WisR:any amount of money works
Like zero amount? Thus barter?
If it should be positive how about one atom of gold? One ounce? One pound? All the rest is just wasted on coinage?
scineram: WisR:any amount of money works Like zero amount? Thus barter? If it should be positive how about one atom of gold? One ounce? One pound? All the rest is just wasted on coinage?
Obviously if there was just one ounce of gold in the world then the market would choose a more suitable commodity. The point is that an increase in the money supply from any given market determined level doesn't make us wealthier, beyond the nonmonetary uses of that commodity.
Spideynw:Inflation would probably occur even if the currency was provided in the private sector, since it is pretty much impossible to keep everything under control. Let's say gold became the currency of choice. Well, there would probably be more companies that rose up to supply gold. This would mean the supply of gold would increase, and hence deflate the value of the currency, resulting in inflation.
Natural inflation has the seem ill effects as government inflation( inflation being defined as an increase in the money supply.)
Gold rushes are not productive times.
Peace
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Juan:Increasing the production of a rather scarce commodity as gold can't be that bad.
Correct. Gold rushes are beneficial because of gold's non-monetary uses, but for that amount of gold's value that is derived from monetary use it is wasted.
But the negative social effects of inflation are found during gold rushes, as well. After all, what is a gold rush but a natural bubble?
JonBostwick: Spideynw:Inflation would probably occur even if the currency was provided in the private sector, since it is pretty much impossible to keep everything under control. Let's say gold became the currency of choice. Well, there would probably be more companies that rose up to supply gold. This would mean the supply of gold would increase, and hence deflate the value of the currency, resulting in inflation. Natural inflation has the seem ill effects as government inflation( inflation being defined as an increase in the money supply.) Gold rushes are not productive times.
Yes, it has everything to do with the supply of money, although there are many here who would disagree. As an example, here is the conclusion to this article about Tulipmania here on Mises.org:
But what made this episode unique was that the government policy did not expand the supply of money through fractional reserve banking which is the modern tool. Actually, it was quite the opposite. As kings throughout Europe debased their currencies, through clipping, sweating or by decree, the Dutch provided a sound money policy, which called for money to be backed one hundred per cent by specie. This policy, combined with the occasional seizure of bullion and coin from Spanish ships on the high seas, served to attract coin and bullion from throughout the world.
The end result was a large increase in the supply of coin and bullion in 1630s Amsterdam. Free coinage laws then served to create more money from this increased supply of coin and bullion, than what the market demanded. This acute increase in the supply of money served to foster an atmosphere that was ripe for speculation and malinvestment, which manifested itself in the intense trading of tulips.
An increase in the money supply always drives interest rates below what they would have been w/o the increase, entrepreneurs mistake the lower interest rate for real savings, and the ABCT is set in motion. The reason why so much focus is placed on central banking and fractional reserve banking is that these are usually the cause of business cycles, but they are possible even in a system of 100% commodity reserve backed deposits when there is an influx of new money.
JonBostwick:But the negative social effects of inflation are found during gold rushes, as well. After all, what is a gold rush but a natural bubble?
This is one of the few correct criticism made by the paper crowd. Too much labor is spent mining gold, as gold's price is increased by its use as money. But it is a small price to pay for the many advantages that come from using gold as money.
JonBostwick:But the negative social effects of inflation are found during gold rushes, as well. After all, what is a gold rush but a natural bubble ?
Juan:I'd argue that such bubble is no different than a bubble caused by say a new mine of nickel, or platinum., or new oil wells which sooner or later will stop producing. You can call them natural bubbles or just businesses that reach the end of their cycle.
A boom in nickle mining is caused by an industrial demand for nickle, so a mining boom translates into an industrial boom, and then a boom in consumption. Gold is different, it is not mined to fuel production, demand is expanded without an equivalent expansion in production. When the boom is over capital has been depleted with nothing to show for it except that part of gold's value that is due to its non-monetary uses, which is no doubt less than what was lost in gaining the gold.
JonBostwick:capital has been depleted with nothing to show for it except that part of gold's value that is due to its non-monetary uses, which is no doubt less than what was lost in gaining the gold.
Juan:What if traditionally 90% of the above ground gold was used for jewelry ? Would that mean that increasing gold production is not necessarily that wasteful ?
I believe so.
