Ah, Lincoln Center, NYC. When someone first mentioned _Atlas Shrugged_, an image of this statue came to mind.

My father worked there for many years, so I was familiar with it. The Prometheus statue and the ice rink may be prettier, but this one just screams art deco.

Wow! I got that wrong in spades! Of course that’s Rockefeller Center. Remarkable. I can only credit the lateness of the hour for having made such an errrror.

It’s not like “lincoln” center has a statue of Prometheus and an ice rink, ne? So I got the name wrong but I know the place.

You guys are mistaken about gold; in a free market, private banks would issue currency based on abstracts, not something absolute like gold, which is not sufficiently dynamic.

Gold is useful as a means of suppressing government’s abuse of money supply, not for private currency. Given control over money, a government will tend to inflate money supply. Any objective standard, like gold, can prevent that.

Private, competing banks, on the other hand, have each other to keep them in line. If they fix their privately issued currency to gold, then they cannot adjust it in /good/ ways. Any bank doing so will find itself falling behind, as other banks work to honestly adjust their money to various economic factors, and as gold can actually fluctuate in value because of changing supply and demand. Someone finds a new source of gold, or a new technology becomes rampant which requires gold, and suddenly the value of money is fluctuating in an arbitrary way.

What’s more, even with governments the gold standard’s very stability becomes a problem, because then government irresponsibility is, indeed, reined in by the gold, but in the form of economic depressions. This is one of the key differences between the regular depressions of the US economy up to the forties, and the recessions — which are not quite as bad — which came after.

To those who don’t think Atlas is the best symbol of capitalism:

I just picked the first image in my photo collection that came to mind. What would you suggest?

Actually, the regression theorem explains why gold can be a commodity used for money, it in no way proves that gold is a superior basis for currency…because it’s not.

Indeed, the irony of otherwise free-market advocates believing in gold as the best basis for money is that they base this on gold being, essentially, a sort of substitute for authoritarian central planning.

They believe that the gold can force everyone to keep money at a specific value and supply, because the money itself is a resource whose availability is more or less beyond anyone’s power to easily manipulate.

But, of course, this harkens back to one of the reasons that central planning doesn’t work; because it isn’t dynamic, and puts all eggs into one basket.

In a free market, with banks competing for attention with their own currencies, some dynamic currencies (those not based on something whose value is relatively stagnant, or at best uncontrollable, like gold) will be based on methods which turn out inferior to gold.

Others, though, will be managed /better/ than gold, because whatever system they use happens to be well-adapted to the changing needs of the economy, while gold-standard money is helpless to adapt to such needs.

The best way you could apply commodity-based currency regression theorem to this argument is to claim that, because gold’s value is essentially stagnant, people prefer it for its reliability.

This is only true if we assume that all dynamic alternatives must be more unreliable than they are beneficially adaptable. In a free market, of course, this would not possibly be the case. /Someone/, plural, will come up with systems which are more able to adjust to economic needs, versus gold, to a greater degree than they are less reliable.

Ironically, like Menger’s original premise for the establishment of gold as a monetary commodity, any such currency will then gradually establish a reputation for its value which will become a self-fulfilling prophecy. Gold doesn’t stand a chance, in such a system of free choice.

KAZ,

“Actually, the regression theorem explains why gold can be a commodity used for money, it in no way proves that gold is a superior basis for currency…because it’s not.”

Actually the regression theorem explains the nature of money, the purpose of money, how money arises, why it is first and foremost a commodity and what conditions are necessary for money to emerge at all, including the fact that it must emerge from a barter market, and cannot emerge by decree, government or otherwise.

“Indeed, the irony of otherwise free-market advocates believing in gold as the best basis for money is that they base this on gold being, essentially, a sort of substitute for authoritarian central planning.”

I think this assessment is bass ackwards. Free market advocates believe in gold as the best money because it has already passed the market test once the world over as the most preferable monetary commodity bar none. It has shown itself to be the market selected monetary commodity, period. Since the market has already spoken about gold there is no reason to suspect another commodity, had a free market in money prevailed, would ever have displaced it. Until the market is free again in money and dictates otherwise, it is reasonable to presume that gold remains the natural monetary commodity.

“They believe that the gold can force everyone to keep money at a specific value and supply, because the money itself is a resource whose availability is more or less beyond anyone’s power to easily manipulate.”

This is a strange way to formulate the view that free market advocates have of gold. There is no “force” necessary where the free market chooses its monetary commodity. It is as natural as the need for money for indirect exchange is natural for advancement of a more productive economy and a more civilized society in the first place. What a gold coin standard in a free market prevents is massive fraudulent and inflationary counterfeiting of claims to money by the banking industry which causes great harm to the majority of participants in any economy affected by these crimes.

