... then won't a recession result when private agents increase the money supply, too?
Say there's a gold standard in place; gold is money, and the supply of gold is the money supply. If there's random year to year fluctuations in gold production, or superior capitalist production allows an ever increasing production of gold, then won't the money supply expand eventually, lowering interest rates and so forth?
But it won't cause a recession, right, because it's "good money" when private banks issue it and "bad money" when the federal reserve issues it?
Also:
Back to the original idea – the world’s gold supply is rising faster than the US money supply at the moment. If this situation persists, then a gold collapse is inevitable, as gold’s inexorable supply increase couples with a stable dollar to push gold prices down. Clearly gold bugs believe the opposite: that inflation will come roaring back, and that dollar money supply will explode. Read more: http://articles.businessinsider.com/2011-01-19/markets/30101025_1_world-gold-council-reports-gold-bugs-gold-market#ixzz273qVneGE
Back to the original idea – the world’s gold supply is rising faster than the US money supply at the moment. If this situation persists, then a gold collapse is inevitable, as gold’s inexorable supply increase couples with a stable dollar to push gold prices down. Clearly gold bugs believe the opposite: that inflation will come roaring back, and that dollar money supply will explode.
Read more: http://articles.businessinsider.com/2011-01-19/markets/30101025_1_world-gold-council-reports-gold-bugs-gold-market#ixzz273qVneGE
Don't blame the Fed, blame the gold mines.
your base money and gold reserves chart doesnt prove anything. in fact it disproves your point. every great fluctuations in the market was government interference.
Why didn't the market react? Why does the market respond differently to "government" interest rates versus "private" interest rates? If gold circulation or production didn't stabilize after the introduction of the Fed, bimetallism, etc, what makes you think it would be affected by privately made interest rates and currency choices?
im not talking interest rates. im talking the monetary base. the market doesnt respond differently from gov vs private. however please tell me how in a free market 16 oz of silver is worth 1 oz of gold, but the supply and demand that the people are willing to trade at is 32 oz of silver to 1 oz of gold. private companies cant do that or they go out of business.
private companies cant force people to trade gold at 20 an oz then a week later force people to trade at 35 an oz.
Gold will only be mined when it is profitable to do so.
Why pay workers 5 oz of gold to mine 4 oz of gold?
Youd only pay workers 5oz of gold to mine >5 oz of gold.
I doubt gold mining will be as widespread as you think.
“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence.""The sweetest of minds can harbor the harshest of men.”
http://voluntaryistreader.wordpress.org
They can't, but that doesn't negate the demand fluctuations. For instance the price of gold is closely related to other commodities (especially oil).
Under libertopia, production of gold and all other commodities will be far higher than it is now. Deregulation and privatization of public libraries will boost gold production to unprecedented levels as free market innovation crafts much more efficient mining techniques. Consumer want is unlimited for all scare resources, including commodity money, but producers continually compete to deliver them to consumers at lower cost and greater quantities. The inevitable result is a vast increase in economic growth, gold production, and gold supply growth.
If your scenario was correct, and gold was a shitty currency like you say, another commodity then would arise.
Spontanous emergement.
Does not contradict austrian theory.
Most argue for gold, but you never know; other currencies may be good also.
And you cannot deny that the fed is doing a lot of damage to the economy.
Why would you blame gold mines for the recessions if gold is not even used as currency anymore?
no you are missing it. what fluctuations are you talking about? Massive of amounts of people dont just wake up one day and say i dont want gold then flood the market with it. then a year later just wake up and say wait i really want gold now. People have subjective values of how much gold is worth to them. when you average out 7 billion people's demand for gold it is VERY stable.
What you see is outside forces effecting the price of gold which causes huge changes in demand. So what i would like to know what outside forces would change the price of gold in a free market? the only think you can come up with is gold mining. Well the market is aware of gold mining and historic mining numbers and takes that into consideration when pricing gold. So if gold is being produced at 1.5% of the money supply a year then the market will read that.
Where are the outside forces? the price of gold is not related to oil. oil is priced to gold not the other way around like you suggest.
Not necessarily; not even probably.
Why do people still use gold as money then? If the supply of money is growing slower than the supply of gold now, why is gold still in such high demand? Is it... market irrationality?
who is using gold as money?
why do you think supply of money is growing slower than supply of gold? the fed bailed out the banks when they failed with 29 trillion $$$ (GAO said 16 trillion). how much gold is being added to the market again!?!?
gold has such a high demand and growing because more people everyday are coming to the realization that the dollar will collapse/losing value and they want to put it in a commodity to protect themselves. Market rationality.