WisR: scineram: WisR:any amount of money works Like zero amount? Thus barter? If it should be positive how about one atom of gold? One ounce? One pound? All the rest is just wasted on coinage? Obviously if there was just one ounce of gold in the world then the market would choose a more suitable commodity. The point is that an increase in the money supply from any given market determined level doesn't make us wealthier, beyond the nonmonetary uses of that commodity.
It is not me who has a problem with market determined money supply.
This is an interesting recent article about an actual money shortage.
scineram:This is an interesting recent article about an actual money shortage.
Good article, but its not about a shortage of money. Its about a shortage of a particular denomination.
Juan:You know, before downloading that I knew it was an article from Selgin....
And the point being?
JonBostwick:Good article, but its not about a shortage of money. Its about a shortage of a particular denomination.
Fair enough. But the point is fractional reserves were required for a solution.
Spideynw:Prices can go up if demand increases or if supply decreases. Expansion of the money supply only explains the demand side of things, not the supply side.
Can demand ever increase without the corresponding increase in supply? Sure people may want more goods but for them to be able to demand more goods they would have to back it up with an increased ability to pay for them. That increased ability to pay for more goods have to come from an increase in production, given no wealth distribution through moneyprinting has occured... right?
Don't you have to reject Says law for that statement to be true. Correct me if I'm wrong.
demand is unlimited...it has nothing to do with payment.
I agree that wants are unlimited. Well, if we were to use the standard neo-classic microeconomic term of demand you'd have take the budgetconstraints into consideration.
Demand defined as wants backed up with purchasingpower is limited to the extent that we can produce goods and services.
scineram:But the point is fractional reserves were required for a solution.
Selgin:In particular, privately-supplied, fiduciary token coins played a crucial part in Great Britain’s Industrial Revolution, which might not have been possible without them.
Care to refute it? Submit it to QJAE?
The point of the article was to provide arguments for the assertion. And they were good ones.
scineram: The point of the article was to provide arguments for the assertion. And they were good ones.
And Juan's point is that there is more than one way to skin a chicken.
Especially today with modern chicken skinning devices, it would be incredibly easy to substitute 'grains of gold' or whatever measures of weight for dollars in electronic, debit card transactions. In fact, as you know, the infrastructure is already there to do so (to have small debit based transactions w/o fractional reserve banking) throughout most of the developed world.
WisR:Especially today with modern chicken skinning devices, it would be incredibly easy to substitute 'grains of gold' or whatever measures of weight for dollars in electronic, debit card transactions.
Selgin:In the first decades of the Industrial Revolution, Great Britain was confronted by a very serious small change shortage. The bimetallic legislation then in effect undervalued silver, so that few if any silver coins were minted, while those already in circulation tended either to be melted into bullion or to be very badly impaired.
It would have lessened the problem, but hardly a satisfactory solution, for
Although he condemns bimet-allism Rothbard (1974, n. 9) sees nothing wrong with parallel standards,which he regards as being both workable and more consistent with atruly free market approach to money; and although he never says soexplicitly, Rothbard may have regarded parallel standards as satisfactorymeans for addressing the small change problem.But while a “parallel” small change system would indeed beimmune to Gresham’s Law, such a system would involve high costs oftransacting, for change would have to be made using coins of a standardmoney different from that on which the economy’s principle exchangemedia would be based. If one were to imagine that shopkeepers in theU.S. today were obliged to make change with euro coins, one would havesome idea of the costs in question, and of the nuisance they wouldentail. Indeed, many nations, the U.S. among them, have at some pointin their histories had to rely on various foreign coins for some or all oftheir payments, and it was problems posed by the ensuing, non-parexchanges that supplied the greatest impetus for efforts to establishcomplete and uniform domestic coinage systems. The Americancolonists, for example, were forced to rely on Spanish silver coins for rou-tine payments, while keeping accounts in English monetary units; and adesire to escape the inconveniences of this state of affairs was among thechief motivations behind the post-revolutionary drive to establish anational coinage (cf. Carothers 1930, pp. 33–34).
scineram:If one were to imagine that shopkeepers in theU.S. today were obliged to make change with euro coins, one would havesome idea of the costs in question, and of the nuisance they wouldentail. Indeed, many nations, the U.S. among them, have at some pointin their histories had to rely on various foreign coins for some or all oftheir payments, and it was problems posed by the ensuing, non-parexchanges that supplied the greatest impetus for efforts to establishcomplete and uniform domestic coinage systems.
this is politics not economics.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Nonsense, more like history. The latter sentence at least.
biased opinion