“But, of course, this harkens back to one of the reasons that central planning doesn’t work; because it isn’t dynamic, and puts all eggs into one basket.”

A gold coin standard works just fine. It is the tinkering with it via the banks and especially central banks that make it appear unstable, when in fact it is the fraud involved in creating counterfeit duplicate claims to gold coins that is the destabilizing influence on the economy. To think there is some lacking in “dynamics” in a gold coin standard is to reflect an abysmal lack of understanding of the nature of money.

“In a free market, with banks competing for attention with their own currencies, some dynamic currencies (those not based on something whose value is relatively stagnant, or at best uncontrollable, like gold) will be based on methods which turn out inferior to gold.”

Huh?

“Others, though, will be managed /better/ than gold, because whatever system they use happens to be well-adapted to the changing needs of the economy, while gold-standard money is helpless to adapt to such needs.”

The gold coin standard is as close to perfect as you’re going to get, until the free market identifies something better. As the productivity of the economy increases, thereby increasing the purchasing power of the gold coin, people’s living standards and wealth overall, increases. If the purchasing power of gold becomes “too” high, the market will adapt by demanding more gold production be applied to the production of gold coins. The free market in money is quite adequate to deal with the changing needs of the economy. There is no need to imagine there will be such a thing as a currency that could be managed better than the free market “manages” gold coins.

“The best way you could apply commodity-based currency regression theorem to this argument is to claim that, because gold’s value is essentially stagnant, people prefer it for its reliability.”

I think you need to study the regression theorem again, and also take a look at Mises’s “The Theory of Money and Credit”.

“This is only true if we assume that all dynamic alternatives must be more unreliable than they are beneficially adaptable. In a free market, of course, this would not possibly be the case. /Someone/, plural, will come up with systems which are more able to adjust to economic needs, versus gold, to a greater degree than they are less reliable.”

Go back and study Mises.

“Ironically, like Menger’s original premise for the establishment of gold as a monetary commodity, any such currency will then gradually establish a reputation for its value which will become a self-fulfilling prophecy. Gold doesn’t stand a chance, in such a system of free choice.”

The only environment under which gold doesn’t stand a chance is under the fraudulent and criminal state which conspires with the greedy and corrupt banking institutions which are willing and able to also enlist the influence of the intellectuals and media and opinion makers to con the credulous public into believing that issuing duplicate claims to the same pieces of gold coin is an honest and valuable thing to do (banking service). Outside of that environment, gold has already proven itself to be the unquestioned market’s choice.

Kaz wrote: “The best way you could apply commodity-based currency regression theorem to this argument is to claim that, because gold’s value is essentially stagnant, people prefer it for its reliability.”

Well, ummm, no. Gold’s “value” is not essentially stagnant. Its value, like that of any other commodity, is assessed and reassessed hour-by-hour on the market.

The truth, that Gold is essentially not manageable, ensures we don’t run into problems like his theoretical problems: “Someone finds a new source of gold, or a new technology becomes rampant which requires gold, and suddenly the value of money is fluctuating in an arbitrary way”

In the history of the world, there has only been one gold inflation (of which I’m aware), which occured after the Spanish found the mines in the New World. Such an event is unlikely today, and I would like to wholly discount this idea, that of finding a new source of gold – but I’ll adress it in a rudimentary manner, I’m not a geologist, and can’t claim to be an expert on the matter. Notwithstanding my intellectual shortcomings, it seems that there is sufficiently great knowledge of the earth, its mineral stores, and their approximate distributions, at least to some extent. Having said this much, I think it’s important to note that any new discovery of gold will likely only occur after tremendous speculative investments. It is terribly unlikely that anyone, anywhere, will simply happen by chance upon a quantity of gold large enough to affect the world economy in any noticeable way.

A similar reasoning applies to his second position, that a new technology (dependent on gold) will cause some wild fluctuation in its value. But notice that this argument denies Menger’s theory of imputed value – Gold will not be put towards new industrial uses until and unless the end consumers making their subjective valuations decide that it is appropriate to do so. We could use titanium to make flatware. But we don’t. Why not? Well, simply because people don’t place that high a value on flatware. The cost of the factors of production does not determine the market price of the good or service being produced.Because gold is valued simultaneously and subjectively by people the world over, and is immune to political machinations, it is important to understand that this new technology will not be realized until the value of its production exceeds the factor costs.

Guys, I’m willing to give KAZ the benefit of the doubt – maybe under a market monetary system gold would emerge as money, but maybe something else would instead – silver, computers, property receipts, backrubs, etc. True, the market chose gold before, many times over mullenia, but so what – under a market system people could trade in anything. KAZ’s error is that he mistakes free-market money for a government “gold standard” – a fundamental error.

