the marketplace for currencies would determine the most preferred versions. And this could easily change over time.
2. Gold has several properties that make it ideal for use as money. One of those properties is that it is useful for other things: jewelry, dentistry, circuits, etc. So unlike other types of money, this industrial component tends to support the purchasing power of gold. As the demand for gold lessens, more people use gold for reasons other than money thus keeping the loss minimised. Another property mentioned is that people can at higher than zero price get new gold. This process tends to keep the purchasing power of gold from getting too high.
False. The Austrian analysis is value-free and has nothing to do with counterfeiting being immoral or not.
It's not up to "Austrians", it's up to the market. In an unhampered market in money production and money choice, consumers will choose to use the money that best suits their purposes. If they continue to use gold as money despite knowing that gold miners are "getting rich" by "doing nothing", then that means that the gold miners are not devaluing gold (now or in the future) to a sufficient degree to make gold less attractive than other alternatives.
So in thinking about this, while ethically, the intention might matter, I don't see how ethics relate to an end result of adding money to a market that already has a certain amount of that money.
It doesn't. You're the only one saying it does. You can avoid these kinds of problems by directly quoting sources. Mises.org is an excellent resource, brimming with whole books and even scholarly articles in PDF and HTML format available for free. Check it out.
Market prices will inevitably adapt to the increase in money, so at first glance the counterfeiter and the goldminer are essentially doing the same thing.
No, they are not doing the same thing, even at a first glance. That's like saying the wheat farmer is doing the same thing as a counterfeiter because he's "lowering the value of wheat" by dumping more of it into the market. What silliness.
Of course the gold miner earns a profit, else he will not mine gold. The central bank, on the other hand, is the beneficiary of a monopoly privilege whose sole effect is to transfer wealth from the wider public to the central bank. The difference could not be more clear, even at first glance.
Perhaps the only does gold actually determine whether or not counterfeiting, or in the case of the goldminer "adding money," is right or wrong? From my understanding of theifference would be in the type of money used by the counterfeiter or the goldminer. Of course, fiat money is easier to counterfeit because it doesn't need to be weighed to determine its value, while gold certainly does. And there is the possibility of mending or molding gold to use for capital goods. However, the principle from one form of currency to the other is the same: it is adding money to a market, giving an immediate advantage to the first person who does it. D Austrian system, the form of currency should not matter. Even if fiat currency was the market's natural choice of money, from the Austrian perspective this should not be prevented.
Of course. If people freely choose to use worthless slips of paper for money, Austrian theory merely notes that that's what people have freely chosen to do. There is no right or wrong here, you are the only one using moral language.
That's an Interesting metaphysical question. Has nothing to with Austrian economics or reality, though.
Clayton -
I'd make some points and by counterfeiting im assuming you mean counterfeiting by definition and throwing in the fed printing money.
1. Gold mining - it takes labor and work to mine for gold. So a predictive amount of gold will be produced every year. The expected amount of gold HAS an affect of the price of gold before that gold even hits the market. So if people are mining about 3% of the aggregate supply of gold every year thats already in the price of gold (the expected amount of gold even 10 to 15 years down the road has an effect on it) Think about what would happen if all the gold miners in the world say they ran out of gold. The prices will shoot up because it knows there will be no more gold being mined and not so much as people changing their demand for gold. Its very organic
2. If prices shoot up on gold so does the supply of gold because miners are going to mine more. The more gold being mined helps to stablize the price back to previous levels (or just less variance in the price)
3. Anyone can go mine the gold. Its a free market and if you want to risk your money mining go for it. Unlike a bank or a counterfeiter that can just print money and has the monopoly on it.
4. Anyone can risk BUYING gold. If you want to buy gold from a gold miner you can all you have to do is outbid everyone else for that gold. Where a bank or a counterfeiter desides who receives the added cash.
5. what other people said, i just skimmed through all the responses so i might of duplicated other peoples thoughts these were just the ones on top of my head.
