Comments (16)

• Curt Howland

  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.

  Published: August 25, 2006 10:13 PM

• Turner

  I don't think the "Lincoln" Center is the best choice for a symbol of capitalism. Forget Lincoln, but don't forget the fact that it was built by a Rockefeller.

  Published: August 25, 2006 11:27 PM

• Curt Howland

  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.

  Published: August 25, 2006 11:52 PM

• Turner

  The sculpture is of Atlas by Lee Lawrie (1937). But, the Rockefeller Center does have a statue of Prometheus as well. The Lincoln Center is also a creation of the Rockefeller's too.

  But, I still don't think a statue and building (RCA building) built by a Rockefeller is the greatest symbol of capitalism.

  Published: August 26, 2006 12:45 AM

• KAZ

  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.

  Published: August 26, 2006 10:15 AM

• Chris R.

  KAZ,

  Please familiarize yourself with Mises' "regression theorem."

  Just go to Mises.org and type "regression theorem" in the search box. Then read away...

  You should quickly discover the errors contained in your statements.

  Published: August 26, 2006 3:18 PM

• David

  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?

  Published: August 26, 2006 5:53 PM

• Chris R.

  I always loved the towering photo of "Human Action" from the Mises Store.

  It may intrigue some college kids...

  
  

  Published: August 26, 2006 11:47 PM

• 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.

  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.

  Published: August 27, 2006 5:22 PM

• averros

  KAZ - why do you think that "management" of money is in any way desireable? Any such "management" amounts to fraud.

  The gold became the standard money precisely because it was unmanageable *and* convenient.

  Published: August 27, 2006 11:36 PM

• Paul Edwards

  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.
  

  Published: August 28, 2006 3:31 AM

• Peter

  When people use words like "managed", "dynamic alternatives", "changing needs of the economy" and "adaptability" wrt money, the needle on my monetary crank detector hits the far stop. KAZ will be extolling the virtues of the RBD next, mark my words!

  Published: August 28, 2006 6:05 AM

• David Z

  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.

  Published: August 28, 2006 10:45 AM

• Bob C.

  I don't know the exact time or place, but there was another major gold inflation in the middle ages when a rich king's caravan dumped so much gold into a major trading center somewhere in Africa or the Middle East that it took a generation or more for prices to return to normal.

  As an added comment I'll point out that one of the things that makes gold so useful as a monetary tool is its rarity. Although scientists have recently determined that the Earth's core likely has quite a bit of gold in it, it is also very difficult to get to. We might find bits of gold in space, but since gold in the Earth's crust is thought to almost always be concentrated as a result of biological activity, we would expect that it would not be found in concentrated form and so gold should remain rare for a long, long time.

  Published: August 28, 2006 5:16 PM

• Vince Daliessio

  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.
  

  Published: August 28, 2006 10:40 PM

• Paul Edwards

  Vince,

  “backrubs�?

  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 we are currently stuck with.
  

  Published: August 29, 2006 12:09 PM