The propositions of the supporters of bimetallism cannot bear examination. The inference that we must restore the free coinage of silver to escape this strangulation of prosperity falls to the ground. FULL ARTICLE by William Graham Sumner
Source link: http://archive.mises.org/13235/prosperity-strangled-by-gold/
Prosperity Strangled by Gold?
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Given any set of resources, the market determines their relative value, whether in a barter economy, or say in a money economy using apples as coin. Yet no matter which resource, IOU, or coin is adopted, the relative values of the commodities and coins will change, both because of their quantity and how the public values them (let alone because of the creation of new products). This doesn’t appear to be a problem of gold, silver, or any other specie. Perhaps (if a problem arose) the only thing that would keep matters in check would be the ability to exchange goods for goods. Or am I missing something?
First let me preface my comment that I’m NOT in favor of fiat money. Second let me emphasize that running the printing presses to create currency non-stop is a travesty because entire forests are laid to waste. The truth of course is that “running the presses non-stop” is a metaphor because M1 increases in digits NOT paper. However, as a pragmatist relegated to commenting from my “armchair,” I feel compelled to make the following observation in hopes the Mises Institute will address it.
One of the arguments against ramping up the presses into overdrive is that back in the good old days in Weimar, Germany, poor miserable frauleins were standing in long lines with wheelbarrows full of paper currency to buy their daily loaves of bread.
My argument is that today, we have plastic in the form of debit cards with credit card capabilities (tied to our bank accounts) and really toxic plastics in the form of Visa, MasterCard, AMEX and so forth. We carry our wheelbarrows full of money in our billfolds and purses! Eventually, perhaps our fingerprints, retinas or microchip implants will allow us to leave our Weimar dollars in banks that are too big to fail.
The Federal government in all its forms (from the Federal Reserve to NSA and all blackboxes that don’t exist but suck up our tax dollars just the same) has supercomputers to model the world economy much like modeling the weather. That was not the case in Weimar.
Therefore I ask you to explain, why you think all hell is going to break loose in the near future when we have the computer power to drag out the currency charade for another 50 to 100 years? Isn’t electronic currency in a world filled with abundance the equivalent of a room filled with every sort of treasure, where some math wizard from MIT keeps adding electronic digits to “value” it? Until the room is empty in 50 to 100 years (maybe more) then the Fed just keeps adding digits to the room’s value. It’s as barbaric in an electronic sense as anything else barbaric throughout history in a physical sense. Everyone acts like a century is a long time, nevermind that past empires have lasted thousands of years, the latest of which is China… how long as it been around (and like the EverReady Bunny it keeps on going).
Finally, if gold is as unknown a quantity as merely creating digits to represent dollars, why is gold any better? Don’t get me wrong, I’m not against it, but I’m trying to wrap my brain around why I should be for it? Has it ever occurred to you that with the rate of technological acceleration, scientists may soon discover how to synthesize gold in a manner that may be indistinguishable from naturally formed gold? If that happens then all bets are off on any hopes to revive the gold standard.
Exchange has its basis in an understanding of value. Indirect exchange even more so, because of the introduction of the third item – money. If the purchasing power of the money over time is not well understood, then eventually the mechanics of indirect exchange break down. For a time exchange may just become less efficient, and either prices increase due to currency risk abatement or because people stop patronizing the exchange. But in many historic instance, exchange became less and less efficient, so that specialization and the division of labor broke down. Then the whole economy of exchange breaks down, and wealth is destroyed (food, clothes, shelter, etc. go away and are not replaced).
That doesn’t address the nature of the creation of new money, where the first users get the benefit of the old purchasing power before the increases in quantity drive up prices. People favored by the issuer of new money get the first use. Purchasing power is taken from all the holders of current money, and transferred to the first users of new money.
So I have both ethical and pragmatic objections to fiat money. The issuance of new money, particularly at the rate possible under fiat money regimes, is both a violation of the property rights of the holders of current money and creditors, and also destructive of the free market exchanges responsible for all our prosperity.
Massive increases in electronic credit money is/can be more destructive than increases in paper money supply – because it can accelerate all of the negative aspects of paper money inflation.
You might also find interesting a discussion of the consumption of capital induced by inflation, or how error cycles are generated by systemic inflation (Jorg Guido Hulsmann).
Took me time to read all the comments, but I really enjoyed the article. It proved to be Very supportive to me and I am sure to all the commenter’s here! It’s always nice when you can not only be knowledgeable, but also entertained! I’m sure you had fun writing this article.
Bi-metalism (without government fixed exchange rates)? – The Jury Is Out! While WGS devastates many of the sophistries proposed by “Silverites”, he is NOT THE MARKET. What would Mr. Market come up with if you got the stupid government out of the way? My guess is that Silver would be used as the unit of account and that Gold would be the major store of wealth. Let’s let Mr Market talk!
I preface my comment that I’m NOT in favor of fiat money. Now the gold or money only metrics, anyway, gold is not devalued, especially now that the U.S. economy, led to the dollar’s status, it also shaken more increased importance of gold.
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