[maester_miller]

I’ve been reading Human Action for the first time, and although it’s tough going, I haven’t found anything that completely confused me or didn’t add up until now, on Page 472.

“No government is, however, powerful enough to abolish the gold standard. Gold is the money of international trade and of the supernational economic community of mankind. It cannot be affected by measures of governments whose sovereignty is limited to definite countries.”

Has history proven Mises wrong on this one? Did he simply fail to forsee virtually every nation agreeing to abandon the gold standard in lieu of fiat money? Is there a reasonable explanation for this?

[jmherbener]

Mises’s view is that if gold is actually money in the world economy, then nothing a government, or governments in concert, of some segment of the world economy can do will eliminate the role of gold in the world’s monetary system. Even if they establish fiat money regimes in their own territory, they must use gold in inter-country exchange with counties still using gold as money. This was the situation of the world, under Bretton-Woods, at the time Mises wrote Human Action in 1949 and revised it for the last time in 1963.

And even today with no country using gold officially as money, gold is still used in inter-country exchange and thereby, retains a monetary role. Mises goes on to write (p. 473) that in the future if technological advance makes gold less suitable as a medium of exchange, then people will adopt something else. Clearly, he didn’t have a gold fetish, but was arguing a general point, that governments cannot eliminate by force people making concerted efforts to have their preferences satisfied, applied to the particular case of money.

[maester_miller]

Thanks for the quick response, but I’m still a little confused. When you say that even today gold is used in inter-country exchange, how exactly do you mean? Is China buying our debt with gold? Is the German government buying natural gas from Russia in gold? I thought that the US dollar being the official reserve currency meant that everything was traded in dollars or local currencies.

As far as the point that government cannot eliminate by force people getting their preferences satisfied, does he mean this to apply to gold/money specifically, or is it more of the general argument that is used in the sense of “government can’t really ban religion because even if they do people will still worship in secret?” That type of “government cannot effectively ban something because people will resist and find ways around it” argument applies to practically everything, not just money, right?

[cdolson]

A few recent examples:

http://rt.com/news/iran-india-gold-oil-543/

http://oilprice.com/Latest-Energy-News/World-News/Loophole-in-US-Sanctions-Allows-China-to-Trade-Gold-for-Iranian-Oil.html

A humorous thing about the second article is that the author calls trading gold for oil “Barter”.

[jmherbener]

Yes, Mises is applying an argument that is true in general to the case of money. People will evade and defy government decrees to engage in normal concerted efforts to have their preferences satisfied.

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