Could an Increase in the Supply of Gold Cause a Boom-Bust Cycle? \ stacker news ~econ

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Could an Increase in the Supply of Gold Cause a Boom-Bust Cycle?mises.org/mises-wire/could-increase-supply-gold-cause-boom-bust-cycle

298 sats \ 35 comments \ @Undisciplined 14h econ

By Frank Shostak

Can an increase in the supply of gold cause a boom-bust cycle? Mises believed it was theoretically possible but highly unlikely. Rothbard, on the other hand, said as long as gold is money and there is no fiduciary media, such a scenario was not possible.

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52 sats \ 1 reply \ @Arceris 7h

I believe it would, yes, and we’ve seen it happen. I forget the book (probably Broken Money by Lyn Alden), but I recall reading about the economic disruption caused by the Spanish bringing all the gold back from the Americas.

10 sats \ 0 replies \ @Undisciplined OP 7h

We were talking about that a bit in the comments: #782998.

49 sats \ 22 replies \ @grayruby 14h

Is the gold supply even relevant anymore? The paper gold market is so massive compared to the physical market that I don't even know if supply is relevant anymore. Definitely not in the short term.

63 sats \ 20 replies \ @Undisciplined OP 14h

No, this is more of an academic question.

Basically, "Do natural increases in money supply create business cycles in the same way as artificial increases in money supply?"

25 sats \ 4 replies \ @Rothbardian_fanatic 10h

It is the act of fraud which sets the boom-bust cycle into motion via inflationary additions to the money supply. This artificial expansion of money and credit is also responsible for price inflation.

The fraud here is exchanging nothing (fiat) for something (gold). The gold miner is just changing one commodity for another, which is barter of goods and not fraud.

30 sats \ 3 replies \ @Undisciplined OP 9h

Yeah, I just don't think Rothbard is right about this. The issue, as Mises describes it, is that the quantity of scarce resources are not properly accounted for by current prices.

That leads entrepreneurs to systematically take on projects that there aren't sufficient resources for. Or, they over-save, as though there were fewer resources than there actually are.

49 sats \ 2 replies \ @Rothbardian_fanatic 9h

Yes, those quantities are not accounted for because they are unknown. Like the asteroid of rare metals just waiting to be mined cannot be accounted for until it is found and mined. Hmmm….. I don’t think there is ever a problem of oversaving because saving = investments in Austrian theory. You can only have investments from savings. If you take them from loan money created by fractional reserve you are misallocating resources with fraudulent money.

30 sats \ 1 reply \ @Undisciplined OP 9h

The idea would be that people are saving as though their future money will be worth more than it's going to be: i.e. inflation is discoordinating savings and interest rates.

They will then be acting in the present as though they're going to have more purchasing power in the future.

29 sats \ 0 replies \ @Rothbardian_fanatic 9h

I agree with that assessment because you can see it all around you, day-in and day-out. People, when they save (which isn’t much, now) expect to get the time-value of their money back in the future or principle plus interest (the time preference value of money). This brings to mind something I will never forget — the differences between saving, investing, speculating and gambling, which are all on as spectrum of the same kind of behavior, vis-a-vis expected returns.

42 sats \ 14 replies \ @grayruby 14h

I think it is less likely but it is feasible especially if it was a large increase in supply in a short period of time.

31 sats \ 2 replies \ @Rothbardian_fanatic 10h

Yes, this sort of inflation occurred to the Spanish Empire, when they brought back the American gold from their Conquest. It was not something that was slowly mined, but stolen all at once from the original owners.

20 sats \ 1 reply \ @Undisciplined OP 9h

They also had an issue of widespread price controls (just prices) that made economic adjustments almost impossible.

26 sats \ 0 replies \ @Rothbardian_fanatic 9h

Price controls? Where did I just hear about those? <sarcasm>Oooohhhhhh ….. wasn’t that what Harris was suggesting for housing rents? They must have found some loop hole in economic law to get around all the problems involved. </sarcasm>

50 sats \ 10 replies \ @Undisciplined OP 14h

The most important element, I think, is that it be an unanticipated increase. There are some huge known gold deposits that are not yet being developed, but the market follows them and people are aware of how likely production is.

However, something like a solid gold asteroid crashing to Earth would discoordinate a gold standard economy.