However, even if gold did become the de facto standard, large dumps of gold would be much less likely now than in the past because gold mines are not only distributed in space but also in economics.

Much of the reason a given deposit is exploited or not is the economy of the particular deposit, or the spread of cost to price. I have heard from more than one source that much gold production capacity sits idle during low gold price periods and is only put into use when the price surpasses an economic (profitable)level.

And don’t forget that even the slob on the street these days has access to good intelligence on gold production – much different than when Roosevelt dismantled the gold standard.

> Anyways. If KAZ’s point is that gold is not the a priori monetary commodity, I’ll concede that. I
> don’t think that is his point. There are two aspects to the question of gold as money. The first is
> the a priori of money and its nature, and the second is what are the empirical facts of the various
> commodities that could be potentially chosen as money and which one is best suited for the
> purpose and hence will most likely be the one chosen by the market. The free market will and
> must choose the commodity that is most marketable as its money. It happens that gold suited
> the purpose best in the past. To my knowledge, nothing has changed about gold that would
> make it less optimal today. Even if it isn’t optimal anymore, it would still be better than the fiat
> are currently stuck with.

How are you going to have this sticking occur? Should the Federal government declare that the dollar is officially linked to a certain amount of gold?

This socialist winner-picking would be even more harmful now than it was from 1873-1933, when it produced a period of depressions and panics:

http://butnowyouknow.wordpress.com/those-who-fail-to-learn-from-history/history-of-economic-downturns-in-the-us/

These depressions were longer, and worse, than the recessions of the inflationary period from 1946-2004, and this is no surprise, considering that the malinvestment caused by deflation is a direct assault on capitalism, deterring investment (ergo wealth creation) itself, rather than causing overly enthusiastic investment as inflation does.

Mises refers several times in Human Action to the utility value of money as a tool for trade, as the source of its higher value. He presents a thought experiment that incidentally includes money having no secondary source of value or demand (unlike gold in the real world), to remove that complicating factor from the equation.

In this, he hits upon the real solution to the question of the regression aspect of money’s origin:

Money is, itself, an accounting tool. It has an inherent value as that tool, needing no OTHER source of value to be useful. If you buy Quicken, or Great Plains, both accounting software packages, you value them for their own usefulness in accounting/trade…you don’t expect to find that the CD has gold plating you could melt down and trade, later.

The same is true of money. It has an inherent value, because it’s infinitely more useful for trade and accounting than barter.

The down-side of gold is that it has the complicating factor Mises avoided in his example…it has a completely unrelated source of value. When you use gold for trade, you have to worry about the influence of that value upon your money. Did the price of gold shoot up since you last checked? You may be overpaying. Did it suddenly fall? You may not be charging enough.

Even fiat paper dollars, inherently harmful because of they are a government-imposed monopoly, are far more stable in price/value than gold. The domestic purchasing power of the dollar has only changed by a few percentage points in the past decade, while the purchasing power of gold has vacillated up to 700%. Gold sometimes changes in buying power more in a single day than the dollar did in an entire year.

And, in case anyone here doesn’t get this, the purchasing power of the dollar isn’t measured by speculative foreign exchange markets, but by how much it buys in the US. A rising foreign exchange dollar only reflects its value in that gambling pool, PLUS in foreign economies, PLUS some minor influence by domestic US buying power.

In fact, foreign exchange price can be an inverse reflection of the dollar’s domestic value. You can see this in the past decade-plus of history of the dollar, where when M1 was growing faster, anathema to a Rothbardian, the foreign exchange value of the dollar was also climbing…and when the growth of domestic money supply was at a fifty year low, as from 2004-2008, the foreign exchange rate of the dollar also fell.

This is because, during that latter period, money was fleeing the US, primarily as a result of Bush’s insane foreign policy…war spending, foreign “aid”, inflated oil prices as a result of needless belligerence against oil-producing companies frightening speculators, et cetera.

That money flooded the exchange market, increasing supply more than demand. But in the US, it meant a relative money shortage, producing a lower money/demand ratio even when the Fed was still lending out imaginary new money at what seemed like an unhealthy rate.

I shudder to think of how crippled our economy would be right now, if we were using gold as a currency for the past decade. The price of gold has risen up to 700%. You can’t blame the dollar for this, because even on the foreign exchange markets the dollar’s price is only halved, at worst. That would mean gold should have risen 200%. In the US, of course, the dollar’s buying power has fallen far less than that, in the same decade.

As much damage as the Bush socialism of the past decade has done (Obama has governed as Bush III, only building on Bush’s precedents, so it’s still Bush socialism), it doesn’t begin to compare to the sheer death of capitalism 70% annual deflation (to oversimplify) would produce.