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Thursday, January 6, 2011

Again, why does gold differ from other resources?

I still don't understand the Misesians' "fixed quantity" reasoning about gold. The Mises website has a number of approving references to the writings of the late economist Julian L. Simon, for example. So consider what Simon writes about resources and the services they supply:

As economists or as consumers we are interested, not in the resources themselves, but in the particular services that resources yield. Examples of such services are a capacity to conduct electricity, an ability to support weight, energy to fuel autos or electrical generators, and food calories.

The supply of a service will depend upon (a) which raw materials can supply that service with the existing technology, (b) the availabilities of these materials at various qualities, (c) the costs of extracting and processing them, (d) the amounts needed at the present level of technology to supply the services that we want, (e) the extent to which the previously extracted materials can be recycled, (f) the cost of recycling, (g) the cost of transporting the raw materials and services, and (h) the social and institutional arrangements in force. What is relevant to us is not whether we can find any lead in existing lead mines but whether we can have the services of lead batteries at a reasonable price; it does not matter to us whether this is accomplished by recycling lead, by making batteries last forever, or by replacing lead batteries with another contraption. Similarly, we want intercontinental telephone and television communication, and, as long as we get it, we do not care whether this requires 100,000 tons of copper for cables, or a pile of sand for optical fibers, or just a single quarter-ton communications satellite in space that uses almost no material at all. And we want the plumbing in our homes to carry water; if PVC plastic has replaced the copper that formerly was used to do the job - well, that's just fine.


So, for example, we've removed a tremendous amount of copper from the business of making telephone calls. But nobody I know of refers to landline phones "real phones," and cell phones "fiat phones," because the latter bypass the constraint imposed by the supply of a certain element mined from our planet, and do so apparently at an increasingly cheap real cost. If we used cell phone minutes as currency, for example, would we complain about "inflation" because it takes more cell phone minutes to buy a fast food meal now than it did a year ago? Do the wireless services companies in effect impose a "hidden tax" on us by increasing the supply of cell phone minutes?

In other words, because gold faces the same economic forces as any other resource on our planet, the market will provide incentives to find cheaper substitutes for the services gold has traditionally supplied, whether the Misesians like it or not.

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