60 sats \ 4 replies \ @Rothbardian_fanatic 9h

As long as people had to work to extract the gold, I don’t think there is a problem. The miners, again, are exchanging something for something. The asteroid scenario, if the gold was really easily obtained may cause inflation, but not the same as stealing it by force (Conquest).

60 sats \ 3 replies \ @Undisciplined OP 9h

I agree that it's ethically different. There's nothing unjust about this kind of inflation, but it will disrupt savings/investment in a systematic way, which is what causes business cycles.

44 sats \ 2 replies \ @Rothbardian_fanatic 9h

Is the quantity of new-found gold large enough to drastically increase the supply of gold? Perhaps, the amount of gold to be mined at any one time is not marginally great enough to cause huge percentage swings in the price of money (interest and such).

20 sats \ 1 reply \ @Undisciplined OP 9h

It certainly could be. There isn't all that much mined gold on Earth and many asteroids have been found with orders of magnitude more.

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29 sats \ 4 replies \ @grayruby 14h

Speaking of supply. You are just going to give me 49ers super bowl shares for free? I was going to try to sell a few of my shares but if you are giving me a virtually free call option on the Niners sneaking into the playoffs via a terrible NFC West or the Commanders collapsing and then the Niners going on a run against a bunch of frauds like the Eagles, Vikings and Lions, I am going to take it.

You bid them down to 1% and they are 1 game out in a garbage division. I do think the season is over but 1% is crazy.

40 sats \ 3 replies \ @Undisciplined OP 14h

I might have overreacted to their loss, but I'm not too worried about it.

34 sats \ 2 replies \ @grayruby 14h

A surprise win against Buffalo Sunday and you will be reeling. I might push the price up a bit and put you on more of a tilt.

40 sats \ 1 reply \ @Undisciplined OP 14h

Especially if Seattle and Arizona lose.

That should just give me better prices on Buffalo and Allen, though.

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52 sats \ 0 replies \ @Rothbardian_fanatic 10h

I think we are going to find out shortly where gold is relevant or not. BRICS look like they are going to use gold and other commodities in a basket to support their currency. It looks like they are trying to collapse the paper markets at COMEX and LBMA. This looks to be a medium term (6 mo to a year) sort of thing.

35 sats \ 9 replies \ @Satosora 14h

Unless they can find a lot in one place that is easy to process and refine... I dont see it as likely. I have heard that the ocean holds a lot of treasure, especially gold.

39 sats \ 8 replies \ @Undisciplined OP 14h

It's extremely expensive to extract gold, and other minerals, from the ocean. However, this will become a larger source of minerals as desalination becomes a more common source of freshwater, because the leftover solids are full of valuable minerals.

21 sats \ 7 replies \ @Satosora 13h

Right, but I was thinking more about all the gold that sank with all the treasure ships. Its already refined and extracted, just waiting at the bottom of the ocean.

40 sats \ 6 replies \ @Undisciplined OP 13h

I recall hearing that there is a pretty enormous amount of sunken treasure. If someone secretly discovered a way to locate and recover a bunch of it, that could upset the gold markets.

The issue would be if it was known that a new approach was discovered for locating sunken vessels. Then, prices and interest rates would anticipate the likely increase in supply.

25 sats \ 4 replies \ @Rothbardian_fanatic 9h

Also, the labor involved leads to making it have value. I guess you could say the Cantillion Effect would still happen and the finders would get the most benefit from the new-found gold but later inflation sets in. I don’t think it would be as bad as the Spanish Conquest, though, due to being only a small fraction of the existing supply of gold and the high demand for it.

20 sats \ 3 replies \ @Undisciplined OP 9h

The magnitude of Spanish inflation was actually very low by modern standards, if I recall correctly. I think it was less than one percent a year.

24 sats \ 2 replies \ @Rothbardian_fanatic 9h

Yes, that may be true, but the stability supplied by gold and silver standards, imply that there was no inflation rather, deflation as the years went by. I think that there was the same sort of deflation in the US, even after the ‘49 gold rush.

20 sats \ 1 reply \ @Undisciplined OP 9h

Yes, prices were so stable that they were believed to be almost divinely set.

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29 sats \ 0 replies \ @Satosora 13h

They are using new tech to find sunken treasure. No need to blast the ocean floor with water.