Bogart: 1. Not necessarily. Most Austrians would like to see a free market in money production, that is anyone can create their own currency and then the marketplace for currencies would determine the most preferred versions. And this could easily change over time. 2. Gold has several properties that make it ideal for use as money. One of those properties is that it is useful for other things: jewelry, dentistry, circuits, etc. So unlike other types of money, this industrial component tends to support the purchasing power of gold. As the demand for gold lessens, more people use gold for reasons other than money thus keeping the loss minimised. Another property mentioned is that people can at higher than zero price get new gold. This process tends to keep the purchasing power of gold from getting too high. Granted, in both cases. 1. I misspoke when arguing that most Austrians would like a strictly limited supply of money: it’s true that most (all?) would like a free market in money and that is it. Still, when you ask prominent Austrians what they think would emerge as money in such a free market most would, I’d imagine, say gold because it is the least inflating form of money, taking inflation to mean what Rothbard did. 2. The non-monetary uses of gold complicate the analysis somewhat. But still these uses cannot mean that an increasing quantity of gold will still mean a stable monetary quantity as all new gold is minted for other uses. If the price of gold rises due to its monetary nature, than gold will be shifted from such non-monetary uses into monetary ones. From the point of view of someone who’d prefer an unchangeable quantity of money, the fact that gold has non-monetary uses not only does not lower the importance of mining, but actually exacerbates it: even without any mining at all, a rising price level will mean an increased monetary supply as gold is shifted from non-monetary to monetary uses. Such an analysis would, on the other hand, please the “stable price level” guys, as you imply. The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms. | Post Points: 5
Granted, in both cases.
1. I misspoke when arguing that most Austrians would like a strictly limited supply of money: it’s true that most (all?) would like a free market in money and that is it. Still, when you ask prominent Austrians what they think would emerge as money in such a free market most would, I’d imagine, say gold because it is the least inflating form of money, taking inflation to mean what Rothbard did.
2. The non-monetary uses of gold complicate the analysis somewhat. But still these uses cannot mean that an increasing quantity of gold will still mean a stable monetary quantity as all new gold is minted for other uses. If the price of gold rises due to its monetary nature, than gold will be shifted from such non-monetary uses into monetary ones. From the point of view of someone who’d prefer an unchangeable quantity of money, the fact that gold has non-monetary uses not only does not lower the importance of mining, but actually exacerbates it: even without any mining at all, a rising price level will mean an increased monetary supply as gold is shifted from non-monetary to monetary uses.
Such an analysis would, on the other hand, please the “stable price level” guys, as you imply.
"However, if someone mines gold, for instance, and adds that currency to the market, similar to counterfeiting, it immediately gives the goldminer the advantage of wealth due to being the first person to essentially have "extra" money in the given market. Yet Austrians do not view this to be a bad thing but a natural progression of free markets."
Incorrect. Gold mining can only be undertaken via an investment of time and effort supported by voluntary investment and/or taking on the risk that no one will buy the gold because it's not in demand, or not in high enough demand to make the mining profitable. Gold mining is just producing a good that people want, same as any other productive process. In that sense you may as well claim the additional production of any good or service leads to artificial buying power or 'wealth advantage'.
The key difference is it's not possible for gold to be unbacked; it itself is the commodity in question, which someone will either demand or not, and voluntarily trade for or not. The wealth transfer that occurs when a successful gold miner brings product to market is voluntary (no legal tender laws forcing others to accept the 'money'...) and wealth generating for both parties, and there is no individual or systemic diversion of resources from savings to consumption to cause malinvestment. The risk for the mining operation was voluntarily undertaken, the product itself and not a substitute which can be devalued over time was voluntarily traded. The same can not be said of counterfeit fiat notes. Gold will only be mined profitably and monetized if there is actually a demand in the economy for more gold as money which can't be satisfied by increasing the value of each unit of gold traded, or in other words if there is a demand for more liquidity/raw supply of the actual metal for some reason. It's not the expansion of the money supply per se that causes problems, it's the disconnect between the manipulated market price for money and its actual availability for consumption and investment caused by mass counterfeiting. Put another way, it doesn't matter what the price of money is, so long as it's the result of the market process and not government intervention.