Ep. 181 Could Gold Discoveries Cause the Austrian Boom-Bust Cycle?
In a 2019 article, Bob quoted Mises who believed that new gold discoveries, in principle, could cause a (small) boom-bust cycle if the gold hit the loan market before other sectors. Walter Block and Bill Barnett have responded in a new article, arguing that in a free market, new commodity money can’t cause such distortions.
Mentioned in the Episode and Other Links of Interest:
- The YouTube version of this interview.
- Bob’s 2019 QJAE article, which Block & Barnett (2020) criticizes.
- Bob’s blog post explaining why Block & Barnett (2020) misunderstands his argument in his 2019 QJAE paper.
- Bob Murphy Show ep. 67, in which Block and Barnett explained their problems with the Hayekian triangle.
- Rothbard’s classic essays on utility & welfare economics and the legal treatment of air pollution.
- Block and Barnett’s paper on the optimal quantity of money.
- One entry in Block and Barnett’s debate over maturity mismatching; it contains references to the earlier volleys for the interested reader.
- Help support the Bob Murphy Show.
The audio production for this episode was provided by Podsworth Media.
About the author, Robert
Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.
Block + Barnett convinced me. Mises and Rothbard got this wrong. Money is a capital good and there can be no ex ante systemic misallocation of resources resulting from new gold discovery. Cantillon effects resulting from new gold is qualitatively different from Cantillon effects resulting from fiduciary media or fraud (but I repeat myself).
Great discussion. I wonder if gold acting as a commodity as well as a medium of exchange plays a role here. What I mean is, if someone finds a bunch of gold and injects it into the market, its market value falls and entrepreneurs who are engaged in using it for jewelry, electronics, etc. are able to capitalize on the price decrease. These entrepreneurs and their customers are better off with the greater supply of the commodity. Is it possible the ‘boom’ is not as ‘artificial’ given this increase in real productivity in these sectors? It also might be that the ratio of money-gold and commodity-gold changes as a result of this new injection? This factor might act as a buffer for the money-gold market making it less likely to drive interest rates down as far as it would have had there not been a commodity use. Forgive me if this is just gibberish, I just study economics in my free time.
Errr, what? Their argument doesn’t make sense to me at all.
Finding more gold makes us “richer,” even if said gold is not useful in industrial applications? How’s that different than printing money?
The only way in which more gold could make us richer in the sense of being able to build more stuff is the proportion in which it was useful in industrial application, so we could produce cheaper jewelry and McLaren F1 engine covers or whatever else gold is used for.
The reason why gold was historically used for money is its relative scarcity and ability to melt it down into small coins. Theoretically, we could create a money that doesn’t have a physical representation, but there is a limited quantity of it. Bitcoin is practically that with a few caveats. This would be as legit a “money” as gold could ever be.
If gold loses its scarcity (say through space mining), it would also lose its value as money, and we would switch to something with a more stable supply.
Does the supply have to be perfectly stable? No. Just like a super small amount of printed FED money probably wouldn’t make a huge difference. But 2% per year already makes a difference over time, so gold would have to be way more stable to be a preferable money.