Ludwig von Mises Institute


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Gold is a chemical element and precious metal used for coinage, jewelry, and other arts since the beginning of recorded history.

Gold as Money: FAQ[edit]

There simply is not enough gold for it to be used as money.[edit]

This is just like saying “we cannot possibly measure the size of microbes because inches are too large”. An excellent counterpoint to this line of thinking is to ask “what amount of gold will make it acceptable for use as money?”

Economist Hans-Hermann Hoppe writes:

Once a money is established, any stock of money becomes compatible with any amount of employment and real income. There is never any need for more money since any amount will perform the same maximum extent of needed money work: that is, to provide a general medium of exchange and a means of economic calculation by entrepreneurs.[1]

The total amount of gold that has ever been mined is 142,000 tonnes. If half of that gold disappeared, it would still be viable to use as money, and prices of goods would simply adjust downward to fit the quantity of money.

However, one could ask the question, "Could one ounce of gold serve as the monetary base?", or "If gold became as common as aluminum, would it still be useful as money?" Certainly the effort you'd have to put into buying a car (microscopes, nanotubes in the first case, perhaps a crane in the second) would change, and whatever means you are using to store your own money would have to adjust, but clearly, the answer is yes.

Similarly, if gold, which is a useful commodity is found to cure cancer, the non-monetary value of gold would cause a shift in the desirability to use it as currency... rather than a life saving cure.

A fundamental tenet to the Austrian analysis is an understanding of the origin of money. Gold became the most useful commodity to use as currency because of its particular characteristics. No one decided to use gold, it was just the best thing available at the time, and perhaps it still is.

The suitability of gold as a monetary base is the result of a number of different market factors. One of the factors is the value per weight. If it falls to that of aluminum or lead, then storage costs alone will undercut the usefulness of this element as currency. Silver may take its place. The fundamental truth, however, is that the commodity chosen by the market should be the one in use as currency.

The market seems to choose gold, and the shifts in its supply and value over the generations have not deterred them. One thing that people trust about gold is the relatively stable supply of it. It makes the value of gold somewhat predictable. A large shift SHOULD result in a market evaluation, but historically, these shifts have been fairly stable.

However, saying that "ANY" amount of gold will be enough to act as a medium of exchange misses the point. The market is fully capable of running on gold, but it wouldn't have evolved that way if gold did not have the characteristics that make it ideal for monetary exchange. If you posit a RADICAL change to those characteristics, such as supply, you will cause the market to re-evaluate its usefulness.

If India acquired ALL of the gold, that wouldn't mean we had no alternatives for a monetary base. All land and capital can serve as money, because money is just a type of capital. Indeed, land or commodity baskets may be preferred by the market outside an environment of market interference. Gold is a fantastic currency base, but it is far from the only one.

What if one country/corporation just controls all the gold?[edit]

Another form of this supposed objection is "XYZ country already owns X percent of the world's gold!" This is really a non-objection, as the same could be said about anything that is used as money. The logic seems to be that because the US government can print Federal Reserve Notes, we need not be concerned if any one entity starts collecting and hording dollars...because the Fed can always print more. But with something that cannot be printed or manufactured (like gold), if one entity controls it all, the world is at their mercy.

There are three problems with this logic: (a) Printing more dollars would not be a viable solution to a dollar-hoarder unless the hoarder plans to destroy their stockpile. (b) It's a logical and practical impossibility to own the world's supply of dollars or gold. (c) Even if the supply did completely disappear from the market, the market would simply use something else.

Further explanation:

  1. Printing more dollars (aka inflation) would simply dilute the value of all dollars in existence. So unless the dollar hoarder makes a gigantic bonfire out of his stash, eventually the money he collected would get spent back into the market, essentially making all the dollars essentially worthless.
  2. If any single entity is going to come to own one hundred percent of the world's Federal Reserve Notes (or gold), there are only two ways to come by it: buy it, or steal it. If the plan is to buy it, that would mean this company/country/individual would already have control of incredible wealth...more than the world has ever imagined. Why any entity that wealthy would care about — let alone go about exchanging it all for — all the world's gold (or dollars) is something that would need to be explained. If the plan is to steal it, there are even more logistical issues that arise, such as how exactly that kind of theft could take place, not to mention how it would be transported (gold is heavy), where the loot would be stored, et cetera. It would seem neither of these is a viable option.
  3. Supposing the hoarding was done over time, slowly acquiring and stockpiling...this would still be a very long and costly process, whether the gold or dollars were being stolen or legitimately purchased. And it is still not clear what the end game would even be to motivate such a venture. Unless there exists a real life Scrooge McDuck who just has a psychological need to swim in an ocean of gold coins, owning the world's supply of gold does not seem to offer much benefit in return for the resources spent acquiring it.
  4. Even if some entity did attempt such a venture, and begin to stockpile gold, as it became more and more scarce, the price would rise. This would result in (a) it becoming economical for mining companies to mine even deeper in the Earth and under the oceans in much more difficult places in search of more gold, and (b) it becoming that much more costly for the hoarder to continue to acquire more and grow his stockpile, thus making it even more impossible to achieve any substantial percentage of the world supply.
  5. Even if the hoarder was able to cast a magical spell, and teleport all the world's gold into a secret hollowed mountain vault...It's not as if people would just no longer understand the concept of a medium of exchange. A new money would arise as actors in the market would simply switch to an alternative. The most likely candidate would be silver. If the hoarder cast another magical spell and stole the world's silver, the market would still would continue, and a new money would arise.

The price of gold is way too low for it to be viable[edit]

i.e. At current market prices, all the mined gold on earth is worth $4.5 trillion. This is much less that all the currency that has been printed in the whole world!

The price of gold in terms of pieces of paper is irrelevant. After all, fiat currency notes can be printed with very little effort at all. As gold catches on as money again, its usefulness and therefore its value will rise. The 4.5 trillion number is now dated, and perhaps 9 trillion is more accurate, and this is because more and more people are realizing that gold makes a better currency than fiat currency.

What’s stopping you from using gold as money now?[edit]

Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in dollars or euros (e.g. if somebody defaults on a gold contract, compensation may be payable in central bank money)

Further, certain precedents have made trying to set up a standard kind of gold mint to be litigiously dangerous, the previous 1933 asset seizure of gold, more recent asset seizure of Liberty Dollar, or closure of various digital full reserve banks.

The money supply must grow at the same rate as the economy.[edit]

No it doesn’t. Prices are not independent of the money supply. The quantity of the money supply overall does not matter (See 1.). If the amount of goods and services increases, while the money supply stays fixed, prices of all goods and services will fall.

But deflation is bad, isn’t it?[edit]

i.e. If the purchasing power of money constantly rises, doesn’t that mean an end to investment? Entrepreneurs will surely prefer to safely hide their money under the matress instead of taking the risk of investing.

Falling prices are surely a good thing!

The answer to the second question is no. While it is certainly “risk-free” to keep your money under the bed, it comes with a very real opportunity cost. Investors have a peculiar trait: they prefer goods in the future to goods in the present.. In other words they forego consumption today and prefer a larger return later.

If in a deflationary economy, a nominal investment (i.e., $1) becomes $1.10, when it is repaid it compounds the real return (i.e., the purchasing power of $1.10 is now $1.21)

The desire for future goods will increase the desire for investment.

When did falling prices ever coincide with economic prosperity?[edit]

The period between 1873 and 1896 in Germany and the United States was a time of deflation. Prices for goods fell at an annualised rate of 1.6%. Gross Domestic Product grew at an annualised rate of 3.6%.

Innovations in manufacturing, chemistry and railroads made the 1880s the most productive decade in the history of the United States - and one of the most prosperous.

Falling prices have been also recorded in the computer industry and appliances, which have gone down in price dramatically over the years even as sales have risen higher and higher. The companies have gotten better and better at doing what they do, and have been able to make profits even in the face of continual price declines.

What is so special about gold?[edit]

Austrian economists do not support the gold standard because it has some mystical properties. As the economy moved from barter to exchange based on money, gold came to be widely accepted as the best medium of exchange.

In his book What Has Government Done to Our Money?, Murray Rothbard notes:

Historically, many different goods have been used as media (medium of exchange): tobacco in colonial Virginia, sugar in the West Indies, salt in Abyssinia, cattle in ancient Greece, nails in Scotland, copper in ancient Egypt, and grain, beads, tea, cowrie shells, and fishhooks. Through the centuries, two commodities, gold and silver, have emerged as money in the free competition of the market, and have displaced the other commodities.

It is not for any economist to decide what should be used as money. Our monetary history suggests that gold was established by the market as the best form of money. If something else becomes a better form of money, people should be free to use it.

See also[edit]


  • (charts and figures)


  1. Hoppe, Hans-Hermann (1992), The Misesian Case Against Keynes, Dissent on Keynes, A Critical Appraisal of Economics, Ludwig von Mises Institute, pp. 199-223, 


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