Gold has always been a medium of exchange. It's just not available from an ATM.
If you're talking about TALF and so forth, that's not actually permanently adding money to the market. That's mostly lending back-and-forth. I'm talking about 2011-present.
What you see is outside forces effecting the price of gold which causes huge changes in demand. So what i would like to know what outside forces would change the price of gold in a free market? the only think you can come up with is gold mining. Well the market is aware of gold mining and historic mining numbers and takes that into consideration when pricing gold. So if gold is being produced at 1.5% of the money supply a year then the market will read that. Where are the outside forces? the price of gold is not related to oil. oil is priced to gold not the other way around like you suggest.
Gold responded strongly to past oil shocks- 1973, 79, the PDVSA strike. The fact that they occured due to things going on in crazy middle eastern countries doesn't take away from the point.
And if the market can read gold being produced at 1.5% a year, why can't it read, say, a 5% annual M3 growth over the past five years in the EU?
Currently today, people dont use gold as money. We use little pieces of paper issued by the government.
The price of gold in terms of dollars is high because the amount of dollars outpaces the amount of gold. People also trust gold more than the dollar, this will help it as a currency.
There is only an x amount of supply of gold in the world. Miners cant mine gold at the rate that you can print paper money.
Mining gold is very expensive.
As far as new technologies arise, sure, mining will be easier, but only at a profit (pay worker less than amt of gold harvested).
There is only an x amount of supply of gold in the world.
I thought resource depletion didn't exist. You sound like a peak oiler.
People don't use gold as money.
Ron Paul very strongly believes that gold is money. How are you going to question that? Even the Fed doesn't want to admit it.
Great. So how do you know that a 1% rate of growth in the gold supply is insufficient to cause the credit cycle?
a) If it does cause business cycles, then too bad, that's life. There are also weather patterns, climate cycles, sunspot cycle and so on. There's a moral difference between cycles that occur as a result of voluntary interaction and cycles that occur as a result of telic intervention in the market. The former are amoral and the latter are immoral.
b) (I'm starting to feel like a broken-record here): Changes in the supply of money per se are not the cause of the business cycle. The cause of the business cycle is the discoordination of capital over time which is caused by the distortion of the (government bond) interest rate caused by market intervention of the Fed, where "intervention" here is virtually synonymous with rapid and unpredictable - yet inexorable - expansions of the money supply.
What about the much greater variations in circulating gold, derivatives, and other forms of privately created money? Why doesn't this monetary growth cause credit cycles?
It does and did. As I mentioned above, gold boom towns are an example of a kind of business cycle... a rapid influx of capital, often followed by a rapid abandonment. The difference between a gold rush and the Fed is that the former is localized to one market segment (gold production) and whatever locality is affected, while the latter affects the entire economy (though some portions are more affected than others) and is not local.
Furthermore, an unhampered market in money production creates demand for fraud-detection, anti-counterfeiting, auditing, reputation-certification and other services centered around helping the wise consumer to find a safe haven for his assets. Contrary to popular belief, fractional-reserve banking, counterfeiting and fraudulent note issues do not negatively affect anyone who isn't actually holding the corrupt notes, and who doesn't enter into business with anyone who holds corrupt notes. In other words, if you want to put your money in Print-A-Bank Incorporated, feel free to do so... I'll keep my deposits at Gold Coin Bank, thank you very much, and I won't give a damn how much your stupid bank prints money and inflates its own banknotes. As their customer, that's your concern, not mine. Gresham's Law operates in reverse in an unhampered market in money production. Good money drives out bad.
Clayton -
At the moment, you cant use gold as money as per us tender law.
Gold is very well money but cannot be used due to law. I think you misunderstood me.
We must also distinguish a cluster of errors (boom/bustcycle) vs a miscalculation.
There are miscalculations all the time, in a 100% gold 100% reserve perfect rothbardian free market no gold fluctuation etc etc( play god), there can still be some business men or entrepeneurs that may misallocate their resources and predict wrongly, thats just how business works. The MASSIVE CLUSTER of errors where Most of the economy goes to hell is what we are talking about.
I dont think a 1% fluctuation will cause a MASSIVE CLUSTER. Its gotta be something big like qe 1 2 3 and various bubbles started by the fed.