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Friday, July 18, 2008

Dumb Question on the Gold Standard

OK it's late, I finally got the toddler down (my wife is out of town so I'm on full-time Daddy Day Care mode), and I just cracked open a cool one. So maybe this is D-U-M dumb. But...

I think most Austro-libertarians believe that with a sound money, let's say 100% gold standard, prices should fall gently over time.

So does that mean gold gets more expensive year after year, compared to CPI basket? Doesn't that violate Julian Simon's general view of the world? What about industrial operations that require gold as an input? Would they do better under a silver standard?

I imagine I'm making some elementary mistake here; obviously Julian Simon wasn't saying that the relative prices of all goods goes down year after year, since that is impossible.

But on the other hand, something isn't quite clicking here.

2 comments:

  1. Anonymous2:29 AM

    I don't think this would violate Simon's view of the world because even if gold was getting progressively more expensive in terms of other goods, we could still be more amply supplied with it.

    "What about industrial operations that require gold as an input? Would they do better under a silver standard?"

    I think you are right that industrial operations that require gold would be better off under a silver standard, in the same way that you would be better off if nobody bid against you at an auction. I believe Adam Smith argued for a paper standard for the reason that it would free up resources for other uses.

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  2. Yeah I think you're right. The big thing would be the exchange rate between an hour of labor and other goods.

    So let's say the dollar is fixed to a weight of gold. Over time, the dollar prices of everything tend to fall, except the gold price stays fixed (by definition), and wage rates measured in dollars go up slightly.

    But I think many Austro-libertarians think it's possible that the dollar wage falls over time too, just not as quickly as the prices of other goods and services. In that case, an ounce of gold gets progressively harder to buy.

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